Fortunes of 2008 may haunt peanut growers

It would be stating the obvious to say that U. S. peanut growers had a large crop last year, and it’s equally obvious this bumper crop will have an impact on the marketing of this year’s crop, says Nathan Smith, University of Georgia Extension economist.

“Our economics this year will be affected by the awfully good year we had in 2008,” said Smith, speaking at the recent Georgia Peanut Farm Show held in Albany.

The USDA, he adds, has confirmed that this past year’s crop was the largest on record in terms of production at 5.15 billion pounds, 40 percent more than was produced in 2007. “We also saw a record yield average, at 3,416 pounds per acre, up 343 pounds per acre from last year. Georgia’s average yield was 3,400 pounds per acre while Alabama had 3,300 pounds per acre and Florida had 3,200 pounds per acre,” he says.

Looking at regional production, the Southeast came in at 3.76 billion pounds and an overall average yield of 3,397 pounds per acre. Virginia-North Carolina production was estimated at 438 million pounds with an average yield of 3,621 pounds per acre. Southwest production has been pegged at 949 million pounds with an average yield of 3,401 pounds per acre.

While growers might have felt good about their good fortune in 2008, that feeling is fleeting as market realities set in, says Smith. Total U.S. peanut production exceeds total peanut consumption for the first time since the 2005 crop, he says.

“Ending stocks likely will increase by approximately 50 percent over last year. All this means that contracts likely will be limited and at much lower prices than seen in 2008,” he says.

Total disappearance, he says, will hopefully rebound in 2009, as peanut utilization appears to be up over last year, a sign of a worsening economy. “A 24 percent increase in exports offset a drop in food use and crush last year, resulting in an overall increase in total disappearance,” he says. “Exports have been strong, and that has been a real advantage for peanuts. Since 2005, they’re up 50 percent.”

Projections for the 2008-2009 marketing year show domestic use, crush, seed and residual use all rebounding, says Smith. “Right now, USDA is projecting total consumption and domestic use to increase. But fewer peanuts will be needed in 2009 given the bumper crop and the current pace of peanut disappearance. Planted acreage will need to adjust by dropping about 15 to 20 percent. In Georgia, we could see reductions back to 2007 levels, which would be a reduction of 25 to 30 percent,” he says.

All growers face difficult decisions in 2009 as far as what to plant, says Smith. “From a purely agronomic standpoint, peanut acreage will drop in Georgia and in the United States if producers wish to keep a three-year rotation,” he says.

Competition for acres from cotton, feed grains and soybeans will all depend on how these markets perform throughout January, February and March, says Smith. “Cost of production may drive some planting decisions as inputs are slower to retreat than output prices. Projected production costs are 25 to 30 percent higher than last year. In addition, access to credit may be tighter due to the credit crunch. Some growers may not be able to borrow all that is needed to grow peanuts,” he notes.

Looking at input costs, Smith says fertilizer prices are expected to moderate somewhat this year. “Fuel has come back down to levels that were last seen in 2005, so at least there’s some relief there. Hopefully, fertilizer prices will continue a downward trend — the fertilizer market is not as tight as it once was. But even with these price considerations, we continue to be in a cost/price squeeze in peanut production.”

Given all of these financial concerns, the outlook for peanuts is for production to fall by as much as 25 percent in 2009 and for prices to drop by an average of 15 to 20 percent. “This bumper crop from 2008 will certainly pull down prices. I’m not sure at this point what kind of contracts we’ll see or whether or not we’ll see contracts. They will be on a very limited basis.”

Prices of other crops undoubtedly will impact peanut acreage for 2009, says Smith, with soybeans remaining a strong consideration for many growers. “In the absence of contracts, you basically should be prepared for the possibility of $355-per-ton peanuts. When contracts do come out, you certainly want to pay attention to what is covered in those contacts, such as handling and storage fees.”

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