Contracts short for Virginia-type peanuts

Virginia-Carolina peanut growers are again facing a spring planting season with a surplus of peanuts in the pipeline and no firm contract in their hands.

“Our Virginia growers need one five at the front of the contract price to consider it and preferably two fives to reduce risks,” says long-time Virginia Peanut Growers Association Director Dell Cotton. “It will take $550 a ton and more than that to put a smile on their face,” Cotton noted at the recent South Carolina Peanut Growers meeting in Orangeburg, S.C.

“We are losing growers because of the up and down swings in prices offered to them from year to year. There is no way growers can upgrade their business without knowing whether they will plant peanuts from one year to the next due to low prices caused by an over-supply. I wish others in the industry could see the need to adjust acres in years following large or small crops rather than always letting price be the negotiating item. A stable price is a must for growers,” Cotton says.

As of Feb. 1, the only contracts being offered were runner contracts in the $425 a ton range, some with flex options to get the dollar number up, but so far few, if any, growers have jumped at these contracts. For certain, none of the growers are smiling about this opportunity.

The 2009 marketing problem remains for peanut growers for the 2010 crop — too many peanuts in the pipeline. Growers cut into the huge carryout excess in 2009, but there remain about 800,000 tons of peanuts in carryover from 2009. Georgia peanut marketing guru Tyron Spearman says a 400,000 ton carryover would be ideal.

“Demand for peanuts is a little more than 2.1 million tons. If we need a 400,000 ton carryover, we will need to produce about 1.6 to 1.7 million tons,” he adds.

Peanut production in the U.S. last year was down by 29 percent, compared to 2008. Despite the big cut in acreage, growers made only minor in-roads into the over-supply problem, because of a second consecutive year of outstanding production across all three peanut producing belts.

“The past two years are the first time in history in which we have had back to back crops in which every major peanut producing state averaged better than 3,000 pounds per acre. In 2008, U.S. peanut growers averaged 3,416 pounds per acre. Last year posted 3,412 pounds per acre,” says Cotton.

In the previous five years, growers reached 3,000 pounds per acre, and barely that, only three times out of five. It’s not unusual for a state, or even a region, to average 3,000 pounds per acre, but for the entire country to average nearly 3,500 pounds per acre for two consecutive years is unusual.

“If this is a trend, and it certainly looks like it is, growers are going to have pay as much or more attention to yield as they do in planted acres to stay within the parameters we need to insure enough carryover, but not so much to reduce prices,” he adds.

Hitting the magic marketing number is easy enough to say, but considerably difficult to do. “With recent, well publicized problems with salmonella and less recent health issues aimed at peanuts, predicting market demand is not an exact science. However, predicting peanut yield before a peanut crop is planted is akin to herding squirrels — it’s just tough to do,” Spearman says.

“From December 2008 until December 2009, overall demand for peanuts was up about 4.5 percent. Most of the increase came from a continued strong demand for peanut butter. The National Peanut Board and other peanut organizations have done a tremendous marketing job to overcome salmonella and other issues dogging peanut butter and to keep demand growing in the U.S. and abroad,” Spearman says.

Canada and Mexico continue to be the best foreign markets for U.S.-grown peanuts and peanut products. Other large European markets, Holland for example, remain good trading partners but have been more seriously affected by the worldwide recession.

In the past few years peanut acreage has dropped steadily in the Virginia-Carolina belt and in the Southwest. Last year, Southwest peanut acreage dropped by over 100,000 acres from 2008 totals. Acreage in the Virginia-Carolina region dropped to a 10-year low of 126,000 acres last year.

Spearman, who is executive director of the U.S. Peanut Buying Point Association, says the demographics of peanut production is a concern to the entire peanut industry. Based on 2009 acreage, well over 70 percent of the peanuts grown in the U.S. came from Georgia, Alabama and Florida.

“If we have a drought or some other weather-related disaster in the Southeast and production is cut dramatically, we will see prices go crazy. That wouldn’t be good in the long-run for growers, shellers, buyers or anyone involved in the peanut industry,” Spearman says.

Both peanut experts agree that to be competitive for acreage in 2010, peanut contracts are going to have to be around $450 for runner type peanuts. Sitting at 60 days or so prior to first peanut plantings, it looks like cotton is poised to compete well for acreage as is corn, and to a lesser degree, soybeans in the Southeast.

Many growers in the Southeast were in the field picking cotton and combining soybeans well into 2010. In many cases harvesting crops when the ground froze over and stopping when it thawed out. That scenario of getting into fields when it was too wet to do so has left thousands of acres of farmland in a mess in the Southeast.

If a grower has the equipment to plant peanuts, cultivation is a better option than with grain crops, which may bode well for peanut acreage in 2010.

Still, the driving factor will be price. The cost of growing a peanut crop continues to escalate and the risks involved in planting the crop without a firm contract is more than most growers are willing to bear. In 2009, several growers played out the risk and did well with their crops, thanks mainly to fair prices in the upper $480s per ton for Virginia types and 450 or better for runners and a near perfect growing season.

The 2010 crop will likely be planted at the tail-end of an El Nino year, which is characteristically unpredictable, usually in a bad way for farmers.

Based on all these factors, Cotton says he is confident peanut contract prices will be up some from 2009. How much, he says, is all together a different question. “It looks promising for $500 contracts for Virginia-types, but a lot of things can change between now and when those seed go into the ground. Much depends on consumption and demand for Virginia type peanuts,” he says.

Most agree that across the three peanut producing belts production will likely be down slightly in 2010. If current yield trends continue, there is some question as to whether a slight reduction in acreage will significantly reduce total production.

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TAGS: Peanuts
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