Wide swings in peanut supply can result in correspondingly wide swings in prices to growers — oversupply can push contract prices down to a bare bones $355 per ton or so, undersupply can send them soaring, as happened in 2011 with contract offers topping $1,000 per ton.
And that’s why, says Dr. Marshall Lamb, producers need to move to a year-round marketing plan in order to even out the boom-or-bust cycle.
“The peanut market can change so fast,” he said at the annual meeting of the Mississippi Peanut Growers Association at Mississippi State University. “Any interruption in crops in any one of the four major producing countries — China, India, the U.S., or Argentina — can have a huge impact on the market, and things can make a rapid turnabout.”
Lamb, who is research director at the National Peanut Research Laboratory at Dawson, Ga.,
says he believes producers need to start making more use of the marketing loan, which will allow them to spread their marketing across crop years. “You need to never be totally in or out of the market at any time,” he says.
“For example, in January 2016, if you’d taken the low contract offer, between $365 and $375, and all of your production was tied to that, and peanuts ended up going to where they are now, $475 to $500, you’d have been totally out of that market. This not only affects your income, but when the price changes it also affects your PLC payment.
“We’ve got to start going across crop years with our marketing, and the loan is there as a tool for growers to do just that.”
Lamb gave this example: “With a $535 ‘reference price’ for base acre payments and a 6.8 percent sequestration reduction, you’re looking at a net of roughly $498 per ton. If your contract price is $500 per ton, your PLC payment is going to be zero.”
Another example: “In 2011, the price for peanuts was very low early in the year. But then drought occurred in the Southeast, and in October-December the price rose dramatically, as high as $1,000 per ton, and it stayed up the entire marketing year. When you’re looking at an average $720 per ton, that results in your being squeezed out of the PLC payment — which is the way the program is designed to work.
Jay Wingate, from left, Synthetic Materials, Moultrie, Ga., visits with Mississippi State University agronomy graduate student Chad Abbott, and Dylan Wann, Algrano Peanuts, Brownfield, Texas, at the annual meeting of the Mississippi Peanut Growers Association.
“But the ending price in 2011 continued into the beginning of 2012. Contract offers early in the season were roughly $700 per ton, because we were under-supplied from 2011 and the market needed to get supply and demand back in balance. We started 2012 with a relatively high price, but then U.S. producers delivered the best crop ever, and the price went down.
“That’s why I say you’ve got to be in the game with some peanuts across the entire marketing year in order to take advantage these potential price swings — a balanced approach.”
Noting that the marketing year for the 2017 peanut crop doesn’t start until Aug. 1, and ends July 31, 2018, Lamb says, “Right now, we’re still in the 2016 marketing year. If you’re getting $500 per ton this marketing year, and last year you got only $400 per ton, you’re going to get a PLC payment on last year’s peanuts this year. With a $500 per ton price this year, plus the PLC payment, you’ll do OK.
LAG EFFECT CAN HURT
“But if we oversupply the market with this year’s production, and go into next year with $370 peanuts, you’re going to have a very low contract price, but your government payment in 2018 will be based on the 2017 price, and you’ll get essentially no PLC payment. It’s this lag effect that can bite you in the rear end in a hurry, if you’re not careful, which is why it’s dangerous to oversupply the market.”
That’s why, Lamb says, growers should consider contracting some of their production — “early contracts are attractive right now. Then look at the situation at harvest. If Georgia stumps its toe again and there is a significant drought, or if there is a supply interruption with one of the other major producing countries, prices should reflect that. Also, take some peanuts into the post-harvest season by utilizing the loan.
“We must start better balancing our marketing. Consider marketing early, at harvest, and post-harvest by utilizing the loan.”
Keep in mind, he advises growers, “when you see the weekly national price, that is not the price that determines your PLC payment. Instead, the PLC payment price is obtained by National Agricultural Statistics Service via a weekly survey of first buyers on dollars paid to producers by type (runners, Spanish, Virginias, and Valencias), and a weighted average price is calculated.
2017 LOOKING GOOD
Overall, Lamb says, “I think we’re in a good position for the 2017 marketing year. Cotton prices have strengthened some, and that can help — we just need cotton price to increase a little more for it to make an impact.
“U.S. peanut markets are back into a balanced market position now, and that’s something we desperately needed. U.S. demand is up, and consumption is strong; world demand is also up, with strong consumption. The question is, how much penetration can we get into that world market?”
But with the wide price swings that can occur, he says, “Growers need to start focusing on the entire marketing year — not just the early-year contract price offers. By doing this, you may lose now and then, but the chance of a complete loss is less than it would be by not spreading out your marketings.”