U.S. peanut producers did exactly what they should’ve done in 2009 — they reduced their acreage by about 30 percent to help get supply and demand back in line.
What they didn’t count on were the better-than-average yields that might have provided a bit of an over-supply going into this season.
“Producers planted the right acreage for 2009,” says Marshall Lamb, research director of the National Peanut Research Laboratory in Dawson, Ga. “But we did have good yields that were somewhat above average. Now, we are over-supplied, but not at near the level we were going into 2009.”
For an earlier look at the current peanut market situation click here.
While some peanut acreage increase might be in order for 2010, Lamb cautions growers not to overplant.
To get a good idea of where the peanut market stands today, it’s helpful, he says, to look at where it has been since 2002, the first year of the non-quota program.
“In 2002 and 2003, we planted roughly 1.3 and 1.4 million acres, respectively, in the United States. Price-wise, this got supply and demand pretty much in balance. Then, higher farmer stock contracts started being offered. In 2004 and 2005, we increased U.S. planted acreage, and in 2005, we over-supplied the market. As result, in 2006 and 2007, we saw a drastic acreage decrease,” says Lamb.
Coming out of 2007, with contracts being offered at $500 to $525 per farmer stock ton, acreage went back up to 1.5 million in 2008. “On top of that, we made the largest crop — yield-wise — in U.S. history. That led to an over-supply going into 2009. The acreage response went from 1.5 million to 1.081 million in 2009, the smallest peanut crop in the United States since the early 1900s, and it was because of over-supply,” he says.
In 2008, the average U.S. yield was 3,426 pounds per acre, and in 2009, the average was 3,412 pounds, despite delayed planting in the spring and a delayed harvest in the fall of 2009.
In 2004, total U.S. peanut production was 2.4 million farmer stock tons and in 2005, it was 2.4 million tons. Because of over-supply, prices fell and farmers reduced acreage, with production falling to 1.8 million tons in 2006 and 2007.
“In 2008, because of the acreage increase and good yields, we supplied about 2.6 million farmer stock tons, and there was a tremendous amount of carryover because of the crop that was produced. They needed more acres so we planted more acres. And then, coming into 2009, not many contract offers were made, acreage was back down to about 1 million, and we produced 1.8 million tons,” says Lamb.
In 2006, U.S. growers produced 1.7 million farmer stock tons, but 700,000 tons were carried forward from the 2005 crop, says Lamb. “This gave us a total supply of roughly 2.4 million tons. With a demand of 1.85 million tons, we had a carry-out of 545,000 farmer stock tons — that’s a reasonable carry-out.”
Carry-outs or carry-forwards, he explains, are the peanuts in the pipeline between the end of the marketing year and before the new crop is delivered. “It keeps the mills full and running,” says Lamb.
“We want to be at about 500,000 tons. If carry-forward is more than that, manufacturers will look at supply and back off a little on shelled stock prices, and shellers will offer less. If you want to see a sheller and manufacturer sweat, just get that carry-out to less than 500,000 tons. That’s when markets are tight.”
Going into 2007, the U.S. peanut market brought forward roughly 545,000 tons. Added to a production of 1.87 million tons, the total supply equaled 2.4 million tons.
“Going into 2008, we had a carry-out of 455,000 farmer stock tons. As a result, manufacturers and shellers wanted to buy more acres in, and they offered $500 to $525 per ton. Farmers responded, and in 2008, we planted a larger acreage. We produced 2.5 million tons and added 455,000 tons in carry-forwards for a total supply of 2.99 million tons. Demand increased to 2 million tons and we carried out 989,000 tons. It affected us, and in 2009, the big question was how many peanuts we needed to plant to get the markets back in order.
“We needed to produce 1.6 million farmer stock tons. Take that number, add it to the carry-forward, and that gives us 2.6 million tons in total supply. Demand has crept up to 2.1 million, so that would give us a 500,000-ton carry-out. Demand is going up because we have a bad economy.”
To get to that number, U.S. growers needed to reduce acreage by 28 percent in 2009 to about 1.083 million tons, says Lamb.
“That’s exactly what our farmers did — they were right on the money. But the yields in 2009 were higher than average. We’re thankful for that, but it added to total production, which leaves us where we are now. Because yields were higher in 2009, we produced 1.84 million farmer stock tons. Add the carry-forward to that, and we have a 2.8 million ton total supply. With a demand of 2.1 million tons, we’ve got a carry-out going into 2010 of 733,000 tons.”
The salmonella issue of early 2009 probably prevented the peanut market from having an even greater demand, says Lamb. “The salmonella issue cost us two months of demand. But we have recaptured everything we lost and are getting it back rapidly. This issue probably cost us about 200,000 tons of demand.”
The current carry-forward of 733,000 tons is too much, he says, and the manufacturers know that. It has put a damper on contract prices and shellers can’t go out on a limb, he adds.
In 2010, says Lamb, the U.S needs production of roughly 1.866 million farmer stock tons. “Added with the carry-forward, that’ll give us a supply of 2.6 million tons. With a demand of 2.1 million tons, that gets us back to the 500,000-ton carry-out we need. That’s when we start seeing the $500 to $525 per-ton contract prices. We need a production of 1.8 million tons. With an average yield of 3,000 pounds per acre, we’d need 1.227 million acres in 2010 — that’s an increase of 11.5 to 12 percent over last year.”
In Texas, says Lamb, growers have told shellers they need $500 per-ton contracts to plant more acres. “They have problems with water that affect peanut production, and those growers would just as soon be in cotton production. Virginia-Carolina growers are not interested, because their cost of production is significantly higher than in the Southeast. Also, the demand for Virginia peanuts is going down.
“There may be an opportunity for Southeastern growers to go a little past that 11.5 to 12 percent acreage increase. But I would caution against going too much above that mark, because we’ll pay it back if we do.”
Contracts have been offered at $450, and Lamb advises that growers cover at least a portion of their costs at that price. “If we have a drought, prices will go up. But if we over-plant this market with a 733,000-ton carry-forward, and we make a good crop, then $450 won’t be seen again this year. So growers might want to consider covering the front part of their production with this contract. But we don’t need to overplant the market at this price.”