Entering the 2014 peanut crop, the surplus isn’t as large as last year, but there’s no concern about shortages. This is what explains the relative calm in today’s peanut market.

“At the end of June, USDA gave us their estimate of harvested acres of 1,280,000, for an increase of 23 percent. These numbers will be the basis for the first crop estimate on Aug. 12. Historically, these numbers haven’t been too accurate, maybe plus or minus 7 percent. This year, I think the numbers are pretty right on target,” said George Lovatt, a Georgia broker, at the Southern Peanut Growers Conference in Panama City, Fla., held in July.

In the years 2008 through 2011, says Lovatt, peanut yields were pretty steady between 3,300 and 3,400 pounds per acre. Then, in 2012 and in 2013, average yields jumped to more than 4,000 pounds per acre.

“Is 4,000 pounds the new norm? I personally think it is, but we’ll have to wait and see. I operate on the premise that when it happens once it’s an anomaly, but when it happens twice, I’ve got data. I think we have data that shows in good weather, we can reasonably expect peanut yields in excess of 4,000 pounds per acre.”

Lovatt looked at four possible yield scenarios to try and gauge the direction of the U.S. peanut market this year.

“At the low range, I averaged the 2010 and 2011 crops – the two drought years – and I’m at 3,344 pounds per acre. At the mid-range, I averaged 2011 and 2012 and came up with 3,882 pounds per acre. At the high end, I averaged the 2012 and 2013 crops for 4,134 pounds per acre. For good measure, I averaged the last four years and came up with a yield of 3,764 pounds.”

At the low range, working with 1,280,000 acres, Lovatt come up with a crop of 2,140,000 tons. At 3,882 pounds, he has a crop of 2,484,000 tons.

“At 4,134 pounds per acre, we came up with a crop of 2.6 million tons. At an average yield of 3,764 pounds per acre, we show a crop of about 2.4 million tons. We applied those crop estimates to the 2013 crop carryout and attempted to model what we expect in 2014. Only when we see a crop of 2,140,000 tons, or 3,344 pounds per acre, do we begin to approach that 25 percent/90-day threshold.

“But with average yields or better, it’s unlikely we’ll see a spike in prices anytime soon. Unless we see extraordinary events in weather either in the U.S. or in Asia, I expect that a year from now we’ll be talking about a 2014 crop carryout that’s very close to the 1-million or so crop we were talking about this year.”

Lovatt says his forecast if for a very stable market, at least until something changes.

“I wish I could tell you something bullish, but facts are facts. The 2013 crop was plentiful and the carryout was more than adequate. The likelihood is that the 2014 crop will make something in the neighborhood of 2.4 to 2.6-million ton range and maybe higher than that. That means we’ll carry out close to what we carried out this year.

What about exports?

U.S. exports of 650,000 tons of peanuts last year was an all-time record, and the U.S. is now the leading low-cost, edible peanut producer in the world. And there are a couple of reasons for that.

“No. 1, through investments in new technologies and new seed varieties,” said Lovatt. “I don’t think Argentina or China can compete. Also, in 2012, India – which usually exports a massive quantity of crushed stock to China – had a poor crop, and China for awhile became a big player in the U.S. edible market. While China’s involvement in the U.S. market has diminished, exports of the 2013 crop continue to be strong because of the dominant position we now hold in the world market.

“Today, reduced acres in China and weather concerns in India are causing us to hear faint rumblings from China of a renewed interest in the 2014 crop.”

In the spring of 2013, says Lovatt, shelled prices were at about 50 cents per pound, and shellers were already anticipating a huge carryout from the 2012 crop. As a result, he adds, market prices for farmer stock were substantially weaker than prices available to growers for corn and cotton. “So we reduced peanut acres by about 35 percent. Weather conditions were good for peanuts last year. Last fall, USDA badly underestimated U.S. peanut yields, but finally in January we got the final estimate of 2,087,000 tons and a yield of 4,006 pounds per acre. The fact is we’ve already graded 2,098,000 tons.”

For 2013, the U.S. carried in 1,397,000 tons, made a crop of 2,098,000 tons, and continued to have strong exports, says Lovatt.

“I’m showing a 1 percent increase in actual domestic demand. Peanuts for processing through May show a 1-percent increase. For export demand, I’m estimating 591,000 tons , which is 9 percent down from one year ago. But it’s still an impressive exports number. For the 10 years prior to the 2012 crop, we averaged only 318,000 of exports per year. The export market is steady, and that’s an encouraging sign for the long-term health of the industry.”

Total demand for the 2013 crop is just over 2.5 million tons with a carryout of 1,009,000 tons, and a supply of about 45 days of supply, he says.

“When the carryout approaches 90 days, prices rise to ration demand. We saw this at the end of 2012, 2007 and 2011. When the carryout exceeds 180 days, prices get sloppy. At 145 days, we have almost five months of usage.”