Like a big ugly cloud hanging over a picnic, 400,000 tons of peanuts from the 2003 U.S. crop threaten to rain on market opportunities for 2004.
“We made a big crop last year,” says Dan Hunter, Executive Director, Southwestern Peanut Growers' Association.
Domestic consumption should take care of 1.6 million tons, leaving 400,000 for export or other uses, Hunter told growers at the North West Texas Ag Conference recently in Memphis, Texas.
Hunter said the export market “is hard to get a handle on.” He's not certain how much of that 400,000 tons foreign buyers will take. “But it's a key in how we deal with the 2004 crop,” he said. “Just 200,000 tons carried over will affect the 2004 market.”
How USDA gets rid of loan forfeitures also influences the market. If those stocks remain throughout the growing season, they could depress the market. “The USDA could have a crush sale before the 2004 crop comes off. We just don't know.”
Hunter said the foggy outlook for peanut markets represents the lingering effect of the change in policy mandated in the Food Security and Rural Investment Act of 2002. Growers have had to totally revamp the way they sell peanuts. “And we've changed our functions, somewhat,” Hunter said of the Southwestern Growers' Association. “We're doing some new things. We serve as a cooperative market association.”
Hunter said the association realized more than $40 per ton above average prices from the 2002 crop. “Returns from the 2003 crop remain a question,” he said. “We took in a good part of the Oklahoma crop but much less in Texas.” He said Texas growers received fairly good offers from buyers at harvest time.
Southwestern also served as a designated market association for as much as 40 percent of the Southwest peanut crop. “About 2/3 of the peanuts put into the loan came through us,” he said. “We hope to streamline the process by next fall, as we enter into the third year of the new peanut program.”
Hunter said growers should become as savvy about marketing strategies under the new program as they are about production practices. He said a combination of government program payments, grower/manufacturer contracts and association or pool sales could be necessary for producers to get the most out of the program and the best possible return for the crop.
USDA recently announced that a second counter cyclical payment would be made for the 2003 crop. Late in 2003 growers received a counter cyclical payment of just more than $36 per ton. A second payment totaled almost $15 per ton. With USDA's announcement, this year's counter cyclical payment will be about 70 percent of the maximum allowed. “Growers will lose from $30 to $40 per ton in CC payments,” Hunter said. A farmer will be hard-pressed to hit the $495 per ton target price, without very good contracts. “If he didn't get more than $40 per ton over the loan rate, he will not make it.”
Hunter also expressed concern about how USDA determines that National Posted Price.
“Fixing a base price is more difficult for peanuts than for other commodities because there is no public market,” he said. “And if USDA calculates the National Posted Price too high, growers will never hit the target price for their crop.” The higher the National Posted Price, the lower the counter cyclical payment will be.
He said the current National Posted Price defies logic. With a 1.6 million to a 1.7 million-ton crop in 2002, the posted price was well under the loan. But, with a much larger crop, 2 million tons from the 2003 crop, common sense suggests lower prices should follow.
“But the National Posted Price is well above the loan rate,” Hunter said. “It makes no sense.”
Unfortunately, that posted price affects the amount of dollars that go into growers' pockets. Hunter said with the situation currently unfolding, growers could be forced to repay part of the counter cyclical payments they have already received, “if the NPP stays up or rises even more.”
Hunter said clouds over the peanut market could affect planted acreage for 2004. “Other commodities affect final acreage decisions, too,” he said. “Most places where we grow peanuts farmers also can grow cotton or soybeans and prices for both of those crops look promising. To compete with cotton and soybeans, growers may need to see higher contract offerings than have been available so far.”
Hunter said peanut farmers should consider diversifying their marketing opportunities just as they do their rotation schedules.
“Look at all the alternatives — contracts, pools, the cash market and government programs — and take advantage of them,” he said. “If early contracts look good, take some. If pools look like a viable option, take some of that. If the cash market looks good, take some of that, too.
“So far, contract prices have not exceeded what the cash market will do.”
Hunter said when the export market becomes more dependable the Southwest production area will be in a good position to exploit it. “We can meet the demanding standards of the export market.”
Hunter said forecasting what a peanut crop will do before it's planted makes no sense at all but he does insist that what happens in the Southeast will play a huge role in setting prices for the 2004 market.
“A 1.6 million to 1.7 million ton crop the Southeast will affect prices.”