peanuts China exports

JEFF JOHNSON OF Birdsong Peanut Company says China is a potential regular customer of U.S. peanuts. Johnson is shown here at this year’s Southern Peanut Growers Conference held in Panama City, Fla. 

China has potential as regular customer for U.S. peanut exports

China could be a potential long-term customer of U.S. peanuts. In the past 10 years, the U.S. has gone from being the most expensive peanut producer to the cheapest.  

With an anticipated U.S. market carry-out of about 1.1 million tons of peanuts this year, more customers will be needed, especially if growers decide to plant another 1.3 million acres or more next spring.

“Our peanuts have to go somewhere,” says Jeff Johnson, president of Birdsong Peanut Company. And like others, Johnson thinks China might have potential as a regular customer.

“It looks like we’ll have a planted crop of about 1.3 million planted acres, and at 2 tons per acre that’s a crop of from 2.4 to 2.6 million tons,” said Johnson at this year’s Southern Peanut Growers Conference, held in Panama City, Fla. “We carried in about 1 million tons, and we’ll carry out about 1.1 million tons. These are consensus numbers, from various brokers and USDA.

It’s a very big carry-out.”

At the same time, he says, peanut exports are booming. “We were averaging about 315,000 to 320,000 farmer stock tons under the old peanut program, but we’ve doubled that. There are many reasons for this, but the main one is the yield per acre.”

Going back to 2004, U.S. growers were averaging under 3,000 pounds per acre in yield, he says, with average yields that were similar to those in China and far behind those being made in Argentina.

“That jump in peanut yields is unprecedented – it has never happened in any other crop. In 10 years, we’ve gone from being the most expensive producer to the cheapest, and basically it’s because of yields,” says Johnson.

And there’s more to come, he adds. “We’ve got some high-oleic varieties coming that’ll probably out-yield Georgia-06G, which itself has been phenomenal. Seed continues to be our competitive advantage. As long as we continue to make this kind of progress, we’ll continue to stay in first place among competing countries.”

China interested in U.S. peanuts

About two years ago, says Johnson, groups of Chinese began visiting U.S. peanut shellers, and they were interested in oil stock.

“We showed them oil stock. We explained to them that the oil stock was what we crushed, but they said they wanted jumbo runners. We asked them how many they wanted, and they said they’d take them all. Since we had a pretty big crop in 2012, we said okay, it’s a deal.

“We were careful – we took a down-payment, and we dealt with government-owned companies. We concluded that with a government-owned company, we couldn’t get stuck – we were wrong. A government-owned company will stick you as fast as anyone, and we learned a lesson there. Normally, if we sign a contract with a grower or a manufacturer, then that’s the end of the negotiations.

“With China, it’s the beginning of the negotiations. They told us that the peanuts were inferior, that the quality was bad, that the peanuts were damaged when they arrived, and that they couldn’t pay right now because the bank has the money. We’ve heard all of this from China.”

Johnson says he also received another message that shipping peanuts from the U.S. through Vietnam and then to China was illegal.

After the situation settled, Johnson says he traveled to China to check this out for himself. He noted that this isn’t the first time the U.S. has looked to China to help out with a surplus of peanuts, the first time coming in the late 1980s.

Since that time, says Johnson, China still finds itself plagued with significant problems.

“China still has significant problems with air pollution, and their ground is polluted with heavy metals. They also have agricultural issues, but they have grown and developed in the last 20 years, so now they have money to buy peanuts.

“But when you go to the countryside, it’s very poor, and young people are leaving the farm and moving to the cities. They are a lot less interested in growing peanuts, which is a labor-intensive crop. There’s a gradual tapering off of peanut production. Ninety-six percent of peanut fields in China are on less than ½ acre of land, which means there are about 20 million peanut farmers in China – it’s a tough life.”

Now that the people in the cities are richer, says Johnson, China is exporting fewer peanuts each year and importing more. Their usage and consumption are growing every year, and in most years, China is going to need some peanuts, he says.

“Last year, China had a bumper peanut crop and really didn’t need that much. This year, it looks like their crop will be down by about 15 percent. So where do they get their peanuts? They don’t like Argentine peanuts, and that’s one thing in our favor. China is crushing the peanuts we export to them, but the Argentine peanuts have a low oil content, somewhere in the 46 to 48-percent range. The Chinese like a higher oil content.”

In the past, China has turned to India for peanuts, says Johnson.  

“They were going to India in the two years before they came to us. India planted a massive peanut crop in 2013. Their crop depends on the monsoon, which usually arrives in the peanut area around mid-June. But this year it didn’t arrive until mid-July. So they’re a month late in planting.

“Peanut prices are pretty low, so it’s expected that India will plant a lot more than in 2012, but half of what they planted in 2013. Given that the monsoon is late, you’re probably going to see a reduction in yields. So it’s fair to say that China could use more peanuts and would like to get some from the United States. But there are a lot of issues – it isn’t as easy as it sounds.”

For one thing, says Johnson, there’s a 28-percent duty on peanuts that are legally shipped into China. That works out to about $200 per farmer stock ton at today’s prices.

Fifty-five percent of the peanuts in China are crushed, and all of the peanuts the U.S. ships to China are crushed, he says.

“The eatables are the local peanuts, so crushing drives the market. One company in China – Li Hua – has the capacity to crush the entire U.S. crop. Crushing prices in China are related to soy prices, and those prices are cheap. They paid a lot of money for crush in 2008, when soy was expensive. So there’s a limit to what they can pay. Our contacts tell us there’s not much chance they’ll lower that 28-percent duty next year. If we could get rid of that duty, we’d be exporting to China every year, including eatables. So we need to focus on that long term.”

With the duty added in, the U.S. price becomes about 75 cents per pound, and Johnson questions if China would be willing to pay that amount for crushing stock.

“There’s a way to bring them into China without that duty, and that’s to bring them in through Vietnam. If you live near the Vietnam border, you can bring in peanuts that were grown in Asia, 2 tons at a time, so it isn’t easy to do, and how many can you bring in under those conditions?” Another drawback says Johnson is that Vietnam and China are in the midst of  a feud now over oil drilling rights.

“Forfeitures present another possibility. If we plant a lot of peanuts in 2015, and the surplus is big enough, a lot of peanuts will be forfeited and bought back from the USDA. Those peanuts may not be in the best condition for a U.S. manufacturer, but China might be a logical place for them to go.”

The bottom line, says Johnson, is that while he thinks China would like to have some U.S. peanuts, he doesn’t think they’ll pay our price plus a 28-percent duty.

“We may bring some in through Vietnam, depending on the political situation, and they could go via forfeiture. It’s a complicated situation, and you have to remember that China may not be as trustworthy as you might hope.”

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