Peanut production in Virginia will continue to decline as the shake out continues under a new peanut program and cost of production and price become dominant factors, according to a study by a North Carolina State University Extension ag economist.
In his Virginia Type Peanuts: Situation and Outlook published in mid-December, Blake Brown, North Carolina State University Extension ag economist, considers the forces at work affecting acreage and ultimately price and demand for Virginia-type peanuts.
Production shifts will continue to occur in the Virginia-Carolina region. Prices for Virginias may settle near $450 per ton in the long-term, and will be dependent on runner prices. The demand for Virginias should be above levels under the quota systems. Imports of in-shell peanuts may be close to zero and exports may decline to very low levels under the new program.
In 2001, Virginia peanut farmers planted 75,000 acres. In 2003, the preliminary count showed that they planted 34,000 acres of peanuts. That's a 55 percent decline. Virginia's peanut acreage could go down again in 2004.
In 2001, North Carolina peanut farmers planted 123,000 acres. By 2003, the acreage had declined to 100,000. It's expected to stabilize.
South Carolina Virginia-type peanut acreage went from 11,000 acres in 2001 to 19,000 acres in 2003. South Carolina peanut farmers are expected to increase acreage above the 20,000-acre level in 2004, according to Brown.
As a reference point, Texas' production of Virginia-type peanuts increased from 33,000 acres to 45,000 acres from 2001 to 2003.
In Virginia and North Carolina, the shift and decline have been along the cost of production line. The shift in North Carolina occurred in traditional peanut-producing counties of Northampton, typically the largest North Carolina-peanut-producing county and Halifax, Hertford and Bertie. In North Carolina, the shift occurred from the northeast to the southeast. North Carolina counties with lower yields and higher cost-of-production declined in peanut acreage. Counties with yields below 3,000 pounds per acre have declined in acreage.
According to a study by Gary Bullen, North Carolina State University Extension farm management specialist in 2002, a northeast North Carolina farm with average yields of 3,000 pounds per acre could have had production costs of $430 per ton in 2001. In a 2001 study, Bullen found cost-of-production differences of almost $100 per ton based on soil productivity and disease pressure.
With prices below $500 and apparently moving toward $450 per ton, farmers with an average cost of production above $450 will be transitioned out, according to Brown.
In Texas, cost-of-production on a typical farm that has yields of 3,800 pounds per acre could be only $338 per ton, according to Bullen.
“Some North Carolina farms were profitably producing additionals for $375 per ton,” Brown says in the study. “Even so, with this difference in costs per ton between the V-C area and Texas, why wouldn't most Virginias be grown in Texas?”
Prices offered in the V-C area may remain near $475 for 2004, Brown says. The price offered in mid-December for runners grown in Texas was about $45 over the loan repayment rate. In Texas, the price of runners has implications for the amount of Virginias that will be grown. Texas producers will grow Virginias only if they have a sufficient premium over the price offered for runners because they can grow runners cheaper than Virginias.
The mid-December price for Texas runners implies that prices offered for Virginia-type peanuts grown in Texas in the $450 range.
In 2004, the LDP likely will be unimportant in the net price farmers get for Virginias, Brown says.
Future prices of Virginias will be dependent on runner prices.
Along with price, the demand for Virginia-type peanuts has declined. “The decline in price should have a positive effect on domestic demand for Virginias,” Brown says, quoting the study, “The Economics of Supply Controls: The Simple Analytics of the U.S. Peanut Program.
“It is uncertain whether or not this relationship remains the same over the large price changes occurring with the end of the quota system,” Brown says.
As the price differential between Virginias and runners has grown since the end of the quota systems, shellers have substituted large shelled runners for shelled Virginias in the snack market. Shelled use of Virginias in snack peanuts was down in 2002. “Ultimately, the impact of this substitution between Virginias and runners in the shelled snack market is uncertain,” Brown says.
A more important factor is the decreasing demand for Virginias in the export market. Exports of in-shelled Virginias have declined from almost 68 million pounds to about 40 million pounds over the last five years.
Shellers say cheaper imports from China are displacing U.S. grown Virginias in the European market, traditionally the export market for in-shell Virginias.
The rise in the price of Virginias that occurred from the old program to the new program for additionals will cause a further decline in exports, Brown says.