There's never a good time for drought. But if drought is inevitable, as it is in farming, then better that it comes when supply already exceeds demand in a depressed market.

That's the thinking of many who have been following this year's U.S. peanut market, where warnings of an over-supply have been met by a crop that initially was reduced in planted acreage and has since been shrunk even more by dry, hot weather conditions.

The market impact of a reduced U.S. crop might not be immediate, but it will be felt eventually, says Tim Hewitt, University of Florida Extension economist.

“I think it's a possibility the drought along with the acreage reduction could have an effect on the peanut market,” says Hewitt. “It just depends on how bad the situation turns out to be, and a lot of producers are saying it's as bad as everything you hear.”

The only good-looking peanut fields in Florida are the ones under irrigation, he says. “But such a large amount of our peanut acreage remains non-irrigated. There are some good peanut fields in the Suwanee Valley area, where there's a lot of irrigation. But those who don't have irrigation say they're looking at a big yield loss. Whenever you hear farmers talking about 50 to 60-percent yield losses, there's bound to be an impact on the market. The effects of the drought plus the decreased acreage definitely will affect the market,” says Hewitt.

Peanut producers in Florida still were not seeing any contracts for their crop in mid-August, he says. “They're saying they've heard some rumblings about contracts but nothing definite. We're telling them to stay abreast of everything that's going on out there, and once you see contracts being offered, jump on them. I wouldn't wait if I saw something that looked decent. For that matter, I wouldn't wait if I saw anything. Take advantage of whatever becomes available,” he says.

Hewitt says he doesn't see anything on the horizon that would drastically drive up prices for the current marketing season.

“But a lot of things that are occurring this year will have an effect on what happens next year,” he says. “The ongoing discussion over a new farm bill also could have an impact next year. That's why I'm advising growers to take advantage of any contract opportunities that come along.”

This year's first production forecast illustrates the double whammy of reduced acreage and a drought across much of the Southwest and lower Southeast Peanut Belt. According to the National Agricultural Statistics Service (NASS), U.S. peanut production is predicted at 1,630,400 tons, down 32 percent from last year's crop and down 24 percent from 2004. If realized, this would be the lowest production since 1980. Area for harvest is expected to total 1.23 million acres, down 3 percent from the June forecast and down 24 percent from 2005.

U.S. peanut yields are expected to average 2,645 pounds per acre, 315 pounds per acre below last year. Planted acres, at 1.26 million, are down 3 percent from the June estimate and 24 percent below 2005.

The 2006 acreage numbers are even less than that reported by the NASS, according to the Farm Service Agency (FSA). The FSA's July 15 report has acreage pegged at 1,175,500 or a 29 percent decrease from 2005. Acreage decreases in Georgia, Florida and Alabama were down 24, 30 and 32 percent, respectively.

Production in the Southeast states — Alabama, Florida, Georgia, Mississippi and South Carolina — is expected to total 2.25 billion pounds,(1,124,150 tons) down 34 percent from last year's level, according to the NASS Yields in the region are expected to average 2,410 pounds per acre, 416 pounds below 2005.

Hot, dry weather in Alabama, Florida and Georgia caused crop conditions to decline sharply from last year. As of July 30, the percent of crop rated very poor to poor was 42 percent in Alabama, 55 percent in Florida and 29 percent in Georgia compared to 4 percent, 2 percent and 5 percent, respectively for the same time period last year.

Expected area for harvest, at 933 million acres, is down 22 percent from last year. The decline in acreage is attributed to higher old-crop supplies than in recent years, low farmer-stock peanut prices, and higher input costs. As of July 30, peanuts pegging in Alabama, at 43 percent, lagged the five-year average by 39 percentage points. Peanuts pegging in Florida, at 95 percent, Georgia, at 93 percent, and South Carolina, at 90 percent, were near their respective five-year averages.

Virginia-North Carolina peanut production is forecast at 333 million pounds (166,300 tons), down 6 percent from last year's crop. Yield is forecast at 3,269 pounds per acre, up 269 pounds from the previous year. Area for harvest is expected to total 102,000 acres, down 14 percent from 2005. As of July 30, peanuts pegging in Virginia equaled the five-year average of 80 percent, while in North Carolina, peanuts pegging, at 94 percent, exceeded the five-year average by 1 percentage point.

Southwest peanut production, including New Mexico, Oklahoma, and Texas, is expected to total 679 million pounds,(339,550) down 37 percent from 2005. Yields are expected to average 3,430 pounds per acre for the region, 26 pounds below last year's level.

Yields in Texas are expected to equal last year's record-high of 3,500 pounds per acre. The region's expected area for harvest, at 198,000 acres, is down 37 percent from last year. On July 30, peanuts pegging in Oklahoma, at 98 percent, exceeded the five-year average by 6 percentage points, while in Texas, peanuts pegging, at 75 percent, lagged the five-year average by 11 percentage points.