Peanut farmers are correct to be a bit more optimistic than they were at this time last year about their market, but the market can change quickly, however, for the better or worse. Patient marketing and a judicious eye to what may come in 2018 is advised.
“This time last year, we were looking at some extremely low contract offers simply because the industry was telling us that there was a tremendous supply of peanuts. Farmers took low contract offers because of a scare of not having enough storage for the peanuts. Naturally, farmers wanted to sell those peanuts but without the storage you couldn’t. … And when you get peanut prices below a profitability level, there’s just not much excitement out there for it,” said Ken Barton, executive director of the Florida Peanut Producers Association and peanut farmer in Holmes County, Fla.
“We now know there were some errors in reporting, and this year we have much less peanuts to deal with in the supply line,” Burton said, during an interview at the 2017 Alabama-Florida Peanut Trade show in Dothan, Ala., Feb. 9.
Note from editor: This is the first article of the “Managing the Margins: 2017,” series which will appear in Southeast Farm Press print and digital editions monthly (or more often as needed) to provide up-to-date information and strategies to manage the unique financial risks and opportunities associated with farming in the Southeast in 2017.
Early contracts for 2017 peanuts were offered at $500 per ton to a bit better for high-oleic varieties. Last year at this time, farmer stock peanuts were being offered $365 per ton or less.
“So, prices have significantly increased (compared to this time last year), and still with the somewhat robust export market, farmers are extremely optimistic that prices may continue to improve though prices have backed off a little from what they were earlier,” Barton said.
As you visited with the farmers at the trade show, you could get the sense the recent rally in the cotton market, pushing prices more firmly in the mid-70s, has also bolstered moods. “We’re in a better position moving into this land preparation and planting time for 2017,” Barton said.
Even with a tighter peanut market right now, one important thing growers need to think about is using better the Peanut Marketing Assistance Loan, said Marshall Lamb, director of the USDA National Peanut Laboratory.
“If you have a portion of your crop already contracted in at the $500, and I think you should have a portion of it, don’t hesitate to evaluate what the offer is at harvest, and if it’s decent take a little more,” Lamb said, during his presentation at the trade show. “But if it is not (decent at harvest), put your peanuts in the loan and let it carry you into the next crop year.
“You’ve got nine months from the day they go into the loan that you have to redeem them or lose them, and it will allow us to look at what happens in the country but also what happens internationally and how these things might influence the market,” Lamb said. “There are certain years you are going to win with this strategy, but it is also the least risky strategy to have.”
The carryover supply from 2016 into the 2017 marketing year is on track to be about 770,000 farmer stock tons, Lamb said, and that’s a tight supply. U.S. peanut shellers have an average capacity to shell about 290,000 tons of peanuts per month, and the industry prefers to have two- to three-months of peanuts in the supply pipeline to keep things running smoothly.
The U.S. peanut supply is in a good balance right now, Lamb said, which is why early 2017 farmer stock contracts were offered at $475 to $500 per ton and offers for 2016 farmer stock peanuts in the loan were offered $475 per ton. But if the 2016 carryover was more than 770,000 tons as it is now and closer to 870,000 tons, “I guarantee you we wouldn’t be seeing $500. This is a good solid number for producers to get higher prices and transition into another crop year.”
Due to tough weather events in Argentina, India, China and even South Africa that lowered expected global peanut production in 2016, the world came calling, especial China, for U.S. peanuts, which further lowered U.S. stocks in a good way, Lamb said.
Peanut demand in China has increased due to an surge in direct consumption, record-high demand for peanut oil, which is being touted for its health benefits, and because the U.S. peanut industry has promoted its product there and worked to ease logistical hurdles to enter the Asian markets. “And India normally supplies China with peanuts for crushing but two consecutive years of weak monsoonal has greatly limited India’s crop,” Lamb said.
China is becoming a leading peanut importer, Lamb said. In the last decade, China has reduced its peanut exports from 830,000 tons annually to 510,000 tons, while steadily increasing its peanut imports from what was nil a decade ago to importing 260,000 tons for the 2016-2017 marketing year.
The U.S. exported to the world a whopping 562,000 tons in 2016, or 50 percent more than in 2015. China imported close to 171,000 tons of those U.S. peanuts in 2016, or 1,500 percent more than in 2015. The outlook for U.S. peanut exports to China remains strong at this time.
Lamb offered some points to keep in mind now about global peanut production:
- Quality issues are being felt in the Georgia crop due to the 2016 late-season drought.
- The major question is whether U.S. can keep export markets at a strong level.
- India received the monsoonal rains this year and is expecting a larger crop.
- China is expecting a larger crop.
- Argentina crop is progressing well and just received rain.
Domestic per capita consumption of peanuts has steadily increased, topping 7.4 pounds in 2016, almost a pound more than just four years ago. That increase in consumption equates, he said, to the use of more than 100,000 farmer stock peanuts. If you factor in oil stock, per capita consumption was about 8.6 pounds in 2016.
The average U.S. peanut yield has trended down since reaching its record high of 4,217 pounds per acre in 2012, hitting 3,675 pounds per acre in 2016. This drop in average yield can certainly be blamed in part on adverse growing conditions experienced in major peanut regions, but also can be attributed to crop rotations in some areas being compromised.
Due to a low average price in 2016, peanut farmers who signed up for the Price Loss Coverage program will get what is expected to be a $147-per-ton PLC payment, and those payments will come in October. “But at this time, I’m more concerned about 2018 than I am this year,” Lamb said.
Considering how the PLC payment is calculated, if average prices stay close to the $500-per-ton range in 2017, peanut farmers can expect little to no PLC payment for their 2017 crop, which, if any PLC payments are triggered for 2017, won’t be sent to farmers until October 2018.
If peanut farmers oversupply the market in 2017, they could be facing low contract prices in 2018 coupled with a much smaller to no PLC payment coming in fall 2018.