Fallout from cost cutting will change the industry landscape

Unless the Southeast region of the peanut belt experiences a weather disaster, such as a drought or a major flood, peanut prices will likely stay flat during the 2016 growing season and beyond. Shellers are using every way possible to discourage wall-to-wall peanut acreage because they know that another bumper crop is likely to keep shelled peanut prices too low to survive.

J. Tyron Spearman Contributing Editor

J. Tyron Spearman
Contributing Editor

The tactics stunned the peanut industry as shellers have dropped peanut buying points. The downsizing was a cost savings and significant; but the farmers and that local buying point were left with nowhere to go. Buying points begged other shellers to add their tonnage, but many were rejected. The shake-down in shellers and buying points is not over.

Industry leaders have warned farmers to not plant peanuts unless you are connected to a buying point or sheller that has available approved peanut storage. The $355 per-ton loan cannot be obtained without federally approved warehouse space, either by the buying point, sheller or on the farm.

Peanut Contracts

Farmers were encouraged to sign a contract with a buying point/sheller essentially guaranteeing peanut storage space, a market loan and less worry.
Contracts were being offered in the Southeast for 2015 uncontracted loan peanuts for $375 per farmer-stock ton. Tonnage was limited. Shellers must redeem peanuts from the loan before shelling; however, some farmers have not signed for shellers to secure the peanuts.

New 2016 runner-type contracts were $375 per ton on 50 percent of the farmer’s production, some even at 45 percent. Premiums of $25 per ton are being added for production of peanut seed or high-oleic production, if seed is available. Tonnage is limited at each buying point.

LeadingMarket4-16Virginia-type contracts were being offered for $430 per ton on 80 percent of last year’s farm production. The remaining 20 percent would enter into a sheller pool.

High-oleic Virginia type were $400 per farmer-stock ton with 70 percent of production at $400 per ton and remaining 30 percent is shifted to a sheller pool. Runner-type contracts are $375 per ton, same as the Southeast. Seed cost on Virginia type is 78 cents per pound cash and 81 cents per pound if the payment is made in the fall at harvest. Runner-type peanut seed were mostly 76 cents per pound with an added 3 cents for fall payment.

Peanut Base And Payments

Some leaders strongly state that if cotton was 85 cents per pound, the peanut safety net payment would not be an issue. In 2014, the Price Loss Coverage (PLC) payment was $95 per base ton.
For the 2015 peanut crop, USDA has estimated that the national seasonal average price for peanuts of $366 per ton translates into a projected PLC rate of $169 per base ton. The current national seasonal average price for the Aug. 1, 2015 to Feb. 6, 2016 time period is $383 per ton, which translates into a projected PLC rate of $152 per base ton. These two projected PLC rates provide a farmer with a realistic estimate of their projected 2015 safety net payments. The payment is based on the PLC rate 85 percent of the base acres and payment yield. Because of sequestration, USDA will reduce the 2015 and 2016 payments by 6.8 percent as was done for the 2014 payments.

Some farmers have decided to rest their land this year and receive the PLC payment on the peanut base. Farmers with generic cotton base will have to plant the peanuts to collect payment.
Farmers had another problem solved since last season. Producers who have crops pledged as collateral for a marketing assistance loan can now purchase a commodity certificate that may be exchanged for the outstanding loan collateral essentially avoiding the $125,000 limit for each entity.

Peanut Acreage

The first acreage estimate will be issued by USDA on March 31. Specialists estimate 1,600,000 acres, up slightly from last year. Unfortunately, estimates as high as 1,700,000 are floating around. For base owners, a PLC payment of $150 per ton on 85 percent of the base is encouragement to plant if seed is available. Seed is about 76 cents per pound, up from 67 cents per pound last year and more for fall payment.

A two-ton average yield on 1.6 million acres would be a 3.2 million-ton crop, another 4 million tons carry-forward with demand at 2.75 million tons. Shellers will buy from the loan for peanuts needed by manufacturers, and the government will force forfeitures into a flooded market.

Supply/Demand

StorageFacLoansThe U.S. peanut crop for 2015/16 is estimated at 3,107,000 tons and ending stocks or carry-forward is estimated at 1,443,000,000 tons. Domestic food use for peanuts is predicted to increase 2.3 percent, presently up 3 percent. Exports are predicted to increase 3.1 percent with present levels up 2.6 percent.

Peanut Revolution

The industry will adjust to a new way of doing business, including cost cutting to survive. The new reality will test management. Stay informed.

Storage Facility Loans

The Farm Storage Facility Loan Program provides low-interest financing for producers to build or upgrade permanent facilities to store commodities. Since its inception in May 2000, more than 33,000 loans have been issued for on-farm storage, increasing storage capacity by 900 million bushels.

A series of improvements have been developed to better tailor Farm Storage Facility Loans to finance on-farm storage and handling for small and mid-sized farms. The changes also allow for the first time to cover the structure and equipment required to get fruits and vegetables washed, treated and packed along with the cold storage that had been previously covered exclusively.

Eligible commodities include peanuts, grains, oilseeds, pulse crops, hay, honey, renewable biomass commodities, fruits and vegetables. Eligible facility types include grain bins, hay barns and facilities for cold storage.

Other new changes to FSFL will allow Farm Service Agency state committees to subordinate Commodity Credit Corporation’s lien position, and producers may use an irrevocable letter of credit and the storage structure to secure the FSFL.

FSFL security requirements have been eased for all types of loans between $50,000 and $100,000. Now FSFL loans up to $100,000 can be secured by a promissory note only.  For information, contact your local FSA Office.