Prior to the 2010 planting season, the U.S. peanut industry was expecting an acreage increase of 8 to 10 percent. Instead, producers boosted their plantings by 17 percent, and the market is now reacting, says Richard Barnhill, an Albany, Ga., peanut broker.

“This likely will push farmer stock prices down,” said Barnhill at the recent Southern Peanut Growers Conference held in Panama City, Fla. “If there is any 2009 crop that hasn’t been contracted, you would expect low prices. The market just will not support it.”

When deciding how much peanuts are worth, it all comes down to what the market will bear, says Barnhill.

The latest USDA peanut crop estimate for 2010 calls for 2.1 million tons, he says. “We’re at a critical period in the crop year. It’s hot and dry, but so far we’ve been off to a good start,” says Barnhill.

Where is demand

It’s important, he says, to know where the peanuts from this year’s crop are going and what the demand is. Domestic usage is about 1.4 million tons, seed use is about 110,000 tons and the export market is 400,000 tons. “What does this tell us about supply and demand and what does it tell us about how many peanuts we’ll need?” he asks.

Also weighing on the current market, says Barnhill, is an all-time record crop in 2008 of 2.5 million tons, followed by a carry-out of almost 1 million tons. “We imported about 60 million tons—some from Argentina, Mexico and China—giving us a total supply of 2.8 million farmer stock tons. Demand is about 2.1 million, so we’re expecting a carry-out from this crop of about 800,000 tons. That’s bad news because that’s a few too many peanuts,” he says.

To bridge the gap between the current crop and the new crop, the industry needs to cover three months – August, September and October, says Barnhill. “To do that comfortably, we need 500,000 to 600,000 tons,” he says.

In recent years, with carry-outs of about 500,000 tons, the market has reacted positively, he says. “Unfortunately, 800,000 tons is too much, so we’ll probably see the market trade off for shelled peanuts at the end of this year. In 2009, shelled peanut prices were trading in the low-50-cent range early on. Now, they’re trading in the mid-40-cent range. The market is reacting to the current situation of a few too many peanuts,” says Barnhill.

The market now is in a holding pattern, he says, with a crop that generally looks good up to this point. “Buyers are not interested because they see the supply is so big, and they’re thinking peanuts may get less expensive. If the crop is as projected, it’ll grow our carry-out from the 2010 crop, and that is what’s weakening current crop prices,” he says.

At the end of June, NASS forecasted U.S. planted peanut acres at 1,290,000 or a 17 percent increase over the 2009 crop.

“This pretty much surprised everyone, especially in the Southwest. It’s certainly more acres than the buying points or shellers thought would be there. The industry was expecting an 8 to 10 percent increase, so that’s why the market is reacting negatively to 17 percent.”

Prices depressed

Shellers cannot sell shelled peanut kernels at the prices at which they sold them earlier, says Barnhill. “The price is getting cheaper, and therefore they’re not going to be able to pay as much for the farmer stock and stay in business.”

At the beginning of planting season, he says, it was believed that higher cotton prices would dampen the excitement for peanuts.

“At the time final planting decisions were being made, cotton was trading at about 77 cents, and we thought those higher prices might decrease peanut acres. But apparently, the price for farmer stock peanuts was more exciting than cotton.”

International factors are also affecting the U.S. peanut market, says Barnhill, including China not offering peanuts now at a very competitive level. “Their prices now are higher than Argentina and the United States. Typically, they’ve been $100 to $150 per metric ton cheaper, and they’ve sold a lot of peanuts. The crop is said to be about the same as the 2009 crop. They’re using more internally as their economy continues to do well.”

Argentina reduced its acres and the crop experienced some freeze damage, he says. But, their yields were good and production is about the same as last year. Argentina will be a major exporter into Europe, says Barnhill.

“Peanuts trade every day, and export interest has pretty much evaporated in the past month or two because the Argentina crop has come in – they harvested in April and May – and those peanuts are now being shipped to Europe. We’re seeing less interest in U.S. peanuts.”

On a more positive note, says Barnhill, if China does not become more competitive with the United States and Argentina, it may give the U.S. an opportunity to sell more peanuts into the EU and other markets.

Optimistic projection

The USDA 2010 U.S. crop estimate of 2.1 million tons is using a yield of about 3,400 pounds per acre, which Barnhill says might be too optimistic. “With that estimate, we’re looking at a carry-in of 800,000 tons, leaving us a total supply of 3 million tons. The bright spot in this entire industry is peanut butter. It does well in a bad economy, and it allows families to stretch their grocery dollars.”

Assuming the USDA estimates are accurate, it would mean a carry-out of 837,000 acres, and that’s not good news in a soft market, he says.

“We have a five-year yield average of 3,200 pounds per acre, and that’s my gut feeling. An average yield of 3,400 pounds per acre for three consecutive years would be remarkable. If we do it again this year, then we’ll have a trend. As we look forward, we would need to shift expectations to these higher numbers. These higher yields are the result of new varieties, improved farming methods, better land and rotations, and good weather.”

Even if the 2010 crop averages closer to 3,200 pounds per acre, that’ll still be plenty of peanuts, says Barnhill.

“With a good crop this year, we’ll have to reduce acres in 2011 by about 8 to 10 percent to get the market more balanced.”

phollis@farmpress.com