The trend towards increased peanut consumption continues, and it's a good thing considering the size of the U.S. crop currently being harvested, says Nathan Smith, University of Georgia Extension economist.
“We're looking at a big supply of peanuts, with U.S. peanut crop estimates showing a crop of more than 2 million tons,” says Smith.
“This is the largest on record, beating 1991 when we had one of the highest peanut acreages in recent memory. In Georgia, our acreage has increased almost 20 percent over last year. ”
Georgia was expected to have a record-size peanut crop this year, but hot, dry weather during September and disease problems have lowered expectations somewhat. Georgia farmers were set to average 3,100 pounds per acre, but that number likely will drop by harvest time, say Extension specialists.
But even with lowered expectations in Georgia and other parts of the Southeast, the 2005 U.S. crop still promises to be a large one, and demand will be a factor in how the market reacts.
“We continue to see a strong demand for peanuts and use. And we need that whenever we're looking at this size crop,” says Smith.
But the laws of economics say that a large supply usually equals lower prices, and that has been true in the peanut industry this year, he says. “We have seen shelled prices for peanuts come down as well as prices for farmers. Last year, during the 2004 marketing year, the majority of the peanut crop was contracted. This year, it's difficult to say how much of the crop is contracted, but I would estimate about one-third,” he says.
Contracts earlier this spring were offered at $20 per-ton over the loan repayment rate on a limited quantity per acre, says Smith. That's a change from this past year when most of the runner peanut production was contracted at $45 per ton above the loan repayment rate.
The biggest crop concern in Georgia, says Smith, is the narrow window in which most of the state's peanuts were planted. Growers also are concerned about maintaining good weather conditions throughout harvest.
“Hurricanes are always a concern as we work to get the crop out of the fields. Can we get this crop out without impeding the yield potential?”
A very strong increase in peanut consumption continues, says Smith, with most of the increase coming from domestic food use, including peanut butter, snacks and candy. “Demand has stayed strong, with a lot of new peanut products being developed and a lot of consumer purchases of peanuts. And we've turned the corner in peanuts as far as public perception,” he says.
Domestic food use historically has followed population growth, he says, and in the past three years, peanut consumption has increased by 6, 7 and 9 percent, with even greater growth predicted for the 2005 crop.
“While there are expectations for continued increases in use, this probably won't be able to keep pace with our production. Price reacts to that, and that's basically the fundamentals of economics. We now have lower prices, with the national posted price falling below the loan rate of $355. The season-average price in June was $352, and the shelled price was two to three cents lower than this time last year - even lower in some cases. We'll have a lot of peanuts going into loan this year that might not be priced,” he says.
For farmers who have peanut base, the counter-cyclical payment should be better this year than last year, says Smith.
In today's farm economy, there's little or no profit margin remaining, he says, and some Georgia peanut producers are looking for alternative enterprises. “They're looking beyond the farmgate to see if they can add value.”
Some growers used funds from the federal government's quota buyout to get involved in value-added activities, he says. “Unfortunately, 2002 was a bad year for peanut production in Georgia, and a lot of quota money went to help pay for production expenses. Two groups, however, formed shelling enterprises in the state. I think we have a long ways to go, but one day we'll be dealing with “identity preserve” in peanut production. With 14 peanut varieties grown in Georgia this past year, we're not nearly there, but I believe the day is coming. We have to be able to compete in the international market, if not on cost then on quality.”