Virginia-Carolina peanut growers have done just what the experts said they should do — they got inventories of Virginia-type peanuts down to manageable levels.

Buyers did just what the farmers said they should do — they offered contracts for Virginia-type peanuts at $600-$700 a ton.

In addition, the U.S. demand for peanut products has increased across the board, ending a multi-year trend in declining usage. And, export opportunities are better than at any time in recent history.

The combination of prices and demand should mean a big boost in peanut acreage in the upper Southeast but that doesn’t appear to be happening.

Dell Cotton, executive director of the Virginia Peanut Growers Association says growers in his state have repeatedly said they couldn’t grow Virginia-type peanuts in the state for less than $500 per ton.

“Now, we are seeing contracts offered at up to $700 per ton and not many growers are interested. It’s really frustrating,” Cotton says. Peanut acreage in Virginia increased in 2010 to 18,000, still less than a third of production just 10-12 years ago. Record heat and drought reduced yields to 1,800 pounds per acre — less than half the 2009 yield.

Long-time peanut analyst, lobbyist and promoter Tyron Spearman says this time (mid-January) a year ago, he wouldn’t have believed peanut contract prices would be so high, or so inconsistent.

“We’ve seen contracts offered and pulled back, then offered again. A lot of it is driven by cotton — buyers keep thinking cotton prices are coming down, and they haven’t so far. Nobody seems sure at all where the contract prices will go. I have heard that some buyers in Texas have offered contracts of $800 per ton,” Spearman says.

Interest in cotton hasn’t just increased in 2011, it’s gone off the chart. Nationwide, some analysts contend cotton growers may push 13 million acres. All the cards — demand for cotton products, high prices and some exciting new technology to further boost production — are available, but unlike peanut growers, cotton farmers appear ready, willing and able to play the cards.

Made small dent

An increase in peanut usage in the period of November to February has made a small dent in the surplus of U.S. peanuts in the pipeline. Perhaps more importantly it has given buyers some indication that increased usage throughout the year may further reduce the current carryout.

Consumption of all peanut products was up in the past three months (November-January). Peanut candy was up 15 percent and peanut snack foods were up 43 percent. These products contain a higher percentage of nuts than other nut-food products because peanuts are now much cheaper than other nut crops.

Peanut butter, which topped the billion pound barrier in 2008, continued an upward climb, with an increase of 2.2 percent over the past three months.

All the production figures are causing peanut buyers to take notice, but they still have a sizable supply in the pipeline. While the prices are good — near levels available to growers back in the hay-day of the peanut program, prices are still not comparable to some other crops.

Cotton continues to trade at better than a dollar a pound, and though most of the reason for a drop in peanut acres in the upper Southeast is aimed at cotton, it’s not the only crop that is attractive to growers.

Highly productive peanut land in southeast Virginia and northeast North Carolina, complete in many cases with irrigation, is also good for grain production. Corn prices have remained good and look to remain good well into 2011. Soybeans and wheat, especially when grown in a double-crop, are highly competitive with corn, cotton or peanuts, even at $600 per ton.

“I don’t expect peanut acreage in the entire Southeast will go down significantly, but I likewise don’t think there’s much chance it will go up, despite the high prices. In Virginia and North Carolina, I expect there will be at least a slight drop in acreage,” Cotton says.

Southeast peanut growers are within a 60-90 day period of having to pull the trigger on which crop to plant. Historically, having a peanut contract in hand that guaranteed a farmer would make a profit 60 to 90 days prior to planting would have generated a big purchase of seed, but that hasn’t happened this year.

The price of peanut seed, which may jump by 10-15 percent, pushing seed costs to a dollar a pound, is one reservation. The high cost of inputs across the board ramp up the risk of all high dollar crops that are options in 2011. Peanuts are near the top of the list in cost per acre to produce, which further reduces the impulse to jump on $500 and $600 contracts.

The continued low value of the dollar makes export of excess peanuts a real possibility, which could further reduce the current supply.

In addition, Argentina, the leading competitor with the U.S. for foreign markets, is headed to a bad to disastrous year for peanuts and other crops.

Though acreage is up 20 percent in Argentina, La Niña-influenced heat and drought, accompanied by unusually low humidity in December and January, has put the crop at risk. Typically Argentina needs a longer growing season for peanuts because of the high risk of bad weather during the harvest season.

“If domestic and export markets remain strong throughout the year, and peanut acreage does indeed decline slightly, that could be a long-term advantage for U.S. peanut growers,” Spearman says.

“The peanut industry has done a great job of promoting peanuts and those efforts are paying off in increased domestic use. As long as we keep domestic demand up, control production and grow a high quality peanut, price and profitability will take care of themselves,” he adds.