The current direction of the U.S. peanut market would suggest lower prices and perhaps a cutback in acreage for 2006, says Nathan Smith, University of Georgia Extension economist.

“The final crop estimate for 2005 shows a 15 percent acreage increase across the United States, so we've really been through a jump in our peanut acres, with more than 1.6 million acres,” said Smith, speaking at the Georgia Peanut Farm Show in Albany. “Georgia is a big reason for the increase, with more than 755,000 planted acres and 750,000 harvested acres.”

U.S. yields were down by about 4 percent from 2004, with growers averaging just under 3,000 pounds per acre, he says. Georgia peanut producers averaged just under 2,900 pounds per acre this past year.

“We've had strong use numbers in the last two years, particularly in the domestic market. Peanut butter and snacks have been positive. But looking at the current marketing year, the numbers are flat compared to the previous year, with no increase in the edible use of peanuts. It means we're holding the pace of the previous year,” says Smith.

Shelled peanut prices have dropped, he adds, down to 34 cents per pound for medium runners. “The market is somewhat depressed. Even though we have strong use and demand, supply still has been built up to where contracts were offered on a limited basis this past spring,” he says.

U.S. peanut acreage saw shifts in certain regions this past year, says Smith. “We've seen acreage climb from about 10,000 in South Carolina to 60,000 acres in 2005 — they've become a major peanut-producing state. Alabama has seen a shift into the western part of the state around the Mobile area, and there has been an increase in the Panhandle of Florida.

“Basically, peanuts have moved down the coastline. The acreage is moving out of the traditional Virginia-North Carolina regions. Peanuts also are moving into the predominately cotton producing counties of southeast and southwest Georgia. In addition, Mississippi planted 15,000 acres last year and had a 3,200-pound per acre yield. They're also putting in a buying point, so we'll probably continue to see expansion there.”

Turning to production, consumption and carryover, Smith says the trend over the past two years has been an increase in consumption. “Production not only has kept up with it, but we've had such good weather that we have built up good production numbers. We have a lot of peanuts on hand after the 2005 season,” he says.

A trend projection for 2006 would see about 1.6 million acres planted, slightly less than last year, with a total yield of about 2,850 pounds per acre, says the economist.

“For the past five years, we've made more than 2,800 pounds per acre, but if we go back 10 years, we've made just under 2,800 pounds per acre. The addition of new ground and technology has boosted our yields.

“Those kinds of numbers wouldn't do anything to take off surplus peanuts. Where will those peanuts go? Production in 2005 was 12 percent more than the previous year. One good thing we've seen is that we have captured the peanut market that was imported in other years — we've been able to displace the imports since 2002,” he says.

The growth of domestic food use has gone down from about 5 percent to 2 percent, and that reflects what currently is being seen in stocks and processing, he says. “We're not so sure about crushed peanuts. My understanding is that more than 100,000 tons were forfeited last year for the 2004 crop. They were bought out at about 90 percent of the value of the loan, in the range of about $335 per ton. Those peanuts were going to fill 2005 crop orders or displace some of the 2005 crop. We're just pushing that peanut loan later into the year. When we look at the stocks and processing report, the use is up, but that increase is coming from uses other than the ‘domestic use’ category.”

There is a good projection for U.S. peanut exports, says Smith. Argentina is having some problems, and expectations are that the United States might capture some of that market. “Food use has been increasing since the time of the 2002 farm bill, but I don't think we can continue that pace of 6 to 8 percent each year. We're probably moving towards a more realistic number of 3 percent.”

Projections are for an increase in total use of 11 percent over the 2004 crop, but the increase is coming mainly from crushed and exports, says Smith. The crushed market, he adds, doesn't have the value that can compete with domestic use and exports.

“I'm not sure where those peanuts will go as to how they will be crushed. My theory is that they expect forfeitures will end up being crushed. Edible use currently is level or flat, but all grades are up by about 6 percent. It's good that we still can talk about increasing use.”

Turning to exports, Smith says China is the world's largest exporter, and Argentina is the main competitor of the United States. They're followed by India, Vietnam and the rest of the world.

“It's not what the farm bill intended — where the National Posted Price would be more of a world price, and we would capture most of that export market. That's an issue that probably will be debated before the next farm bill.”

The National Posted Price impacts a grower's LDP or marketing loan, and the season-average price impacts the counter-cyclical payment, he explains. “Then, shelled prices are a main driving factor behind the National Posted Price. Compared to a year ago, we're down four to five cents on shelled prices. Given the progress thus far this year, when you look at the monthly prices published through December, we'll have a lower average-season price this year for peanuts. Based on where it is now, the counter-cyclical payment could be at the maximum $104.”

Looking ahead to 2006, the bottom line is that there will be a big surplus of peanuts, says Smith. “Most of you have peanuts in the loan program. There will be loan forfeitures. You may receive paperwork stating that your peanuts were forfeited into the loan. Also, we've seen shrink charges going up because peanuts are being stored for a longer period of time.”

With 2004 forfeitures displacing some of the 2005 crop, the problem of surplus peanuts is only being delayed, he says. “The domestic market appears to be slowing down. Potentially, a lot more peanuts will go into forfeiture. Argentina may give us a few more exports. The current market direction would support lower prices and a cutback in peanut acres, and but it really will depend on the contracts that we're offered, and the price of cotton and corn.”

Peanut production costs will be affected this year by rising fuel costs, says Smith. “Peanuts have a relatively low fertilizer use, so that's an advantage. Drying and curing costs also will see large cost increases this year. To cover all costs this year, you'll need to make 2 tons on irrigated land and 1.5 tons on dryland. This is the year to go through the budgets and work out these numbers.”

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