Although U.S. peanut acres are down this year, growers still could deliver a crop estimated at 1.99 million farmer stock tons, thanks primarily to ideal growing conditions.
"We’re looking at an abundant, high-quality crop, if we can deliver it," says Marshall Lamb, economist with the USDA National Peanut Research Laboratory in Dawson, Ga. "Early forecasts last year put the U.S. crop at 2 million tons, but we ended up delivering just over 1.6 million tons because of terrible harvesting conditions." The average U.S. peanut yield for 2003 is forecast at 3,121 pounds per acre, with eight of the nine major peanut-producing states enjoying favorable growing conditions, says Lamb. In addition, crop quality is expected to be above average with minimum problems from aflatoxin.
Carryover stocks of peanuts currently are down in the United States, says the economist. "Normal carryover is approximately 300,000 to 350,000 farmer stock tons. The 2002 carryover was 422,944 farmer stock tons while the estimated carryover for 2003 is 105,878 farmer stock tons," says Lamb.
More than 650,000 farmer stock tons from the 2002 crop were placed under loan, and essentially all loan peanuts have been redeemed, with only 4,300 tons remaining in the loan.
Many of these loans are maturing, says Lamb, and unless redeemed they will be forfeited and disposed of by CCC. Early indications are that the majority of 2003 crop peanuts will be placed in the loan, he adds.
"Peanuts will be left in the loan this year regardless of the markets," he says. "USDA has not established its loan disposition policy - they haven’t established how they are going to dispose of loan stock peanuts. Some will be left in the loan just to make USDA play its hand. It will be a bigger issue in 2003 than last year."
Much of the 2002 carryover of more than 400,000 tons — which would have been from the 2001 crop — was used for export, says Lamb. "Those peanuts were bought under the old farm bill at about $250 per ton and were sent to Europe under a special exemption by USDA. Suffice to say, as we enter the new marketing season, carryover stocks are extremely tight, as tight as they have been in several years."
Turning to price, Lamb says U.S. peanut growers went from a basic system of quota and additionals to a system of multiple prices that has confused some growers.
"We now have the national average farmer stock price, target price, loan rate, repayment rate, direct payment, counter-cyclical payment, posted price, domestic shelled stock price and export shelled stock price."
The national average farmer stock price released for the 2002 marketing year was $364 per ton. With the $495 target price and $36 direct payment, this led to a $95-per-ton counter-cyclical payment, says Lamb.
"The national posted price for peanuts — which defines the loan repayment rate and determines the loan deficiency payment and market loan gain — has been closely watched and highly debated by the U.S. and international peanut industries.
"The posted price has fluctuated from being above the loan rate during the first part of the marketing year to moving to a low of $312.72 per farmer stock ton during the middle of the marketing year and then back to the loan rate ($355.72 per farmer stock ton) at the end of the marketing year."
The average loan deficiency payment for the 2002 marketing year was $28.75 per ton and the average market loan gain was $39.60 per ton.
"From last September up until about January, the U.S. average peanut price — which helps to determine our counter-cyclical payment - stayed at or below the loan rate. At about January or February, the average price began going up, and that’s when we saw some of the buying out of the loan.
"To reach that $495 target price, growers could have a direct payment of $36, the loan rate of $355 and a counter-cyclical payment of $95, resulting from an average U.S. peanut price of $364. To hedge the counter-cyclical payment, growers must produce the crop, and they must have ownership of that crop throughout the marketing season."
Many growers sold their peanuts early in the year, or they contracted their peanuts early, says Lamb. "When prices started to go up late in the year, these growers didn’t have any control of their peanuts. They had now ownership of peanuts in the loan, so they couldn’t take advantage of the prices. Growers need to market their peanuts so that they’ll have peanuts later in they year. If this phenomena occurs again, they’ll be in a position to take advantage of it."
The loan program established for peanuts under the Farm Security and Rural Investment Act of 2002 has increased the competitiveness of U.S. shelled peanuts in domestic markets, says Lamb. Prior to the act, the average price for medium runners from 1996 through 2001 was 58 cents per pound. In 2002, the average price for medium runners was 42 cents per pound.
"However, we are less competitive in export markets, where the average price for medium runners in the 1999-2001 period averaged 35 cents per pound. In 2002, medium runners averaged 41 cents per pound. Current reported prices for export medium runners for 2003 crop peanuts is 39 cents per pound."
In the first year of the new peanut marketing loan program, the United States has been severely limited in European markets because of price, notes Lamb.
"The carryover of 2001 helped us to maintain some of those export markets. But this year, we’re having a difficult time selling peanuts in European markets because of prices. We’re more competitive in U.S. markets and more competitive against imports. Previously, we were importing up to about 100,000 tons of farmer stock peanuts each year. Now, it’s down to about 40,000 tons."
Peanut products, he says, appear to be more competitive against other food products under the new government program. "Under this new farm bill, there has been a 46 percent increase in the amount of brand advertising in the past year for peanuts. Major manufacturers are seeing potential profits because peanut costs are lower."
The outlook for the 2003 U.S. peanut crop is excellent in terms of yield and quality, says Lamb. However, the market outlook for the 2003 crop remains difficult to determine.
"U.S. demand is estimated at 1.32 million farmer stock tons, domestic seed use is 110,000 farmer stock tons, and approximately 100,000 farmer stock tons are needed to stabilize and re-supply carryover stock, leaving 460,000 tons for export. The amount that is exported will depend on how competitive U.S. peanuts are in terms of price."