Market usage must increase at a faster rate to keep pace with supply

Decisions, decisions, decisions. A producer’s goals include protecting the land and crop potential production with recommended crop rotation, surviving the lowest commodity prices in recent memory while reducing the cost of production so a profit shows at harvest, and then growing quality peanuts for the market and not for the government.

J. Tyron Spearman Contributing Editor

J. Tyron Spearman
Contributing Editor

Those are great goals; however, each farmer is different and must evaluate the options and make decisions including all kinds of variables such as weather, cost of production, prices, financing, problems like labor or available equipment.
Evaluating all these options is mind boggling. Congress has recognized that the American food supply is a national security issue and tries to help farmers through times of low prices caused by crop surpluses or disasters. Current farm policy provides a safety net to assist producers when commodity prices are low, which will hopefully encourage them to stay on the farm and keep supplying the world with reliable nutritious food.

Farm Bill Support

The Farm Bill has three types of support for peanuts: 1) marketing assistance loans; 2) price loss coverage (PLC); and 3) agriculture risk coverage. For peanuts, 99.7 percent of the 6,500 farms selected PLC as farmers expected higher payments and greater risk protection. Farmers are reminded to visit their FSA office for program sign-up again, otherwise they will not receive a payment if one is made.

PLC payments are triggered when the annual farm price is below the statutory PLC reference price of $535 per ton. Payments for PLC are made on 85 percent of the base acres and not current plantings, which help it comply with the World Trade Organization’s rules on market distortion. The 2014 average price of peanuts was $440 per ton, or 22 cents per pound, and resulted in a $95 per-ton payment with a 6.8 percent budget reconciliation reduction for a total of $88.54 per base ton.

What will the 2015 base payment be in October 2016? A recent Congressional Research Report stated that the current outlook for peanut farm prices is $360 per ton, or 18 cents per pound, and that would incur a PLC payment of $175 per ton. Payments only apply to 85 percent of peanut base acres. So look at budget adjustments for a potential $150 per-ton payment as part of the decision equation.
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Is The Program Too Costly?

Then again, after a 22 percent increase in acreage last year and a good growing season, the peanut industry has an abundance of cheap peanuts with a carry-forward of more than 1,429,000 tons going into 2016. Producers forfeited over 172,000 tons of 2014 peanuts to the government last year, which forces the Commodity Credit Corporation to sell into an already flooded market, and about 20,000 tons of 2014 peanuts remain in inventory today.

Government costs continue to rise, some charging that the reference price is set too high, while others believe the switch in the cotton program to generic base, which became mostly peanut base and that must be planted, is increasing program costs. The Congressional Research Report estimated a cost of $446 million for 2015 PLC or about $68,000 per farm, not counting additional costs associated with marketing loan sales, including storage and handling costs.

Domestic Markets

Raw-shelled peanuts in products has increased only one percent the first four months, but November was a positive month up 4.2 percent. The big surprise is snack peanuts, up 21.8 percent for the year with a 32.2 percent increase in November. The in-shell market (any repackaged, roasted in shell, salted in shell and raw in shell) showed a 25 percent increase in November, posting 1.6 percent increase for the year.

Peanut butter, the primary industry product, was positive in November, up 4.2 percent, but down for the four-month period at 5.2 percent. If farmers continue to increase production, the market must increase at a faster rate or government surpluses will continue to grow, increasing the cost of the program.

Government purchases, up 74 percent over last year, is proof that the government is doing its share in reducing any surpluses. USDA buys certain beans and walnuts for surplus removal, but for peanuts, they predict a food usage increase of only 2.3 percent for the year.

Export Markets

The National Peanut Board is targeting promotion campaigns to 80 million millennials while continuing to focus on peanut allergy education, outreach and research, hoping to increase consumer confidence in and preference for peanuts. The American Peanut Council sent trade teams to China and Japan and strongly supports the Trans Pacific Partnership, the approval of which would phase out, or even eliminate immediately, a tariff on U.S. peanuts to Japan and other Asian countries. USDA predicts exports to increase 3.1 percent.

Contracts

Early contracts for runner-type peanuts are only $375 per ton. No mention about Virginias or Spanish types. Farmers have been told that agreements with buying points/shellers must include USDA-approved storage to receive a $355 per-ton marketing loan. Some producers are asking how to avoid market gains if USDA lowers the repayment rate to move peanuts out of surplus. Other producers are asking about commodity certificates and how they will be handled by USDA. This will be another interesting year for the peanut market, count on it.

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