West Texas peanut farmers, who signed what at the time appeared to be profitable contracts last fall, face a perfect storm of negative factors and potential losses as high as $200 per acre as they harvest the 2008 crop.
Many estimate yields will be off 20 percent to 40 percent, a result of season-long weather problems including drought, hail, high winds and an early pre-harvest freeze.
Add to low yields the unprecedented increase in production costs — seed, fertilizer, fuel, chemicals and equipment — and a farm bill that offers a less secure safety net than ever before and the storm becomes a tempest of lost opportunity.
“We have had a chance to visit with a few congressional members. We were very surprised to hear they were not aware of any of these types of problems for the 2008 crop. We hope that all areas who are having problems will educate their congressmen,” says Jimbo Grissom, president of Western Peanut Growers Association and a Seminole, Texas, farmer.
Grissom says Wall Street speculators represent the first wave of bad weather to hit peanut farmers.
“I fault speculators for helping to corrupt debates and to cause major problems in the development of the 2008 farm bill,” Grissom says. “Too many times during debates we heard the opposition for free trade state: ‘Commodity prices are at an all time high, we don’t need a farm bill.’
“The opposition for better provisions in Title I complained: ‘Commodity prices are at an all time high so this provision is not needed.’ They could not (or would not) understand that commodity prices they were seeing were not prices actually being paid to farmers.”
Ted Higginbottom, Western Peanut Growers Association secretary/treasurer, says a second storm wave at first seemed to offer advantages to peanut farmers.
“Due to a short 2007 peanut crop and industry fears of competition for 2008 acreage, peanut contracts at fair prices, approximately 20 percent higher than contracts offered the previous spring, were offered before the 2007 crop harvest was complete. That spring price did not generate a profit margin large enough for farmers to plant acreage adequate to meet supply demands for the 2008 marketing year and a carryover supply, creating an even greater demand for 2008 acreage.”
So offerings increased.
“Approximately 90 percent to 95 percent of West Texas peanut producers signed the contract (around $500 a ton) believing they would have an excellent chance to make money on the 2008 crop. After all it was a 20 percent increase in price!” (As a commodity, peanut acreage is too small to carry a place on the Board of Trade.)
Wall Street again influenced commodity prices and brought in the third storm front.
“A good portion of price gouging (blame) goes to speculators,” Grissom says. “False all-time record high prices encouraged agribusiness to believe the farmer’s profit or ‘pie’ was going to be more than ample. Much of agribusiness, beginning in January/February, began demanding a much larger slice of that pie.”
He cites higher fertilizer prices, which more than doubled and in some case increased by more than 435 percent, as an example. Liquid nitrogen in September, 2007, cost $330 per ton. In September, 2008, the price had jumped to $580 per ton. In September, 2007, phosphate 11-37-0 was $275 a ton; by September, 2008, its price increased to $1,200 a ton.
Roundup herbicide, at $30 a gallon in September, 2007, increased to $75 a gallon by September, 2008.
“Other herbicides and fungicides have increased approximately 30 percent during this same period,” Grissom says. (A chemical representative within Texas supplied the price information.)
Tractor and harvest equipment have seen 20 percent increases. Peanut seed increased by 25 percent. “We can’t escape the increases in diesel fuel for equipment and electricity and gas for irrigation systems,” he says.
Real weather systems accounted for the fourth phase of the perfect storm.
“Adverse weather occurred season-long in West Texas,” Higginbottom says, “beginning with delayed emergence or non-emergence at planting. Drought, excessively high winds and widespread hailstorms hampered growth during the growing season. And wet conditions and freezing temperatures during portions of the harvest period further eroded yield potential.
“We are anticipating a 20 percent to 40 percent reduction in yield, depending on the specific field locations,” he says. “We estimate 20 percent to 30 percent of the crop will suffer some degree of freeze damage.”
Grissom says his yields may be off as much as 1800 pounds per acre.
And problems persist, he says, as farmers complete harvest of this crop and begin looking to 2009.
“Unaware of the skyrocketing variable costs, many growers did not borrow enough operating money at the beginning of the year (2008),” he says. “Many went back to their banks for additional funds to finish this crop. Others are relying on the good will of local businesses to carry their debt. Several farmers are worried about repaying debts to the bank and area businesses.
“In addition to operating loans, farmers have land and equipment loans to repay. Even more are worried about where financing and collateral will come from to sustain their operations for next year. Will the financing be there? If it is, what will new interest rates be? Will the banker make me sign another peanut contract before I can get a loan?”
Higginbottom wonders what 2009 contracts will be. “Can I afford a contract if one is offered? Can I trust current variable cost trends for the 2009 crop?”
He says West Texas farmers realize that other peanut producing regions signed the same basic contract as they did in 2007 and suffered through similar skyrocketing variable costs.
“But they did not face the weather factors, yield loss and freeze damage we faced here in the Southwest,” he says. “Other areas did very well with good yields on increased acreages. They did well enough that there will be a big glut in the peanut pipeline for 2009. We do not have a good selection of alternative crops for this area. Contracts and financing are not looking good for our folks.”
Bad harvest-time weather hurt more than peanuts, too. Grissom says the freeze hit cotton, some of which had already been set back by slow emergence. “We’re also seeing freeze damage on grain sorghum.”
Higginbottom says cattlemen are losing as much as $100 a head.
“A year like this can be hard on a young producer. I can refinance, but it’s hard to see any light at the end of the tunnel.”