While a peanut market “scoreboard” shows both positives and negatives, the future of the industry in the U.S. appears bright, aided by technological advances and increased exports, says Kris Lutt, president of Golden Peanut Company.
Lutt spoke at the recent Southern Peanut Growers Conference in Panama City, Fla.
Turning first to the negatives, he says that if you’re a grower or a sheller, margins today are much different than they’ve been in the past few years.
That certainly puts pressure on re-investments and growing your business,” says Lutt. “In terms of other nuts such as almonds and pistachios, those are competing products in the marketplace for us. If you’re a manufacturer, growth in consumption of almonds impacts the growth on peanuts, so we need to drive the growth in peanut consumption.”
Another negative for the peanut industry has been the allergy issue, he says. “When we think about allergies, we think about what we see in the news, such as a school trying to ban peanuts and banning peanuts on airplanes. There are a lot of misperceptions about peanuts and allergies, and those certainly have a negative effect on the market.”
Looking at the global market, Lutt says there’s a decrease in plantings in Argentina and continuing weather events. At the same time, there’s growth in the U.S. in both yields and acres. “Eventually, that means more opportunities in Europe, and that’s a market that historically looks for blanched product. In the U.S. today, blanching capacity is very tight. We have capacity limitations when it comes to blanching, which the market will address. In the short-term, there’s certainly a lack of resources there,” he says.
World political turmoil can be another negative factor, says Lutt, such as recent events in Russia and the Ukraine.
“As a sheller, I wake up each morning with hundreds of thousands to millions of dollars of material in a container somewhere headed to the Ukraine, or in the Ukraine, or in St. Petersburg, and we’re trying figure out how to get the money back. Will the bank that we use be one that has restrictions on it, and how will we be able to continue doing business there? These are growing regions and growing areas for the consumption of U.S. products. Turmoil in these markets causes trouble on both ends. It affects us as a sheller and ultimately affects you as a grower.”
Consolidation also is a factor, for both shellers and growers, says Lutt, and it’s a trend that will continue.
“For the moment anyway, there’s limited competition from crops that would be considered an alternative to growing peanuts. As you make choices about corn and cotton and alternative crops, and as those prices continue to decrease, it eventually will affect the peanut market. As a manufacturer or sheller, you look at competing crops, and the costs on those, and certainly there’s a drag at the moment.”
Restrictions and requirements also promise to continue, he says. “As a grower, you realize more and more that restrictions and requirements on products continue to grow, and the same is true for a sheller or a manufacturer. This has a large impact on the peanut industry, and that impact will continue to grow. From a sheller’s standpoint, there are more restrictions in shipping products overseas and inspections. It adds costs to the system at a time when we’re trying to be competitive on the world market.”
We have entered a time, at least for the short term, says Lutt, when there will continue to be forfeitures.
“At the end of last year we had a reasonable amount of forfeitures, certainly more than the year before. We would expect this year and perhaps for the next year or two that there will be increased forfeitures. As a grower, you need to be aware of how that will affect the marketing of your crop.”
Plenty of positives
But there are plenty of positive things to talk about in the peanut industry, says Lutt. “The great thing about our new varieties is that not only do they meet the growers’ needs, but they also meet the needs of the customer. The size, flavor and other characteristics continue to improve and certainly continue to give us a competitive advantage globally. At the end of the day – as a grower, sheller or manufacturer – you want to continue to think of the advantages you have in the marketplace.”
Low-cost production is another advantage, he adds. “When you think about low-cost production, we’ve certainly entered a new era here in the U.S., and along with that, the entire system continues to improve. Think about the utilization of semi drying trailers, new shelling technologies, new color sorters, and new laser sorters and facilities. The ability to do things better at a lower cost continues to drive the industry, and there are a lot of positive changes going on.”
On the peanut allergy front, the best news is yet to come, says Lutt.
“If you think out to about 2016 or so, the likelihood of you going to an allergist and getting a treatment for your allergies or for those of your children, continues to look very positive. That could change the overall perception of allergies and how we deal with them.”
New technologies, he says, offer promise for detecting aflatoxin in the field, and knowing where trouble spots are located. Also, the infected product can be handled and segregated at the buying point.
Nearly every food manufacturer, says Lutt, is currently looking for ways to increase the amount of plant protein in their foods. “Given the low cost of peanuts, there are a lot of opportunities there for our industry.”
Increasing exports continue to be a big plus for the U.S. peanut industry, he says.
“The great thing about shipping more product to Europe in recent years is that whenever we do that, when we build that customer relationship around a high-quality, U.S. product, it makes it that much easier to sell the product to the manufacturer the next time. We’ve been able to gain more European acceptance and get more infiltration into that market.”
Instability in Argentina, where inflation rates hover from 20 to 30 percent, also could prove to be a positive for U.S. peanuts, says Lutt.
“With population growth, we’ve got a world to feed. Also, there are value-added products. Today, we take hulls from the Southeast, we pelletize those, and then we ship them to Europe to be used as biomass.”
As long as the U.S. crop stays the size it is today, price will stay in the relative range that it is today, and we have to increase consumption and the overall export of the product, says Lutt.
“It seems as if prices have bottomed out in the mid-40s range on price per pound. The good news about that is that last year, it took the actions of the Chinese market to firm up that bottom. Without those exports this year, we’ve still found the low in the mid-40s range. Export prices are better than domestic prices today. Those two prices will converge eventually.”
In-shell peanuts, he says, have seen a Southerly movement with more in Texas and less in North Carolina. “The oil market is showing steady growth with even more potential in the future with high-oleic development. If the crop moves in a high-oleic direction in the future, it opens some opportunities for marketing in oil. At that point, we’ll have a high-oleic peanut oil.”