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2008 over-supply, salmonella problems for peanut growers

Peanut butter contaminated with salmonella has made national news and will no doubt affect the 2009 growing season. However, the bigger problem is too many peanuts.

“Peanut growers already faced a double whammy — we over-produced in 2008. We produced a 2.5 million ton crop and we only needed 1.8 million tons. We already had a 300,000 ton carryover from 2007, so going into the 2009 season we are facing a 900,000 ton carryover, and that had already stalled the market.

“Then the U.S. economy took a nose-dive, which obviously had a negative affect on the market place overall. Peanut butter was one exception, showing a nearly 12 percent growth in use over the past few months,” says Tyron Spearman.

Spearman, who operates the Spearman Agency, publishes the Peanut Farm Market News, represents the U.S. Peanut Buying Point Association and has been a widely acclaimed peanut guru for more than 25 years, says the salmonella outbreak may have been a third strike for some growers.

The previous salmonella outbreak back in 2006 was quite different from the current problem. In the 2006 outbreak, the salmonella was isolated to a single brand of peanut butter.

In the current outbreak, a peanut ingredient company, which makes granules from one plant, is involved. Peanut products made from peanut butter paste from this company represents less than one-tenth of one percent of total U.S. peanut butter production. However, that small percentage is used to make a number of institutional type products that go primarily to nursing homes, schools, the military and other large operations.

“For farmers, the salmonella problem couldn't have come at a worst time. We were already delayed in planning for our peanut crop because of a lack of contracts due to the over-supply and general bad economy, now the salmonella outbreak and bad publicity will likely further delay contracts,” says Lynchburg, S.C., grower Britt Rowe.

Jerry Day, who represents EMD Crop Bioscience, which markets OptimumLift, a popular nitrogen-fixing product, says the salmonella outbreak exacerbates an already bad problem for companies that sell products in the peanut market. “We were already struggling to get a handle on the number of acres and market demand and the negative publicity generated by the salmonella outbreak further clouds the picture,” Day says.

Spearman says the current food-borne crisis involving peanuts further limits a peanut farmer's ability to get a loan for the 2009 crop. “The government loan programs are too low for growers to get a loan. Bankers are becoming more cautious. The $355, plus $36 for growers who have a peanut base, plus a counter-cyclical payment is not enough to get a loan for some farmers,” Spearman says.

“Bankers want a firm contract, but there have been no contracts issued. Without the contract, many banks want grant loans, and the farmer is stuck in a no-win situation of having to plan for a crop he may not be able to afford to grow,” he adds.

Dell Cotton, executive director of the Virginia Peanut Growers Association, and a long-time and astute observer of peanut marketing says the salmonella outbreak is a potentially serious problem for growers, but a much bigger problem is dealing with the over-supply issue.

Cotton says for the first time in history the peanut yield in all three peanut production regions of the country starts with a three. The Virginia-Carolina belt led the way with an average of 3,721 pounds per acre, followed by the Southwest with 3,401 and the Southeast with 3,364. Two relatively new peanut producing states, South Carolina and Mississippi, tied for top state production honors with 3,900 pounds per acre.

“The current over-supply problem goes back to 2005, when peanut producers harvested 1,626,000 acres. Subsequent reductions in 2006 (1,244,000) and 2007 (1,225,000) helped get production and demand back closer in line. However, a 28 percent acreage increase in 2008, plus the record yield promises to offset those gains and then some,” Cotton says.

“Because of a lag-time in reporting, we won't know for a couple of months what kind of impact the salmonella problem will have on production or domestic peanut use, but it almost certainly will further reduce demand,” he adds.

“The big question for growers is contract price. I don't know the definitive answer, but I believe growers who get contracts will get a lower price and fewer acres than 2007. And, in some cases growers may not get any contract at all.”

Ever the optimist, Spearman says there is one scenario involving the current salmonella outbreak that could actually benefit growers.

Companies have already taken products off the shelf. As the hysteria worsens, more products will be taken off the market. A number of companies who have no relationship whatsoever have pulled their peanut products off the market, and those products will have to be replaced if consumer demand goes back up, Spearman notes.

“The company that sold the products that have been sited to cause the salmonella problems represents only one-tenth of one-percent of the peanut market. If the other 99.9 percent can somehow regain the consumer's confidence with a massive marketing advertising and public relations campaign, and demand for these discarded peanut products grows rapidly, we could eat up a big chunk of the 2009 crop in a hurry, Spearman says.

Salmonella has never been a big problem in peanut butter. The roasting process typically pushes temperatures up over 400 degrees F, which kills all the salmonella. Contamination has to come from sanitation problems associated with the jar or some other part of the production process.

For growers, the salmonella problem pushes them further into a wait-and-see scenario for the 2009 crop. South Carolina growers are the most adversely affected because they have no government base. “Without the base South Carolina growers are not eligible for the $100-$150 in government guarantees for their crop.

“Even with the government guarantees, growing peanuts for less than $500 per ton is a big risk, especially in today's economy,” Spearman contends.

In Virginia, Cotton says growers simply won't take that risk. The end result, he says, will be a reduction in peanut acreage in his state and probably across the Southeast. “The salmonella out-break, will have an impact on how many acres we lose, but we won't know how big that impact will be,” he adds.

Another question farmers want to know is when peanut contracts might be offered? Both Spearman and Cotton shake their heads and make no guess as to when, for how many dollars, or how many acres contracts will be offered.

All the entire industry can do is wait. Shellers have to buy some peanuts and some growers have to grow some peanuts. How the industry reacts to the salmonella outbreak will have an impact on the 2009 crop and probably the 2010 crop as well. If it some how works to get supply and demand back in line, the whole salmonella issue could be a long-term benefit.

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