U. S. peanut farmers need to increase acreage slightly for 2010 to maintain an adequate carryover but shellers so far have not offered contracts for runner-type peanuts high enough for Southwest producers to commit acreage.
Also, competition from cotton, especially in the Southwest but also across the peanut producing states, will push farmers toward cotton. Recent price jumps into the low $.80 cent range makes cotton a viable option to take in a few more acres.
Industry marketing analysts speaking at the recent Oklahoma Peanut Expo in Lone Wolf said acreage should increase by 5 percent to 8 percent over 2009 production, which marked a 35 percent drop from 2008 as the industry worked out of a burdensome surplus.
Shellers have offered contracts for runner-type peanuts as high as $450 per ton to secure acreage. “Most Southeastern growers jumped on $450,” says Tyron Spearman, editor of the Peanut Farm Market News in Tifton, Georgia, and emcee for the Expo. Shellers recently pulled those offers, he said.
Even at $450 a ton, they found few takers in the Southwest, where farmers insist they need closer to $500 to earn a profit.
“We need something in the $500 a ton range for farmers to plant more runners,” said Jimbo Grissom, president of the Western Peanut Growers Association and a Gaines County, Texas, producer.
Grissom said the peanut industry is “competing with significantly higher cotton prices this year. At $.68 to $.72 a pound and better insurance options, cotton is less risky. It’s also herbicide tolerant varieties make cotton easier to grow.”
Grissom, who raises both cotton and peanuts, plans to maintain acreage to keep rotation options in balance.
Southwest producers have taken advantage of contracts for Virginia-type and Spanish-type peanuts at prices higher than runner offerings. Spearman said contracts for Virginia and Valencia peanuts range from $550 to $600 a ton; Spanish contracts are about $525. The Valencias are in primarily a niche market, industry analysts said.
Spearman said the industry may need more medium-size runner peanuts. Recent introduction of newer varieties, he said, result in a lot more jumbo peanuts but far fewer mediums.
Spearman and Richard Barnhill, with Mazur and Hockman, Inc., peanut brokers, in Albany, Georgia, said supply and demand estimates indicate the need for a few more acres in 2010.
Barnhill said the 2009 crop produced 1.8 million tons of peanuts, down from the record 2.5 million ton crop in 2008. Demand in 2009 included 1.45 million for domestic use, 100,000 for seed, 125,000 crushed for oil, and 400,000 for export.
With a 1,844,000 ton production, a 1,034,000 ton carry-in and 60,000 tons imported, supply came to 2,938,000. Demand was 2,083,000, leaving an 855,000 ton carry-out.
“That’s 179,000 tons less than last year but still far too many,” Barnhill said.
Meanwhile, buyers “are in a holding pattern, waiting to see what 2010 plantings will be. We could see farmer stock prices go lower if acreage pushes above 1.15 million for 2010. If acreage goes below 1 million, prices should go up, above $450 per ton. Shellers want to see acres planted.”
Barnhill agrees that cotton’s competitiveness “dampens the excitement of peanuts. If cotton is at $.78 or less, we’ll see more peanuts. If it’s near $.80 we’ll see more cotton.”
He said China will be an enigma, especially considering their peanut marketing strategy of late has been counter to usual practices. “China has offered peanuts at prices higher than the United States and Argentina,” he said. Typically they offer peanuts at $50 below Argentina and $100 below the United States.
Apparently, China is retaining more of their production for domestic use, peanut oil, and reducing export numbers. He said China has increased purchase of tree nuts. “As China moves from a concentration on agricultural production to manufacturing, people are moving to factories, improving lifestyles and looking for better products. China’s internal demand is growing.
“Is China using more peanuts (as cooking oil)? They may export less, so the United States and Argentina are the next options. This could mean a significant swing in world supply and demand.”
Barnhill said Argentina reduced acreage by 25 percent for 2010. “The United States is the only place for the European Community to get peanuts.”
He makes a few assumptions about possibilities for 2010. He said a 1,810,000 ton crop, plus an 855,000 ton carry-in and 60,000 ton from imports, means a 2,731,000 ton supply. Considering a 2,083,000 ton demand leaves a 648,000 ton carry-out, 207,000 less than 2009.
“But that allows from some crop yield problems. It’s a pretty tight supply but it’s comfortable. We need to increase acreage by 5 percent to 8 percent. Southwest runner acreage may be down by 25 percent because cotton is very attractive and we see a disconnect between the sheller market and what the farmer needs.”
Barnhill doesn’t expect another record yield for 2010, although he said the industry can’t count it out. He anticipates a 3200 pound per acre average yield across the peanut belt, down from 3400 last year and up slightly over the 3,160 pound five-year average.
Barnhill said acreage exceeding 1.15 million acres and average production of 3400 pounds per acre or more would affect the market.
“Oklahoma can maintain acreage or increase slightly,” he said. Oklahoma peanut farmers planted only 13,000 acres last year, down 55 percent from 2005. “Oklahoma can increase acreage with no significant effect on the market. Also, the Southwest is meeting a demand for Spanish-type, low aflatoxin, and high oleic peanuts. We see a significant demand for Southwest peanuts in Mexico. They want the high oleic varieties.”
He said markets for peanuts out of the Southwest are good and thinks growers could get premiums for low aflatoxin, high oleic and favorable freight rates. The Southeast production area does not produce high oleic varieties.
“The Southwest is important to the markets,” Spearman said. “The region grows 100 percent of our Spanish and Valencia peanuts.”
He said the European community demands extremely low aflatoxin levels. “Southwest peanuts are promoted as aflatoxin free,” he said.
Early contracts, Spearman said, might not be the best deal for farmers. “The current peanut program was set up to hold peanuts until after harvest, when prices are usually at their lowest. Contracts take away that option.”
He said some lenders may insist on peanut farmers accepting contracts to guarantee cash flow, even thought waiting to sell after harvest could be a better alternative.
Spearman said the Southeast should hold acreage “to keep the supply balanced so growers can get $500 a ton. “A lot of southeast farmers signed $450 per ton contracts. Farmers in the Southwest did not. They say it’s not enough and they are right.”