Farm Progress

There's a better-than-average chance that the U.S. peanut market will be over-supplied going into next year.

Paul L. Hollis

April 3, 2015

5 Min Read
<p>PEANUT PRODUCERS SHOULD consider the consequences this year of shortening their peanut rotations.</p>

It’s time to call it like it is when it comes to expanding peanut acreage this year, says Marshall Lamb, research director for the National Peanut Research Laboratory in Dawson, Ga.

“You need to know the truth about it,” said Lamb at the recent Alabama Regional Peanut Production Meeting in Shorter. “A lot of producers in our area are looking at greatly expanding their peanut production, and some of them might be sacrificing their rotation. For some, it might be the right decision, but for others, I don’t think it is.”

At current prices and production costs, it’s no doubt going to be difficult to break even, and growers will need exceptional yields to get through this year, he says.

“We’ve been looking at irrigated peanut rotations for 13 to 14 years now,” says Lamb. “On a three-year-out rotation, we averaged about 5,800 pounds per acre. Going to a two-year-out rotation, we averaged about 5,300 pounds per acre, or a difference of about a 450-pound difference. At $400 per ton, that’s a difference of about $90 per acre.

“Going from two-year-out to one-year-out, you’re looking at about a difference of about 940 pounds per acre or a revenue loss of $187 per acre. If you go to continuous peanuts, you’re looking at a 1,000-pound yield loss. The differences aren’t as much in dryland situations because often times, the limiting factor is rainfall,” he says.

If you have long peanut rotations – greater than two years out – the losses are not as severe, says Lamb.

“I would shorten rotations only for survival. When this situation turns around, if your peanut rotations are short now, you’re not going to be in position to take full advantage of the situation at hand. But, my favorite college professor often said that you can’t make it to the long run if you can’t survive the short run. So if shortening those rotations will help with some of those generic base payments, or peanuts are yielding you more revenue or profit, then you have to do what you have to do. Remember that cotton will not dilute you generic base.”

Carryout number is all that matters

As an expected increase in peanut acreage looms, there’s only one number that really matters, says Lamb, and that’s the carryout number.

“And it’s the same as if we were looking at a carryout number for cotton, or for grains. The carryout number for peanuts reflects the amount of peanuts we need in the pipeline during August, September and October. The marketing year for peanuts ends on July 31, and August starts a new marketing year.

“Those three months are where we go from our old crop into the new crop and where we have enough new-crop delivery that we start processing. In the United States, we can shell about 165,000 tons per month. Over a three-month period, that’s about 500,000 tons we can shell, which is why I think that for farmers, the best carryout number should be about 500,000 tons. We’ve cleared one crop before we introduce new-crop deliveries.”

Shellers and middle-level processors prefer a slightly higher carryout because they want to make sure they don’t have any supply interruptions, he adds, and manufacturers want an even higher carryout.

“In 2011, when we realized 380,000 farmer stock tons was going to be the carryout, the price of contracted peanuts went to $1,000 per ton at harvest. It’s also the reason that in the late winter, early spring of 2012, they were offering $700 to $725 per ton on peanuts in 2012. They wanted to get more peanuts in the supply line to get it secured.”

As growers increased acres in 2012, they didn’t overplant the market, says Lamb. In fact, their response was about right.

“But we had the highest yield ever in 2012, so we brought in the largest crop we’ve seen in many years. It resulted in a carryout going out of 2012 and into 2013 of 1.3 million farmer stock tons. So in a one-year period, we increased the carryout by a factor of three to fourfold.

“From 2013 to 2014, we carried 928,000 tons. Last year, we produced 2.6 million farmer stock tons, and we’re now looking at 950,000-ton carryout. Basically, we produced the demand this past year and rolled the carryout ahead another year.”

While such a large carryout might normally trigger a decrease in acreage, that’s not the case this year, says Lamb, due to several factors, including current Farm Bill policy. Individual states are estimating peanut acreages from 20 to 30 percent, he says.

“In 2014, we planted 1.325 million acres. If we have a 20 percent increase in acres and a 3,500-pound yield, we’ll have a carryout of 1 million tons from 2015 into 2016. If we have a 20 percent increase in acreage and only a 3,000-pound yield, which we haven’t had in a long time, we’ll be in an area where we could see some contracting decisions, but we don’t know what the weather will be, and that will determine yields.”

There is a better-than-average chance that the peanut market will be oversupplied going into next year because of the expected increase in acres, says Lamb.

“Seventy-three percent of U.S. peanut production is in the lower Southeast. So when a year like 2011 comes along, when we have drought and poor quality, the price goes up. And then in a year like 2012, with abundant rainfall and good production, it comes back down. When you’ve got three-fourths of the total production of a commodity within a country located in such a small area, we’ll continue to see these swings because it’ll strictly depend on weather.”

Peanuts, he says, are not alone in their oversupply woes.

“We’re oversupplied in peanuts, but the other crops also are oversupplied, and it’s due to record yields. Last year, the U.S. broke the all-time record yield in corn and soybeans. So basically, three important commodities all broke yield records this past year. But demand for our crops is strong, and we’re still in a very competitive position. Peanut manufacturers are introducing new products, and they’re very bullish on the industry.”

About the Author(s)

Paul L. Hollis

Auburn University College of Agriculture

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