Wednesday, April 24, 2024

The Reference Price Is One Part Of The Long Payment Equation

J. Tyron Spearman Contributing Editor
J. Tyron Spearman
Contributing Editor

It was an odd year in row-crop agriculture, especially in the Southeast. Some producers had two months of too much rain, then two months with little or no rain and two months of unusual harvest conditions ripe with various problems. Prices have fallen so low, the farmer may have to extend payback of loans to next year. In thinking about 2015, cotton is 60 cents per pound, corn is $3.75 per bushel, soybeans are $10 a bushel, wheat is about $6 per bushel and peanuts could be $400 per ton, but maybe only $355 per ton, if too many peanuts are planted. Will markets improve by planting time? Currently, costs of production are more than product prices. It is not a pretty picture and is likely to get worse when the farmer meets with the banker or finance company.

Market Situation
Several unusually early cold snaps have some late-planted peanuts being graded as freeze damaged, which cause the peanuts to turn dark and have offflavors. Thankfully, only a few fields were affected. Another problem was burrower bugs, particularly in dryland peanuts. Loads of peanuts were graded segregation 2 and 3. Shellers have been slow to sign delivery contracts on shelled peanuts until more can be shelled and the quality checked. Irrigated peanuts are said to be excellent, but dryland peanuts are suspect and must be kept separate for shelling. The shelled market has increased slightly with jumbo runners at 55 cents per pound, mediums offered at 53 cents per pound and blanched jumbos bringing 70 cents per pound. Inventory of the 2013 crop remains in cold storage, but is said to be committed. Blanching continues at a premium.

Limited Contracts
Down on the farm, some producers, who are cleaning up equipment for winter storage, opted to not contract at the $425 per-ton level in the Southeast on runners, but took advantage of the ninemonth market storage loan, hoping prices would improve. One sheller said contracts are not likely to improve as a higher price would encourage more planting of the 2015 crop. In fact, because of the structure of the new program, we could see shellers limiting 2015 crop contracts with each grower at 60 to 75 percent of 2014 crop plantings. Worries abound about the 2015 season, with one farmer saying, “If you put a pencil to it, there is not a single row crop that shows a profit at today’s prices!” Yet, there is still hope for improvement before planting. Farmers are studying the new peanut program, deciding on the program options, and working to become familiar with the new peanut revenue program and crop insurance before next season. Workshops are being planned during the winter all across the belt. Rumors persist that the peanut industry is expanding with another farmer-owned cooperative sheller, new buying points and warehousing upgrades. Low prices of other commodities, continued increased export demand and the favorable peanut program are some of the reasons for this speculation.

Screen Shot 2014-12-31 at 2.37.00 PMMarketing Signs
Domestic consumption was good for peanuts and peanut butter in October, up 5.1 percent and 6 percent, respectively. For the year, peanut usage is up 6.8 percent. Peanut snacks were up 11.1 percent, but still down about three percent for the three-month period. U.S. peanut exports continue strong, down for the months of August and September only 6.8 percent. The good news is that raw-shelled peanuts are 1.1 percent ahead of last year and in-shells are up 7.5 percent. Peanut butter exports slowed after posting a 21 percent increase last year, dropping 36 percent during Aug/Sept. The U.S. has a good supply of 2013 quality peanuts ready for export, and 2014 peanuts are expected to start selling after shelling, if quality standards meet European Union specifications. China is also back in the market for in-shells.

Supply And Demand
The U.S. peanut crop for 2014/15 is now at 2,522,500 tons based on harvesting 1,307,000 acres averaging 3,860 pounds per acre. The supply chart shows ending stocks of 945,500 tons, up from 932,500 tons last month. Changes have occurred in crush, which has been increased, and seed, which is probably higher than estimated here. With total 2014/15 U.S. demand at 2,538,500 tons, it appears that ending stocks will be about the same as last year, 945,500 tons, slightly higher than last month. Domestic food use for peanuts is predicted to increase 1.8 percent. Peanut Stocks and Processing is showing a 5.8 percent increase for the first two months after peanut butter posted a 30 percent increase in September.

$535 Is Not $535 Per Ton
Some producers have in their minds that peanuts will pay $535 per ton in the new Farm Bill. That is wrong. The new reference price of $535 per ton for peanuts will be factored in by subtracting the national average price, making a price loss coverage rate, times your payment yield in tons, times the base acres, times 85 percent. This number will be the estimated payment per base acre. Some farmers may have generic cotton base that can be made into an annual peanut base to collect the payment.

Think Long Term
If you want to plant peanuts in the future, refrain from planting wall-to-wall peanuts chasing a government payment next year. Sure, lower-priced peanuts will buy your way into a market, but sustaining profitability is highly unlikely with a major over-supply. First and foremost, have government-approved storage or a buying point that will inspect and issue a market loan from USDA. Rotate peanuts with other crops to protect yield and quality. Manufacturers want a quality peanut with no defects that is reasonably priced similar to the competition with consistent, on-time delivery year after year. Work with your buying point and sheller. Develop a plan and think about the future!

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