When looking at peanut trade trends, no matter how you slice and dice the data, one thing stands out, and that is the role China plays in the global peanut market, says William George, senior agriculture economist for the Office of Global Analysis, USDA Foreign Agriculture Service.
“As a major producer, consumer, and exporter of peanuts, their footprint in the market is large and therefore worth watching for changes in consumption and trade,” said George at the annual meeting of the American Peanut Research & Education Society (APRES), held this year in Young Harris, Ga.
Perhaps the most important item of note, says George, has been the slow decline in China’s peanut exports over the past decade.
“In addition, Chinese buyers have recently made some large purchases of lower-priced peanuts, presumably for import into China. Experience has taught that changes in China’s marketing patterns often alter the landscape and materially impact the flow of commodities between exporters and importers.
“Of the two stories here, the simpler one concerns the trend in China’s exports,” he says.
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Looking at peanut production and examining global production shares for peanuts harvested in late 2012 or early 2013, China dominates global production, accounting for nearly half of the world’s harvest, according to George.
“The U.S. ranks third behind India at 8 percent. However, this includes last year’s large crop so more typically, the U.S. share of global production is closer to 5 percent with India a bit higher at 15 percent.
“Others, representing about a third of world production, are mostly in Africa and Asia and generally do not have much presence in global trade.”
As might be expected, says George, the three largest producers are also major players in global peanut trade.
“To this, we add Argentina to the mix. Despite their small share of global production, they are the largest exporter of raw peanuts and represent more than a quarter of total peanut trade.
Argentina is major player
“Argentina is a major player in most agricultural commodities including soybeans and corn. Their relatively small population, smaller than Canada’s, limits the size of their domestic market and places the focus on export markets.
“Nicaragua, with its small domestic market, is similar to Argentina, but on a smaller scale, while Brazil exports around a third of their crop.”
The European Union, adds George, is dominant among peanut importers. It is the only market where all of the major exporters compete and accounts for about one-third of all peanut trade.
“The next five markets by size, taken collectively, are about equal in size to the EU. And except for Indonesia, which primarily imports peanut from India, are all important markets for the U.S.”
Most exporters are dominant in nearby markets, says George. More distant markets in Europe tend to favor imports from Argentina, whereas China is an important market in the Middle East and North Africa. India is strong in Southeast Asia.
“From my perspective, what strikes me is how similar this distribution is to what you would find for soybean meal.
“Eliminate Nicaragua, scale back China and significantly increase Brazil, and it would be almost identical. But there are fundamental aspects of trade that transcend all commodities and provide regional advantages for trade from specific countries.”
Looking at peanut export shares over time, China’s market share has declined from 36 percent in calendar year 2007 to 22 percent in calendar year 2012.
“If we had looked a bit earlier in the decade, we would have found that China’s export share peaked at over 50 percent in 2002 and has been on a downward trend since.”
One side note from this, says George, is that the total share of exports for the U.S., India and China has remained relatively stable at around 60 percent between 2007 and 2012. However, it’s somewhat of a statistical anomaly brought about by recent purchases by Chinese buyers.
Big impact on exports
“Without these sales, he says, U.S. export share in 2012 falls to near the 2007 level while Argentina’s export share rises to about a third of total world trade.
“If we examine the 10-year trend in China’s exports, looking specifically at the various sectors of peanut trade, we find that much of the decline in China’s trade has been with raw-shelled peanuts.
“Export volumes in this category have dropped by two-thirds from near 600,000 tons in-shell basis to less than 200,000 tons today.”
Further observation shows that while the volume of raw, shelled peanuts was declining, exports of processed peanuts were increasing, reaching a peak in 2010, notes George.
The trend in total peanut exports has generally been declining since 2002, and at an accelerating pace over the past few years in line with slowing exports of processed peanuts beginning after 2010.
Exports of in-shell peanuts have remained relatively unchanged over much of the period but also have shown a declining trend since 2010.
“To delve a bit more into China trade, it’s worth a look at relative average unit values for raw shelled peanuts. The average unit value for Chinese peanuts has risen from a low level, near that of India, to one exceeding the value of all major exporters, including the U.S.
“While being a somewhat course measure, it does suggest that the decline in raw shelled peanuts was weighted more heavily on the lower end of the price/value spectrum.
“Logically, this is what you would expect given the large quantity of peanuts crushed in China and the lower profits exporters would realize in shipping lower valued peanuts.”
Looking at China’s slowing exports of raw, shelled peanuts in relation to trends observed with other major exporters, there is a corresponding rise in exports from India and Argentina, says George.
“Given the lower unit value of Indian and Argentine peanuts, relative to the U.S., it would appear that much, if not all of the decline in Chinese exports was captured by sales from these two markets. U.S. exports generally remained stable at around 270,000 tons for the period.”
One thing to note in the trade trends is the dramatic rise in Indian exports beginning in 2010 and running through 2012, he says. These were replaced by additional U.S. exports beginning in late 2012.
“This rise in U.S. peanut sales corresponds to an improved supply situation in the U.S., plus additional sales made to Chinese buyers.
Lower quality peanuts
A lower average unit value corresponds to the export increase and supports the story that many of the peanuts sold to Chinese buyers were lower quality nuts, priced accordingly and drawn from stocks carried-over from earlier harvests. This fits the pattern observed with the earlier surge in Indian sales.”
Looking at Indian exports and comparing that with imports by Vietnam and China, much of the increase in Indian exports can be accounted for, says George.
“And while we do not have any hard evidence that exports to Vietnam were in fact destined to China, there is enough circumstantial evidence to suggest that this may have been the case.
“Most importantly is the fact that nearly all of the U.S. peanuts purchased by Chinese buyers have been shipped to Vietnam. Regardless, given the lower value of these purchases, it would appear these peanuts would either end up being crushed or displacing other peanuts from the edible market that were crushed.”
Given the trends observed in the peanut market, it’s possible to derive a few expectations for the future with a modest amount of confidence, says George.
“Given the improved growing conditions and large crop harvested in the U.S. in 2012, and lack of any significant weather problems impacting the U.S. or other peanut production in 2013, peanut prices should continue to decline to more normal levels.
“The recent increases in Indian and U.S. exports also have reduced supplies of excess peanuts in both countries and will make it more difficult to secure large quantities of peanuts at discounted prices.
“As it was this combination of high prices and availability of off-quality peanuts that provided a profitable situation for Chinese buyers, a return to a more normal supply and price regime will likely reduce the level of opportunistic sales.”
Regarding China’s exports, the factors driving the long-term decline are still in play, he says. However, with exports of raw shelled peanuts falling below 200,000 tons, it is unlikely that there is sufficient volume left to afford much more decline in this sector.
“This leaves both processed peanuts and in-shell peanuts as possible sectors that could see reduced exports. We have seen declines in these sectors over the last two years.
“However, market conditions were unusual over the past few years so I would feel more comfortable with a few more trend years to confidently forecast declines in processed and in-shell peanuts.
“What I can say is that China will remain an important player in peanut export markets and is unlikely to abandon sales of higher valued peanuts. That said, slowing exports of Chinese peanuts would present opportunities for exporters.”