Demand For U.S. Peanuts Remains Strong At Home And Abroad
[dropcap]T[/dropcap]he peanut nation has experienced some unusual occurrences that may impact the growth and expansion of the U.S. peanut industry for years. In producing the 2016 crop, these challenges came about as a complete surprise and were met with mixed reviews.
First, USDA statisticians over estimated the carryforward from 2015 and 2016. USDA had projected a July 31, carryout of 1,650,000 farmer-stock tons. With a 2015 crop of more than 3.1 million tons, the implication was that there were too many peanuts. The peanut nation challenged the numbers not seeing peanuts in the marketplace. Later, USDA reduced the estimate by 755,000 tons. Farmers were advised that the industry could have a warehouse shortage and to contract to be assured of an approved USDA warehouse to guarantee a $355 per ton loan. Peanut farmers making decisions during that time likely lost money.
Secondly, China came to buy. Never before in the history of the peanut industry has China been a major buyer of U.S. peanuts. As the industry struggled with the estimated large carryforward, peanut prices plummeted low enough to get China’s interest. China was experiencing short supplies of their own and also from South Africa and even Argentina.
In late 2015/early 2016, prices dropped to 45 cents per pound for shelled peanuts, and shellers had some unsold inventory of farmer stock. With domestic edible buyers comfortable, decisions were made to market mostly farmer stock to China. China was even buying all segregations and shipping them directly for crushing in their oil mills. Suddenly, that over supply of U.S. peanuts was gone.
Drought Affects Numbers
The third challenge was the Southeast’s late-season drought that threatened the last one-third of production and may be distorting estimates. Management of the new price loss coverage program is influencing final estimates in some states.
Again, USDA’s estimate is a U.S. crop of 3,121,600 tons from 1,587,000 acres averaging 3,934 pounds per acre. Yet, Farm Service Agency farmer-reported acres are at 1,652,970 acres of peanuts, a difference of 65,970 acres. If farmers made the average yield as previously stated, that’s a difference of almost 130,000 tons – a significant amount in the world market pricing.
At press time, the Georgia Federal State Inspection Service reported graded peanuts at 2,710,834 tons, 13.2 percent less than the USDA Ag Statistics estimate. Coupled with that is the quality problem caused by the late-season drought, which increased Seg. 2 and Seg. 3 peanuts.
The Price Loss Coverage payment of $138.88 per ton in October, caused by low prices last year, saved many farms and farmers, especially in the face of low-priced corn, soybeans and cotton. An influx of $489 million into peanut farmers’ economic picture was a key point of survival for many.
In spite of some mishaps with numbers and weather, the peanut industry is booming. China is already back buying and shipping peanuts when available. USDA will adjust to the real numbers and hopefully numbers have not caused many wrong decisions.
There is good news inside USDA. All peanuts placed in the loan were sold and no bankruptcies happened this year. Although La Niña predicts a dryer winter, farmers are hoping to recharge aquifers, and already more irrigation is under construction in most states.
Contract Season Opens
Contracts are already available at most buying points for 2017. Shellers are getting early orders from manufacturers and the goal is to get contracts on the books assuring that peanuts will be planted. Contracts in the Southeast have been either $425 per ton or $450 per ton for runners plus a $25 per-ton premium for seed production, and in some locations, $25 premium for irrigation and $25 per-ton premium for high oleic peanuts. It is clear peanuts are likely to be short before the next harvest.
Demand for U.S. peanuts is strong at home and abroad. Domestic usage is predicted by USDA to increase 2 percent; however, Stocks and Processing numbers for three months is 3.5 percent with peanut butter going strong, up 6.6 percent.
China could again buy up lower-quality U.S. peanuts for oil and reduce the expected carryforward. FSA and the American Peanut Council show exports from January until September up 65 percent over last year with top buyers being China, Canada, Mexico, Vietnam and the Netherlands.
U.S. shipments to the European Union are declining because the stringent aflatoxin requirement causes even U.S. peanuts to be rejected. If available, U.S. peanut exports could again export over 750,000 tons.
Significant Challenges Ahead
As peanut producers plan for 2017, the marketing picture could not be brighter. The world wants your peanuts. Develop a management plan that includes good rotation under irrigation if possible. Base owners have two more years in the program and who knows what will happen on the Farm Bill. Support the Political Action Committee as the ag commodity teams seek unity. Peanut farmers have a great product with a positive image…let’s grow more and don’t worry about a storage warehouse!
Remember the enormous challenge facing agriculture: we have to feed 9.6 billion people that inhabit the Earth by 2050; food production must increase by 70 percent with limited availability of arable lands and the increasing need for fresh water (agriculture consumes 70 per cent of the world’s fresh water supply). Peanuts and peanut butter should be a major part of the solution.