Hope for a more modest increase than USDA’s acreage estimate

J. Tyron Spearman Contributing Editor

J. Tyron Spearman
Contributing Editor

Uncertainty in the peanut market created by the Farm Bill and the lack of profitable alternatives has peanut farmers worried about the future and where the industry is headed.

USDA further doomed market potential by estimating that U.S. peanut acreage would rebound by 29 percent this year, up 309,000 acres, to nearly 1.4 million acres. Most states held acreage to a nominal increase, but Georgia showed a 53 percent increase. Most buying points reported that level was over-estimated.

Last year, U.S. peanut acreage fell by 37 percent, which led to a considerably smaller crop. One buying point manager said Georgia was just getting back to normal. Since then, a burdensome level of peanut stocks has been gradually reduced, and prices have stabilized.

Even USDA admitted that some of the rise in peanut acreage may also be attributed to recently enacted farm legislation, which revised risk management policies. Producers can now enroll in either the Price Loss Coverage (PLC) or the Agriculture Risk Coverage (ARC) programs.

The Cotton Changer
For cotton, the new law created a separate program and converted the base acres formerly credited to cotton into “generic base.” Producers may now plant these generic base acres to any covered commodity and receive PLC coverage for that commodity. Producers may also reallocate bases for covered commodities, such as peanuts, based on their 2008- 2012 planting histories to better align their crop bases with the actual planted acreage of recent years.

Formerly, landowners could receive direct payments on base acres without having to plant a crop. Under the new program, the generic base must be planted and for peanuts a payment would be made on 85 percent of the farm base figured as the difference between the reference price, which is $535 per ton, and the national average price received by farmers.

Officials are afraid that farmers heard the $535 per-ton number and plan to plant peanuts that average that amount; however, contracts were not close to that number and have dropped to about $400 per ton or are not available at all.

Secure Your Storage
If the threat to increase peanut acreage comes true, peanut farmers are advised to secure a promise of approved peanut storage before harvest. A farmer that cannot secure USDA-approved storage cannot secure a $355 per-ton Market Loan, and that would be disastrous for any farmer. Remember, farmers have 27 different handlers of peanuts available with more than 300 approved warehouses with a capacity of 3.348 million tons. But, that storage may not be available near your farm and a buying point could reject your peanuts.

Not A Good Peanut Start
Winter has been unmerciful down on the farm. Even into April, early planting time, frost has been reported. Winter rains have been good-to-excellent, but fields are too wet and soils are too cold to plant.

The failure to plant corn acreage is certain to weigh heavily on more peanut and cotton acreage in the Southeast. The Southwest continues in drought, and spring rains are needed to get a good start.

Extension specialists are even warning farmers not to plant too early and to wait for three consecutive days of 68 degrees Fahrenheit before planting. A poor stand means poor performance at harvest. There are reports of poor seed germination in cold temperatures.

Supply/Demand
Too many peanuts continue to depress market prices. USDA predicts peanut ending stocks about 1 million tons. Total demand is estimated at 2,568,000 tons and that includes about 500,000 tons of exports. If farmers plant 29 percent more in 2014 off 1,376,000 acres and average 4,000 pounds per acre, that’s a potential peanut production of 2,752,000 tons.

A big increase in acreage spells doom for next year’s market. A more modest 15 percent increase in acreage, or 1,225,000 acres, would yield about 2,450,000 tons…just about the total demand. Peanut prices would not continue to decline.

Domestic And Export Markets
Peanut Stocks and Processing reports peanut usage up 2.9 percent in the seventh month with peanut candy and peanut snacks up almost 10 percent and peanut butter down 1.8 percent. Inshells are about even with last year.

USDA’s most recent estimate is a 4.8 percent annual increase in food use of peanuts. The National Peanut Board’s new campaign plus major advertising campaigns are certain to increase that estimate. Export markets appear promising again with U.S. peanuts, mostly sold as export edible, the lowest price in the market at $1,250 per shelled metric ton meeting European Union specifications. India is priced lower, but mostly restricted for oil use. With big crops in India and China last season, U.S. sales may not develop. Estimates of near 500,000 tons in exports are certainly possible, and the U.S. industry has plentiful stocks.

Argentina’s crop is progressing after about 20 percent of the crop was under drought stress early in the season. Officials believe Argentina may have 10 percent more in production and will battle the U.S. for the European markets.

Peanut Program And The Future
Peanut farmers should not plan for a government payment 18 months from now. The Farm Bill was passed as a safety net, not a government handout, which no farmer wants. Until the final regulations are completed, it is speculation as to how to capitalize on peanut base. Farmers should get with a buyer and grow for the market in a consistent, quality product.

Next year, peanut farmers will have a new revenue-based insurance program to add to the mix. The market for peanuts will ultimately drive the industry as we individually learn how to make the many options work on each farm, buying point and shelling plant. It’s frustrating today not knowing all the rules of the peanut game, but stay involved. Together, I believe we can survive and prosper.