Market Watch

Will the crop be short and affect demand with higher prices?


A perceived peanut shortage and early signs of quality problems have sent the industry into a pricing frenzy. The impact could change the way the peanut market operates.

A 13 percent decrease in planted acreage, coupled with a hot, dry summer, prompted USDA to predict a carryout of 936 million pounds, a nine-year low. Domestic growth in the food use of peanuts was predicted to stall after double digit growth the past three years. Exports were forecast to decline to 240,000 tons, the lowest since 1976.

All the market news for peanuts pushed prices higher as the National Posted Price increased to a new record $1,203.26 per ton, and raw shelled prices for the predominant runner mediums reached $1.20 per pound. Farmer-stock prices contracted at $550 per ton before planting, but uncontracted stocks could garner $1,050 per ton to $1,100 per ton in some states at harvest.

Early Markets
The 2011 season started under duress. Southeast producers waited for moisture. No winter rainfall was reported in Texas and Oklahoma as farmers opted for cotton, which required less water and had favorable prices.

With acres unknown, shellers opened with $550 per ton for runners in the Southeast and $650 per ton in the Southwest, a bonus for high oleic.

The Southwest was slow to sign up, but Southeast growers jumped at $550 per ton with some irrigated at $600 per ton plus a $25 per ton seed bonus. Limits were 4,000 pounds per acre irrigated and 3,000 pounds per acre dryland.

Virginia contracts were $600 to $650 per ton, and Valencia and Spanish were even higher.

Growing Weather
The summer of 2011 was the hottest on record. Severe drought and scorching temperatures took a heavy toll on the crop. Dryland peanuts never lapped on most farms, and farmers with irrigation fought to cool the canopy and get the plant to set pegs. Three tropical storms failed to bring needed relief to all segments of the peanut belt.

Peanut Supply And Demand
With the acreage and yields reduced, USDA estimated a crop of 1,813,000 tons, up 85,000 tons from September. Could the crop be larger than expected? New varieties are impacting average yields, especially on irrigated peanuts, and late-planted peanuts are getting lower temperatures and some rain.

Demand continues strong with domestic usage up 7.7 percent for the year and total demand estimated by USDA at 2,059,000 tons. The carryout stocks of about 750,000 tons of peanuts would provide a cushion. But with a shortage of 246,000 tons in production and only 504,000 tons to carry-forward next season, look for higher prices to reduce domestic and export demand 10 to15 percent. If demand drops 10 percent, the usage/demand will be 1,853,000 tons or about the crop size. Supplies would be tight, but carry-forward would remain about the same at 800,000 tons.

Market Strategy
Raw-shelled prices have soared from 50 cents per pound last spring to $1.25 per pound this fall. One sheller noted, we can’t sell into that market until we fill earlier contracts, and until harvest is over, we can’t sell a peanut.

Farmers with contracts have that same problem with delivery to early contacts before taking advantage of the $1,000 per ton offers. Shellers have issued notice to buying points that farmers who fail to deliver contracts as agreed could face legal action.

One market analyst said, “If you are holding out for $800 or $900 contracts for 2012, you are probably going to be disappointed. I believe $700 per ton will get more than enough peanuts planted next season.”

Government Safety Net
The 2010 crop has been sold from the Market Loan with no forfeits. Low prices averaged $450 per ton, giving growers a $9 counter-cyclical payment. Peanuts will average above the threshold this season, so no counter-cyclical payment. If Congress takes its time cutting the budget, producers could get the $36 per ton direct payment by November. The Market Assistance Program for exports is threatened by budget cuts. A strong farm safety net is needed. Let’s hope peanut producers are part of that plan. Be patient; this market is about as wild as it gets in the peanut world. PG

Leading Market Indicators (as of October 13, 2011)

• 2010 Peanut Crop (final) – 2,077,800 tons
• 2011 Crop Est. (Sept.) – 1,728,950 tons
• 2010 Crop Est. (Oct.) – 1,813,850 tons
• 2010-11 Usage (12 mo.) – up 7.7%
Usage – Aug. 2011 – dn -5.2%
• 2010-11 Export (11 mo.) – up 9.6%
• National Posted Price (per ton): Runners $1,199.52, Spanish $1,190.87,
Virginia/Valencia $1,203.26.