With few attractive sheller contracts in the lineup this year, peanut producers may want to implement another game plan if they choose to play the market before harvest. Still, the reason behind the absence of contracts seems to differ among researchers and some shellers.
“The market is slow to respond this year because of the large volume of peanuts out there,” says Tim Hewitt, Extension economist and professor at the University of Florida. “Producers have been watching the market with guarded optimism, hoping to see some type of price premiums offered by shellers. Very few of those have been offered this year, and this will remain the case until we get the supply under control.”
Hewitt attributes the current supply situation to the tremendous amount of planted peanut acreage from last year and good yields in those production areas. “We just have more peanuts than the market needed. Our supply far exceeded our typical demand.”
The abundant harvest from last year continues to fill the warehouses across the Southeast, giving shellers no reason to offer incentives, Hewitt says. “Shellers have all the peanuts they need, and they only offer incentives when they need more.”
Some shellers, such as Anderson's Peanuts of south Alabama, have halted business altogether until the marketing situation improves.
Dennis Finch, general manager of Anderson's Peanuts, says the reason for the large volume of peanuts on the market is not an oversupply problem but a failure of the USDA to move the peanuts through the appropriate channels. “The USDA is not complying with the statute Congress passed in the 2002 farm bill with regards to the peanut Subtitle C. The criteria for setting the national posted price have not been followed.”
While part of that criteria is to minimize potential loan forfeitures, Finch says those forfeitures have increased from about 100,000 tons forfeited from the 2004 crop to about 800,000 tons from 2005 crop. “There is simply not enough warehouse space to house the new peanut crop if the old peanut crop is still being housed.”
Finch also says that peanuts are not moving because they are not being marketed competitively. “Another part of the criteria for setting the posted price is to market peanuts domestically and internationally, and that hasn't been done well enough.”
While Hewitt says farmers should not expect contracts before the end of June, he does advise farmers to stay abreast of the market situation and take advantage of any movements. “If marketing incentives do come about, growers should consider them because they will probably be at the mercy of the program price as the year goes on.”
Growers do have other marketing options, according to Marshall Lamb, research director of the USDA-ARS National Peanut Research Laboratory in Dawson, Ga. “Farmers can see what offers are being made at harvest or simply put the peanuts in a loan now.”
Lamb encourages farmers to utilize the loan if suitable contracts are not offered. “Don't sell out too cheap. The purpose of the loan is to give farmers the time and patience to market their crop after harvest season.”
While the nine-month loan will buy farmers some time to play the marketing game, growers should be aware of any costs that could incur from this marketing option, says Nathan Smith, assistant professor of agriculture and applied economics at the University of Georgia. “One big concern producers should also be aware of is how the warehouse handles shrink. At 3 percent, shrink could cost up to $20 per ton, depending on the grade and the shrink charge. Also ask questions about storing charges because you don't want to accrue unnecessary charges for storage time not covered under the loan. These costs could cause producers to end up with something less than the program price.”
In the meantime, Hewitt urges growers to make their production practices more efficient by utilizing methods that cut costs without sacrificing yield. “Producers should look for ways to cut fertilizer and fuel costs and consider alternate tillage methods and rotation schemes. They should also do the best job they can of preventing tomato spotted wilt virus by using the risk index.”
Hewitt also cautions new growers to be fully aware of the effects of rotation on peanuts. “Growers should not get a false sense of security from having good yields on new land. They need to fully understand rotational significance for peanut production and know that first-year, record yields may not be the case every year.”
Despite such thin profit margins this year, Smith is optimistic that the market will improve and urges growers to keep one eye on the market and the other on expenses. “Following the market well enough could be the difference in having a successful or unsuccessful year for growers. One good thing is that demand is still there for peanuts. The market's just waiting to see what production will show.”