Keeping acreage the same would lead to more manageable supply

By J. Tyron Spearman
Contributing Editor

A pipeline of old and new crop peanuts and cheap prices from other commodities have dampened the hopes of a profitable 2014 for producers. The 2012 crop filled warehouses, and producers, knowing that production had to be reduced to allow supply and demand to keep prices high enough to make peanut growing profitable, reduced acreage by 36 percent.

In 2013, some farmers switched to corn as prices held strong. Cotton, too, reached 90 cents per pound, and farmers had $500 per ton on peanuts. Certain that the abundance of water had damaged the crop, new varieties showed some resilience and surprised everyone. If a farmer’s timing on contracting was right, a profit was likely.

Survivor Mode
However, unless things change, 2014 will drift back into a survival-type year. Major competitors for land in peanuts are corn and cotton. The 2012 corn crop was up 30 percent, setting a new 14- billion bushel record. Prices fell from near $7 per bushel last year to nearly $4 per bushel.

The cotton market, really controlled by China and India, has dropped from 90 cents per pound last year to near 70 cents per pound. Now one can understand why farmers are saying, “Let’s plant peanuts.”

With a 2.1 million ton crop from 2013 and over one million tons remaining in the pipeline from 2012, even after a good consumption year, ending stocks are predicted at 1.1 million tons. The pipeline needs about 400,000 tons, but the industry will need another good supply of top quality peanuts next year. Total demand of peanuts, domestic and export, is about 2,300,000 tons.

More Manageable Carry-Forward
A portion of the 2012 crop is likely to end up in oil markets or lower-priced bird feed, reducing the supply as manufacturers option for new crop.

If farmers planted the same amount of acreage as 2013 and averaged another 4,000 pounds per acre, it would yield 2,060,000 tons. Add this to the 1,100,000 tons of carry-forward, and you’ve got 3,160,000 tons with a demand of 2,300,000. Again we would have a carry-forward of 860,000 tons, which is twice what is needed to fill the pipeline. It’s still an oversupply, but more manageable.

For producers, it all depends on contract prices. The government sequestration reduction will apply to the Market Loan Assistance Program next year, reducing the $355 per ton loan by 7.2 percent to $327 per ton when peanuts are placed in the loan. That is certain to favor contracting up front since many loan officers will require a contract and the market loan is below the cost of production. What if no contracts are offered? Will farmers plant peanuts for $327 per ton? Not likely!

Farm Bill Fever
The old Farm Bill gave some help to peanut base holders with a $36 per ton direct payment. Congress is dodging that idea again, and although World Trade Organization approval is not influencing acreage, survival of the direct payment is not likely either with another extension of the old bill or a new five-year Farm Bill. That payment was also sequestered with a reduction of 4.2 percent.

The market loan program worked well again, and only a few peanuts were forfeited to the government. The Seam reports selling 13,745 tons in September for $460 per ton and 27,423 tons in November for only $290 per ton. For the 2013 crop, again the trade purchased as commercial about 20 percent of the crop and 80 percent was placed in the loan. One striking positive was the remarkable quality of the new varieties as most areas experienced good harvest weather with no tropical storms.

The peanut legislative teams, united on issues, have performed well in getting peanuts back into the Farm Bill and working to have a Farm Bill that is fair to all commodities. It is impossible to predict an outcome on the bill as compromise cannot be reached on the more complicated issues.

Domestic Market
The peanut market has experienced an upward trend in usage. For marketing year 2012-2013, peanut usage ended up 1.44 percent with peanut butter up 2.5 percent, snacks were up 2.7 percent and candy down 3.2 percent.

The first three months of domestic usage for 2013-14 are surprising with peanuts in candy up 11.8 percent, peanuts in snacks up 11.7 percent and peanut butter slipping down 3.6 percent, but October was positive at 7.8 percent. Grower promotions and a “Power of the Peanut” campaign by a major brand are certain to boost the peanut market this season.

Export Market
U.S. peanut exports are booming, up 41 percent from January through September, with 409,000 metric tons compared to 170,000 metric tons for the same nine-month period last year.

The big surprise is China’s entry into the market with almost 20 percent of the volume. China is now reporting a 16 million ton bumper crop and is not likely to return for U.S. peanuts.

The U.S. peanut price continues to be the most competitive in world markets. Argentina has planted a new crop under dry, windy conditions and is reporting seed germination problems. They are estimating a 20 percent reduction in planted hectares. Promotions, coordinated by the American Peanut Council, are underway in the favorite U.S. markets of Canada, Mexico, the Netherlands, Germany and Japan.

A Year Of Patience
Overly zealous producers could destroy this year’s market and next year’s as well by planting too many peanuts in 2014. Acreage should be about the same as last year. An increase in acreage is certain to lower prices for the 2015 season. That’s the only way to bring balance to supply and demand and keep prices profitable.

With pipelines full, don’t look for aggressive contracting except in areas where infrastructure needs peanuts or a certain variety shows a demand increase.

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