It's official: The over-supply of Virginia type peanuts is over. “We have worked through the over-supply from the 2005 crop,” said Robert Sutter, chief executive officer of the North Carolina Peanut Growers Association. “Demand for Virginia type peanuts is strong.”
Growers in Virginia and the Carolinas responded by being more active in contracting over the winter and spring than those in the Southeast.
“Most of the contracts we are seeing are in the $475 to $500 a ton range, and this is enough to appeal to our growers,” said Sutter.
He anticipates a small increase in planted acreage, but it may not come from farmers expanding their 2006 acreage. “Instead, we may see some farmers who didn't grow peanuts in 2005 and 2006 getting back in. There may also be some new farmers from the non-traditional areas planting peanuts for the first time.”
Sutter noted that the USDA projection for 2007 plantings in North Carolina was 94,000 acres, a figure that seemed credible.
And that wasn't just for Virginias, he said. “For all types, the projected acreage for 2007 is 1.197 million acres. Just two years ago, it was 1.65 million acres, and we produced too much. Over-supply has a drastic negative effect on peanut marketing.
But we will produce whatever the market needs.”
The stronger market for Virginia types is perfectly credible. Virginia stocks are down in 2007, but in addition, the large reductions in production and stocks of runner peanuts appear to have strengthened demand for the Virginia type.
“Large supplies of jumbo runners had adversely affected demand for shelled Virginia peanuts,” said Blake Brown, North Carolina Extension economist. “This strengthening of demand should be particularly evident in shelled use of Virginia types. Use for peanut butter should also increase.”
While in-shell use of peanuts declined for the 2005 crop, this does not indicate a trend, he said. “Exports of Virginia type peanuts increased slightly in 2005 and 2006 but seem relatively stable after the large declines of the previous decade. Shelled use of Virginia types in snack peanuts was up at 81 million pounds from a low of about 70 million pounds in 2004.”
Use of Virginia types for peanut butter has been erratic, but was up slightly for the 2005 crop. Virginia farmer stock peanuts for August rose again with the 2005 crop but are expected to decline in 2006-2007 due to higher use.
North Carolina continues to be the leading Virginia producing state with 44 percent of the national crop. But since deregulation, Virginia has fallen from second place to fourth, after Texas, which had 25 percent in 2005, and South Carolina, which had 18 percent.
Virginia produced 11 percent. Oklahoma is the only other significant producer of Virginia type peanuts, with 2 percent in 2005.
Where did the over-supply come from? When the quota system ended, plantings in the Southeast and Texas increased, with planting in 2005 reaching 755,000 acres in Georgia and 1,657,000 acres nationally.
“Each year, production exceeded needs by 200,000 tons, and by 2005 there was close to 800,000 tons of extra supply under loan,” says Sutter.
“In 2006, contracts were not available in the Southeast, and (as a result) acres were reduced drastically. Couple that with a drought during most of the summer and then difficult harvest conditions, and we saw a 32 percent reduction in production from the prior year.”
Now, most of the 2.3 million tons of 2005 peanuts that were under loan have been redeemed.
A confusing pattern in contracting made the marketing situation for Southeastern peanuts through early May unclear.
The key question was how many pounds were actually committed to a contract.
“I would think the number of acres contracted is probably less than normal,” said Nathan Smith, Georgia Extension agricultural economist. “That is indicated by the fact contracts are still available. The actual number of contracts is probably down. But it is hard to say whether total pounds are down.”
In Georgia in recent years, fewer contracts have been signed in terms of number, said Smith.
“But in terms of volume, pounds per contract have been up,” he said. “So it is hard to say how many total pounds have been contracted for 2007. Certainly, prices are up, though the farmers were hoping for a little higher price than the standard offering.”
There is additional uncertainty this year because both corn and soybeans are providing price competition.
“Georgia growers had indicated to USDA they intended to cut back on peanut plantings,” said Smith. “Given the type of planting weather for corn we have had (which interfered with corn planting), I would expect peanut acres to rise. But we are in a drought already, and growers will have to think hard about whether to plant dryland peanuts. So it is hard to say what we are going to have.”
Farmers can still contract at “last offer” if they want to, or they can plant for the loan. But the handling and storage issue certainly has farmers wondering what will happen if they put peanuts under loan without a contract.
It is certainly a possibility that the government won't pay the handling and storage costs.
“So farmers will want to carefully weigh the risks they are willing to accept before they plant peanuts without a contract,” said Smith. “The worst case scenario, if the farmer was responsible for storage and handling, would be about $300 a ton.”
A point to remember: Last year, contracts were offered even after harvest. “And farmers who signed them got a better price.”