The U.S. peanut industry is preparing to pay a heavy price for decisions made last spring, says George Lovatt of the Georgia peanut brokerage firm Lovatt and Rushing.

“We have to understand that if we’re going to sell more peanuts, we’re going to have to grow more peanuts. A friend of mine told me you can’t sell out of an empty wagon — well we’ve got an empty wagon,” said Lovatt at the recent Southern Region Agricultural Outlook Conference in Atlanta.

Looking at recent supply/demand numbers, Lovatt says the U.S. carried out 940,000 tons from the 2009 peanut crop, or 161 days worth of peanuts. The peanut marketing season runs from the first of August through July 31.

“That got us through December, and it was January before we ran out of 2009 crop peanuts. As you can imagine, peanuts were plentiful and cheap,” he says.

For 2010, the U.S. carried in 940,000 tons and made what should be a reasonable crop of 2.74 million tons, says Lovatt.

“Then, we ran into a quality buzz saw. We had aflatoxin contamination in the Southeast crop like I haven’t seen since 1980. It was a very expensive and problematic crop to deal with, and we’re still dealing with it today,” he says.

The costs of handling the 2010 crop increased due to the re-milling, blanching and cleaning required, he adds.

“Concurrent with that, you had demand from other crops such as corn and cotton, raising the price we had to pay for farmer stock for the 2011 crop, and the result is we saw some pretty dramatic price increases in 2010.”

On July 31, USDA reported a peanut carry-out of 758,000 tons, with adjustments for quality, Lovatt estimates a carry-out of 730,000 tons, or 118 days worth of peanuts. This amount normally would be adequate, he says.

Looking back to 2002, when the new peanut program began, whenever the carry-out days get to 90 or below, supplies get tight and prices go up, says Lovatt.

“The crop year starts at the first of August, but we don’t really begin harvesting until the middle of September, so we’re 45 days into it. By the time you accumulate enough peanuts to crank up some of these enormous shelling mills, clean up the crop, have it graded, and establish a critical mass so we can start up the mills, you’re talking about the first week of October.