Market Watch

2013 Begins With Need For Patience As Market Develops
By J. Tyron Spearman
Contributing Editor
The U.S. peanut industry has been in an over-supply position before and worked out of it. Production of 3.2 million tons is more than anyone predicted, and with the struggling economies at home and abroad, it may take longer to solve this dilemma.

The good news is there are plenty of peanuts with outstanding quality stored and ready to be consumed. The bad news is that U.S. consumption is flat, buying is delayed by limited blanching capacity, overseas markets are plagued with struggling economies and a lack of available money to buy.

Forfeiture Losses May Hurt Program
The “fiscal cliff” in Washington D.C. has investors waiting for market signals and leadership. Add to that, the Farm Bill received Senate approval, but the House version never made it to the floor.

The more Congress delays, the more a one-year extension makes sense. However, that may not be good for peanuts if USDA loses lots of money in forfeitures of the 2012 crop.

One would think there is more bad news than good news. Thankfully, the U.S. peanut program has the Market Loan Assistance program. With the volume of crop produced and without the market loan protection for producers, many producers would have received nothing at harvest.

The Market Loan Assistance program also provides financing for shellers until the crop is needed by the trade. Then, peanuts are redeemed and moved from warehouses to shelling plants. Farmers are lucky that in most cases storage and handling is paid by the first buyer and, if forfeited, by the government.

About Half Contracted
Analysts estimate about 50 percent of the 2012 U.S. peanut crop was under contract. Some of the crop was contracted at $750 per ton, a few at $700 per ton, some tonnage at $650 per ton and even some at $600 per ton. Contracts were limited, leaving lots of peanuts un-contracted.

Many farmers did not contract any peanuts and now must settle for minimum loan of $355 per ton.

A ‘Wait And See’ Situation
On a normal crop, contracted peanuts may not exceed 35 to 40 percent. That usually results in shellers returning to farmers with contracts to get peanuts out of the Market Loan Assistance Program after the higher-priced contract peanuts are shelled and delivered.

Now, it is a cat and mouse game between the manufacturer and farmers with the shellers caught in the middle. Growers can sit in the Market Loan for nine months maximum. Many farmers have delayed placement in the loan so the nine-month period will end after the 2013 crop.

If the drought continues and peanut plantings are lowered, the 2012 peanut crop could become valuable again.

Everyone Needs To Make A Profit The key for the farmer is patience. Will farmers take the first offer above $355 per ton? Manufacturers will have to establish a price that shellers can offer farmers. Otherwise, the farmer who can afford to wait on the market will leave peanuts in the Market Loan.

Many farmers need money to finance next year and may accept a lower price. Buyers are watching the shelled prices slide downward as supplies mount and more inventory has to be moved.

Remember, manufacturers want farmers to make a profit, too, so farmers can continue to produce peanuts. They just don’t want the competing manufactures to secure raw peanuts at a lower price.

What Price Is Needed?
Is there a price level farmers must have to survive? According to the Cooperative Extension Service in Georgia, cost of production (on the average) is about $1,234 per acre. Divided by 2.1 tons, the farmer needs about $588 per ton to break even. Of course, each area is different and even each farm is different.

How Low Will USDA Go?
Another factor is the USDA peanut program. In 2006, the Market Loan was filled with an inventory that was destined to be forfeited to the government.

The government does not want peanuts, so USDA lowered the price below the minimum loan offering the peanuts on a bid basis for a minimum of $290 per ton, $65 per ton below loan. Shellers gobbled up the supplies taking advantage of the profiting opportunity, and USDA avoided the forfeit.

Could that happen again? USDA must accept forfeits and has authority to place the peanuts in the oil market, barter for peanut butter for schools or the needy, offer for bid or leave in inventory. USDA usually makes money for the program when the forfeited volume is low.


Leading Market Indicators (as of Oct. 5, 2012)
• 2012 Acreage (est.) – up 43%, 1,594,000 acres
• 2012 Production (est.) – up 63%, 2,959,750 tons
• 2012 Average Yield – 3,714 lb/A
• 2011 Crop In Loan – 58 tons
• 2011-12 Usage (12 mo.) – dn -0.9%
• 2011-12 Exports (12 mo.) – dn -37%
• National Posted Price (per ton):
• Runners $549.65, Spanish $533.91, Virginia/Valencia $553.17.

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