(“Peanut Futures: Marketing for Profitability,” an exclusive editorial series sponsored by DuPont Crop Protection, will examine recent developments in U.S. and international peanut markets. This is the second story in the series.)
U.S. peanut producers are truly competing in a world market, a recent example being the exuberance exhibited when China bought 300,000 tons of U.S. peanuts in 2012.
“The U.S. had plenty of peanuts in 2012, they were priced right, and they were of an excellent quality,” says Marshall Lamb, research director of the National Peanut Research Laboratory in Dawson, Ga., and advisor for the Farm Press Peanut Profitability Awards.
“I’m afraid the opportunity we had with China has stopped, and we’ll have to look at other markets as we move forward,” he says.
World export share has changed somewhat over the years, says Lamb. “In 2002, China owned 50 percent of all peanut exports moved around the world. A lot of them were what they called ‘hand-picked, select cuts.’ Then, in 2007, China dropped to 37 percent and then to 21 percent in 2012.
“During this time, China was selling a lot of its commodities to raise money. They started developing their own country along with a middle class that wanted to consume products inside their country, so they started exporting less. During this same time period, India has remained pretty much the same with about 15 percent of the export share. Argentina has remained about the same, and the United States has gone from 12 to 20 percent between 2007 and 2012, but that 20 percent might be an anomaly,” he says.
The major world peanut players are China, the U.S. and India, says Lamb. “India ramped up exports and then dropped off is because the monsoon rains didn’t come to the crop in 2011, and they couldn’t export those peanuts to China in 2012. India is harvesting a good crop now, and they’re moving them into China.”
The one opportunity the U.S. may have this year could come from Argentina, he says. “One of their major production areas is suffering through a drought during their primary pod-fill period, and a significant drought could delay their crop. We don’t yet know how much of that crop was damaged. Most all of Argentina’s peanuts are exported to Europe. But if they have issues with aflatoxin, they won’t be accepted into Europe. It’s not a big market, and it would help us only a little.”
Exports will be down this year due to the China factor, says Lamb, but exports are growing now in Mexico and Canada, with Canada surpassing the U.S. in terms of per-capita consumption of peanuts.
Bigger yields equal more peanuts to market
Peanut yields have improved significantly in recent years, but a record-breaking year – like the one in 2012 – can throw the market out of balance. Looking back at the 1920s, 30s, 40s and 50s, U.S. growers could not break the 1,000-pound barrier, says Lamb.
“Then, we had a jump in 1960, and then in the 70s, 80s and 90s, we had big boosts in yields. This was due to the introduction of the Florunner peanut cultivar, which was an absolute game-changer. It gave us a new pleateau. But in 2010, 2012, and 2013, the average U.S. yield was 3,700 pounds per acre. It’s exciting what we have to work with in peanut production.”
From year to year, says Lamb, there is a lot of variability in U.S. planted and harvested peanut acres, with up-cycles followed quickly by down-cycles.
“The reason is that we’re growing most of the peanuts in the United States in a very tight geographic area, and a weather phenomenon that affects one area usually affects all of them within the Georgia-Alabama-Florida region. These are nothing more than indications that the market is correcting itself as we go forward.”
The year 2012 was a big one for U.S. peanuts, with 1.6 million harvested acres, he says. Acreage decreased to 1.067 million in 2013, with some of the lowest plantings since the 1920s.
“In 2012, the U.S. averaged 4,200 pounds per acre, and that’s unbelievable. And on just more than 1 million acres this past year, we averaged another 2-ton crop. Total production mirrors the acreage response. In 2011, we produced 1.8 million farmer stock tons, followed by 3.4 million farmer stock tons in 2012, and in 2013, we produced 2.1 million farmer stock tons.”
When considering supply and demand for U.S. peanuts, the industry looks to carryout numbers as a main indicator, says Lamb.
“In peanuts, carryout is what we need for three months. The marketing year for peanuts ends on July 31, so we’re looking at August, September and October until new-crop deliveries come in and are ready to be processed.
“We can shell about an average of 165,000 tons per month in the United States. To cover that three-month period, we need a minimum of about 495,000 tons to fill that three-month period.
Industry looks at carryout numbers
From a grower’s perspective, I like to see the number on that carryout at between 500,000 and 600,000 tons. That means we’re clearing the market of peanuts before new ones are coming in.” Shellers prefer that number a little higher because they want a cushion, he adds, and manufacturers want that number at 900,000 to 1 million so they can put downward pressure on the market.
In 2011, says Lamb, in mid-August to early September, U.S. peanut markets discovered it would have a 380,000-ton carryout from 2011 going into 2012, very much a deficit crop, with much of the crop requiring extra cleaning.
“That’s why we had uncontracted peanuts late in 2011 going for about $1,000 per ton. That’s why in 2012, shellers were offering roughly $700 per ton early in the year because they wanted to get more acres secured and brought in from other crops to get the pipeline back in order.”
The industry made the right acreage response, says Lamb, but the 4,200-pound yield got the markets out of balance.
“We produced 3.4 million tons and brought forward 380,000 tons, so basically it shut down imports and gave us a 3.7 million-ton working supply. We had a 2.5 million-ton demand, but about 300,000 tons of that went to China. That gave us a 1.26 million-ton carryout going from 2012 into 2013, almost a three-fold increase in carryout in a one-year period. We produced 1.2 million tons in 2013, giving us a 3.4 million-ton total working supply in 2013, a 2.3 million-ton demand, which gives us a 1.1 million ton carryout from 2013 into 2014 – way too many peanuts in the pipeline, and we have to work to get it down.”
According to the USDA’s March 31 Prospective Planting Report, Georgia peanut farmers say they plan to plant 660,000 acres, or 53 percent more than in 2013. Alabama farmers plan to plant 165,000 acres or 18 percent more than last year. Florida plans 150,000 acres, up 7 percent. South Carolina growers look to plant 95,000 acres, up 17 percent. Total U.S. acreage is predicted to be 1.38 million acres, or 29 percent more than in 2013, but still much less than the 1.63 million acres planted in 2012.
Looking at scenarios for the 2014 U.S. peanut crop, Lamb took the 2013 acreage and increased it in 5 percent increments up to a maximum increase of 25 percent. He also looked at different yield combinations.
“For the different acreage and yield combinations, we calculated the carryout from the 2014 crop to the 2015 crop. This will determine how contracting and marketing situations develop. If we have a 10-percent increase in acreage, and a 4,000-ton yield, the carryout next year will be almost the same as it is now, at about 1.1 million tons. If we have a 3,600-pound yield, it’ll be at 865,000.
“If the carryout is less than 600,000 farmer-stock tons, we will be undersupplied in the market based on the demand we need going into the next year. At the end of the year, you’ll see aggressive contracts for 2014 and early in the 2015 crop. If the carryout is greater than 600,000 tons but less than 800,000 tons, markets will be fairly tight, and there will be contracts for the 2014 crop and into the 2015 crop.
“However, if we have carryouts of greater than 800,000 tons but less than 1 million, we’re over-supplied again, but we can easily correct it in 2015. If the carryout is greater than 1 million farmer-stock tons, we’ll be over-supplied for all of 2014, and have depressed markets going into 2015.”
The problem remains that more than 70 percent of U.S. peanuts are produced in a very tight geographic area of Georgia, Florida and Alabama. “We don’t want a crop failure, but if we have a really good crop in the region, it’ll hit us on the price side.”
For the coming year, Lamb advises growers to keep their overhead costs low and to carefully manage production costs.
“Farmers put out only what they need. You don’t want to cut back to the point of damaging yield, but there are things you can do to reduce production costs and have no effect on yield. Keep in mind that it’ll take us a year or two to work through this peanut market situation.”