U.S. peanut farmers need to increase acreage by as much as 20 percent in 2008 to meet demand and shellers have offered contract prices as high as $500 a ton to compete with corn, cotton, wheat and milo for available land.
“Supplies are very tight,” said Richard Barnhill, president of Mazur and Hockman Peanut Brokers, Albany, Georgia.
Barnhill spoke from his Georgia office by phone to the Oklahoma Peanut Expo recently at Lone Wolf, Okla. Barnhill said the current National Agricultural Statistics Service (NASS) peanut estimate of 1,870,325 tons from the 2007 crop “is optimistic. Industry estimates put the figure at 1,805,000 tons. That other 65,000 tons is simply not there. Either the harvested acreage number or estimated yield is off.”
He said demand for the 2007 crop is about 1.985 million tons, with 1.43 million tagged for domestic consumption, 130,000 tons for seed and 425,000 for export.
“Exports are up more than 20 percent this year.” Those figures don’t mesh with NASS either, but Barnhill said the government does not know what has been exported until after the fact, not “until a bill of lading comes through.”
He said the big three peanut buyers, Clint Williams, Birdsong and Golden Peanut, all indicate increased export sales.
Carryover will be 180,000 tons less than from the 2006 crop. “Supplies got tight last fall. We need peanuts for 2008 to meet demand and build up carry-in. If we have production problems we might not have enough for the industry.”
Demand has pushed up prices. “For three or four years, from about 2003 through 2005, we produced more peanuts than we needed. Prices stayed around 40 cents a pound for medium runners. In 2007, prices jumped to 68 cents a pound.”
He said prices likely will remain firm but that the $500 contracts signed last fall should will mean an average 2008-crop price around 57 cents a pound. “The market is trying to figure out how many peanuts it has and how many it will need.”
Several other market factors influence peanut prices. “Europe bought a big volume of U.S. peanuts in 2007. Argentina is finished with its crop and China is using more of its production (domestically) than ever. Demand (in China) for oil and edible peanuts has increased.”
He said China is not exporting peanuts this year and that makes Japan, Europe, Mexico and Canada more dependent on the U.S. market. “China typically exports 500,000 metric tons of peanuts. They are not exporting any in 2008.”
Mexico could be a good market for Oklahoma growers. “Oklahoma has a freight advantage to Mexico,” Barnhill said.
The weak U.S. dollar also makes exports a bargain for other countries. “A 65 cents per pound U.S. peanut equals 47 cents a pound in Euros.”
The U.S. energy policy also affects peanuts, though indirectly. Energy and world demand for food have driven grain and soybean prices up so crops are competing for farmland to meet demand.
“The question is, what will the U.S. peanut farmers plant?” Early estimates point to a 17.5 percent increase. “But that was before the recent run up in the cotton market. That could have an effect.” He said a 15 percent increase seems more likely.
A 1.43-million acre crop and a 2900 pounds per acre yield would net a bit more than 2 million tons of peanuts. “That would be a comfortable carry-out and a hedge if we have lower yields, but still not a risk of too many peanuts. The industry is not comfortable with just a 300,000-ton carryover each year. Industry uses about 140,000 tons a month so it takes at least 300,000 to cover transition (from one crop to the next).”
He said Oklahoma needs more peanut acres.
Barnhill said domestic demand likely would stay strong, despite of or maybe because of potential recession. “Peanuts and peanut butter do well in an economy that’s struggling,” he said. “Consumers have less disposable income and one of the first things to go is eating out. Restaurant numbers are already declining.”
When that happens, peanut butter provides a good protein source.
“Peanut butter use is up 24 percent over last January. So far, higher prices have not caused any sign of decline in demand.”
He doesn’t anticipate that a price in the middle 50 cents per pound range will affect consumption significantly. He also doesn’t anticipate prices for corn, beans and other grains to decline within the next year or two, but expects a three to five-year trend for “grain and peanut prices at these levels or better.”
Barnhill also advised any growers with 2007 peanuts in the loan not to forfeit. “See a local sheller,” he said.
Alan Orloff, Clint Williams Company in Madill, Okla., said he’s “more optimistic about peanuts than at any time in recent years. China has a huge impact on the market and they are not exporting. For years China dumped millions of tons of peanuts on the world market at low prices. They can’t compete with U.S. peanuts on quality. This year they reneged on contracts and blindsided the industry.”
Mexico was a big buyer and with China out of the market, “Mexico is a big reason for today’s higher peanut prices,” Orloff said. “Things are looking up for peanuts.”
Tyron Spearman, Tifton, Ga., editor of Peanut Market News, an electronic newsletter, said Georgia growers likely will increase acreage in 2008.
“Soil moisture has been replenished,” he said.
Early estimates point to a 1.225 million-acre U. S. crop.
“A 15 percent to 18 percent increase in acreage will not hurt,” he said. But getting that bump may not be easy with competition from soybeans, corn and cotton.
“Soybean seed supply is short, however. We’ll need to treat more peanut seed if we plant this acreage.”
He’s fearful that a 24 percent jump might “bust the market next year.”
Spearman said the USDA estimate of domestic peanut use for food from the 2007 crop is 5 percent down. They also estimate a 5 percent drop in exports. He agrees with Barnhill that the export figure likely is wrong and he hopes the domestic consumption figure is also in error. “I think it is.”
Spearman said Japan will be back in the market for U.S. peanuts. “And Russia is now our No. 4 customer after they built an M&M plant.”
He said peanut imports have declined by 91 percent in recent years.
Spearman said peanut framer numbers, unfortunately, have also dropped, down from 17,916 in 2001 to only 10,002 in 2007. “That figure has leveled off now.”
“For now, we have a tremendous demand; the outlook is good.”
Kim Anderson, Oklahoma State University Extension economist, said farmers need to look closely at crop options this year and “use prices to figure out the best option to pay for land, labor, capital and management.”
He offered prices of crops competing for acres. The wheat futures market in early March was at $11.40 a bushel with contract prices 70 cents off that — $10.70. December corn was at $5.79 with contracts off only a dime at $5.69. Milo, at a $5.79 December futures offered a contract at $5.24, off 55 cents a bushel. Soybeans contracts with futures at $14.17 were $1.00 less at $13.17.
Peanut contracts were competing with the $500 a ton contracts last fall.
“The soybean market started going up in October,” Anderson said. “The industry needed acreage and bid the price up. The corn market started bidding up in December. Cotton supplies are not tight, but prices went up to buy land.”
Crop budgets indicate peanut production costs will hit near $535 per acre. A two-ton yield at a $500 per ton contract price brings in $1,000 per acre. Subtracting the $535 per acre production costs and another $60 per acre for drying leaves a $405 per acre profit.
“Prices are high, inputs are high, so growers have to invest more money for greater returns,” Anderson said. “Regardless of the crop, everything comes with risk. Take a pencil or a computer and look at the market, management, land, labor, and capital and see which commodity gives the highest return.
“Don’t get enamored with price,” he said. “You don’t make money just selling; you make it on production and management. You have to have a quality product to sell.”