U.S. peanut producers should pay attention to the market as they look beyond the 2014 crop and ahead to 2015, says George Lovatt, a Georgia broker.

“Only the market decides and dictates your planting decisions,” said Lovatt at the recent Southern Peanut Growers Conference in Panama City, Fla. “So if the economics dictate, you can plant corn, cotton, soybeans, or even watermelons or pine trees instead of peanuts. This is an important distinction to understand because the peanut industry can attack a chronic oversupply by both selling more product and by planting fewer acres.”

The difference between tree nut growers and peanut growers is that tree nut growers have orchards while peanut growers have options, he adds.

“You don’t have to plant peanuts. If you’re an almond grower in California, you can’t grow pecans and watermelons or pine trees next year. You’re an almond grower,” says Lovatt.

Only the market can tell growers how to allocate their acres, he says.

“We’ve got an industry where growers want to grow more peanuts, shellers want to shell more peanuts, buying points want to handle more peanuts, and manufacturers want to make more peanut products. Somehow it seems we should be able to make all of this work. We’ve got a terrific industry, a terrific product, a terrific story to tell consumers, and I think the future is bright,” he says.

Ugly numbers?

Turning to current supply/demand data for U.S. peanuts, Lovatt says the numbers aren’t all pretty.

“You all know from experience that we’ve seen extremely volatile markets in the past several years. But for the moment, we are in a period of relative calm, but that’s not necessarily good news for you or for me. This calm is likely to continue for the next year or so and perhaps longer,” he says.

In 2012 – with “off” crops in 2010 and 2011 – the U.S. peanut market carried in about 492,000 tons, says Lovatt, representing a stocks-to-use ration of about 22 percent, or about 81 days of usage.

“That’s as tight a carryout as I ever remember. Because the 2011 crop was short, farmer stock prices were high in the spring of 2012, and we planted 1,630,000 acres that year and yielded an unheard-of 4,217 pounds per acre. We graded a crop that year of almost 3.4 million tons, and we imported about 66,000 tons. We saw domestic demand of 1,826,000 tons, exports of 653,000 tons, and total demand of 2,583,000 tons. So we’re using about 7,000 tons per day and 50,000 tons per week.”

Carryout following the 2012 crop was 1.4 million tons, doubling the previous year’s amount and more than doubled the previous stock-to-use ratio, he says.

“We increased the carryout from only 81 days in the previous year to 197 days. From Aug. 1, that’s enough to carry us with 2012 crop peanuts through mid-February of 2014. In one year’s time, we went from a severe deficit to a severe surplus.”

The official USDA crop year runs from Aug. 1 to July 30, says Lovatt, but in recent years growers don’t even begin to harvest the bulk of the crop until the end of September.

“And by the time the crop is gathered, graded and delivered to the shellers – and the shellers have to accumulate enough peanuts to justify cranking up their mills – we don’t begin to shell the crop in any meaningful way until the first part of October. Then it takes at least two weeks to get a bulk rail car to a manufacturer’s location.”

The 90-day supply

Whenever the stocks-to-use ration approaches 25 percent, or 90 days or so, and the market is running out of old-crop peanuts before the first part of winter, the there’s trouble, says Lovatt.

“That’s why it’s important to pay attention to carryout, not just in terms of total tons but also in terms of how long those tons will last before the new crop is available. Obviously, at 197 days, we’ve got too many peanuts.”

Despite making a crop of almost 3.4 million tons against demand of a little more than 2.5 million tons, the U.S. still imported 66,000 tons, says Lovatt. “That 492,000-ton carry-in was so tight that we needed peanuts from overseas to meet our August and September needs before the new crop was available in October.”

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