A huge over-supply of U.S. grown peanuts is being stored in some strange places and has left growers wondering how few peanuts they should grow this year.
Recent record movement of peanuts out of storage and to shellers may influence growers to plant more acres than experts are currently predicting.
Domestic buyers have waited out the pricing game, hoping to buy cheap peanuts from the government loan program, but as they waited the export market stepped in to deliver a much needed charge into the peanut business.
The primary reason U.S. peanut exports are up by 51 percent versus this time last year is China. The Asian economic giant traditionally buys peanuts from India. They typically buy mixed quality peanuts and use cheap labor to sort these peanuts in a process called hand-picked selects. In this process, China picks the highest quality peanuts for the edible market and crushes the rest for oil.
With the price of U.S. peanuts down on the world market, the Chinese have found they can buy higher quality peanuts and use these for edible markets, without going through the time-consuming and costly hand selection process. The remainder of the peanuts can be crushed for oil.
Peanut oil is in big demand for cooking purposes in China, and though the Chinese grow about 13 million acres of peanuts, demand far exceeds supply from the Chinese domestic supply.
To overcome the poor quality of peanuts from India and other countries, China began looking for a higher quality supply and have opened a peanut buying office in California, set up to buy U.S. grown peanuts.
“China is coming to the U.S. peanut market in a big way. They are able to pre-pay for their purchases and are likely to open additional offices to buy more peanuts,” says long-time peanut marketing expert Tyron Spearman.
In one recent buy a Chinese buyer purchased 100 loads, or about 400,000 pounds of U.S. peanuts and paid for them before the peanuts were delivered. It won’t take many such buys to reduce our surplus in a quick hurry, Spearman says.
(To see what Mississippi peanut growers were told about the situation at their annual meeting, and what to do about planting intentions, see China's surprise purchases help ease pressure of huge peanut crop).
Domestic buyers coming back
Now, domestic buyers are coming back to shellers to buy another three month supply, but shellers are working seven days a week to get enough peanuts ready to meet the renewed export demand.
The rapid demand for peanuts has created a backlog in blanching — the process that removes the skin from peanut kernels.
“We need to get these peanuts shipped overseas in the winter months. It’s a lot easier to ship in cool weather, because in hot weather peanuts sweat in containers and quality can go down,” Spearman says.
So, shellers are going full tilt trying to fill these export orders, which keep getting bigger and bigger.
“If this export frenzy continues, and we move a large amount of peanuts prior to planting time, we could see the current plans to cut acreage change dramatically,” he adds.
One hold up to the supply-demand issues facing peanut growers is the domestic market. Manufacturers are still using some of the high priced peanuts, even when blended with cheaper peanuts, it’s pushed their production costs up. Subsequently, the price of peanut products has gone up and demand for these higher priced products has gone down.
“Peanut butter, the staple for U.S. peanuts remains in good demand, but other peanut-containing products have taken a big hit in the market place. Getting this domestic market booming again is critical to cuting back the over-supply of peanuts that we currently have storage.
“As manufacturers get into cheaper peanuts from the 2012 crop, the price of peanut products should go down. However, they were buying jumbo peanuts a few weeks ago for 46 cents a pound. After the Chinese-driven export market made a big move to buy U.S. peanuts, the price of jumbos to the domestic market went up two cents a pound,” Spearman says.
“We’re sitting on a million ton surplus, but when countries like China come in and buy in big bulk orders, that’s not such a big cushion for domestic buyers, and the supply and price can change quickly,” he adds.
“Last year China bought 40 percent of the U.S. pecan crop and really turned the market around — significantly increasing pecan prices in the U.S. If they decide to buy in big enough volume they could do the same thing with the peanut market,” Spearman says.
Doesn’t feel like huge over-supply
“All in all it doesn’t feel like there is a huge over-supply of peanuts. If the export market continues to grow at its current rate, there won’t be an over-supply, but counting peanut dollars before peanuts are sold is a lot like the old adage of counting eggs before they are hatched.”
In 2012, peanut growers across the South — literally from Arkansas to the Carolinas set all-time records for production. And, they set these production records at a time when peanut supply was well ahead of demand.
Last year peanut growers in the Southeast averaged 4,335 pounds per acre — nearly 1,000 pounds per acre more than 2011 totals. The record breaking yield came from 1,198,000 acres — the most acres planted in the region in the past decade.
“Production used to be split at about 60-20-20 among the Southeast, Virginia-Carolina belt, and the Southwest. Now, the Southeast grows about 85 percent of all the U.S. peanuts — that’s a big concern for me,” Spearman says.
A hurricane or drought or flood or any type unexpected weather during the growing and harvesting season used to be much less of a concern. Now, a bad growing season in the Southeast can have a huge impact on U.S. production.
And, Spearman adds, the percentage of peanuts grown in the Southeast is probably going to increase more, because production in Texas continues to dwindle.
For peanut growers in the Southeast, Spearman says they should follow the same advice he used to get from his mama — “be patient.”
“Growers shouldn’t make decisions on how many peanuts they are going to plant right now. The longer they wait, the better idea we’ll have on how many peanuts we need from the 2013 crop,” Spearman says.
“If the current Chinese buying frenzy continues, the demand for our peanuts could be dramatically different than they are now (Feb. 1).
“With the potential for high yields, even close to last year’s record production, increased demand and prices could make peanuts one of the most valuable crops for farmers in 2013.
“The other side of that coin is to not plan on planting more peanuts right now, because there are no contracts and no guarantees that the ever-changing export market will continue to grow.”