Monday, July 15, 2024

Tepid Response To Contract Offers

J. Tyron spearman
J. Tyron Spearman
Contributing Editor

Cooler-than-normal temperatures at peanut planting time have also cooled off the peanut market. 

At the farmer and buying point level, discussions have centered around the acreage estimate, cost of production, prices of competing crops, cost of producing competing crops and prices of corn, cotton and soybeans.

After the U.S. Department of Agriculture estimate of a 7% increase in peanut acreage, most agreed it would not be enough to flood the market. However, with an abundant harvest, there was also little hope of getting rid of the 1-million-ton carryforward.

Cost Of Production Increases

Costs of all inputs have farmers worried and that brings on other problems. Stanley Fletcher, policy professor at the Abraham Baldwin Agricultural College’s Rural Prosperity and Innovation Center, compared the representative peanut farms’ 2021 costs of production as compared to 2022 costs and found that the total costs increased 26.31%.

In prior representative farm updates, the peanut reference price of $535 per ton provided an effective safety net for growers. Total variable input costs such as seed, fertilizer, fuel and crop insurance have increased 33.48% when comparing 2021 to 2022. Fletcher says 2021 cost of production was $545.97 per ton, and in 2022, it was approximately $668 per ton. 

Contracts, Finally

Eventually this spring, some shellers started offering $525 per ton for runner-type peanuts and $550 per ton on Virginia type. Some shellers are offering a sheller pool with a $500 per-ton floor hoping prices will increase later this season. 

Response has been weak and varied with some buying points booking contracts and others reporting that farmers are in no hurry. They are keeping an eye on cotton and on industry problems such as drought in West Texas and in foreign markets, like Argentina.

Buyers continue to point to December cotton at 80 cents per pound as a reason peanuts should see planting increases and falling prices for raw-shelled kernels. The option is $535 per-ton peanuts versus 80 cents per-pound cotton. 

Current crop market is still very firm with prices in the Southeast in the low 60 cents per pound for kernels. Prices seem to have been buoyed by strong demand at home and an increase in European Union interest with the crop in South America very much in question. New crop is still trading very thinly in the mid 50 cents per pound.

Domestic And Export Markets

Raw peanuts in primary products are down 1.3%. Peanut butter continues to show a growing, strong market, up 4.7% for the eight-month marketing year. In-shells are on a roll, up 9.5% during that period. For the past seven months, U.S. peanut exports are down 2.82%. Mexico is still the top buyer, down only 2.55%, while Canada keeps buying more, up 5.27%. China is the third-largest buyer, still down 17.3%. Japan jumped up to the No. 4 buyer and the Netherlands is fifth in line.

Farm Bill Hearings

The Price Loss Coverage program will not have a payout in October as the average price paid to farmers will average above the $535 per ton reference price. While the PLC program has worked for peanut producers, input costs have risen substantially. Thus, the U.S. Peanut Federation supports an increase in the reference price. 

Secondly, the federation supports a voluntary base update that includes growers with and without peanut base acres. The 2014 base update excluded many young farmers and new production areas. 

When Alabama Sen. Tom Tuberville asked in his opening statement at the U.S. Senate Committee on Agriculture, Nutrition and Forestry hearing, why more than 558.9 million pounds of peanuts are produced annually in his home state for contracts less than $600 per ton when the costs of production are higher than that, producer Karla Thompson had an answer. 

She said banks require a contract before granting an operating loan, and farmers hope that high yields will offset low prices or that membership in a grower-owned shelling facility will help capture a profit on the shelling and sale of peanuts, recouping losses on a low contract price. 

Awesome answer. Read about the recent Farm Bill hearings on the page opposite.

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