Peanuts offer Delta farmers a promising rotation option as well as benefits to local economies and regional peanut manufacturing companies.
The problem for many Mid-South farmers has been limited options to process peanuts out of the field.
"Two companies were buying peanuts in Arkansas," says Tommy Jumper, CEO and managing member, Delta Peanut, in Jonesboro, Ark. But processing meant hauling to southeast Georgia or west Texas shellers, adding from $80 to $100 a ton in freight.
Delta Peanut offers a solution to that dilemma. A shelling plant now under construction in Jonesboro will process as many as 80,000 tons of peanuts this year with a capacity of 190,000 to 200,000 tons when completed.
"To increase peanut acreage in Arkansas, we had to have a shelling plant," Jumper says.
It makes sense on multiple levels, he adds. Several peanut manufacturing facilities produce peanut butter and other products in Arkansas or within easy access to the Delta Peanut facility.
"Smuckers has a plant in Memphis; Hormel operates in Little Rock. Kentucky boasts two key manufacturers, and Chicago plants are also within reach."
He explains that peanuts have been going to Arkansas buying points, shipped to Texas or Georgia and then coming back to peanut butter and candy bar plants near where the peanuts grew.
Jumper explains that peanut manufacturing companies moved to the Mid-South to mitigate risk. "We give them a third option in case the Southwest or Southeast experience crop failure," he explains.
The Southeast faces occasional drought, hurricanes and other weather disasters that destroy thousands of acres. The Southwest deals with diminishing water resources, Jumper says.
"The world needs peanuts," he adds. "And we must grow them where we can maintain dependable production and quality."
The Delta region fits those criteria. "We have adequate water, good farm managers, and we provide that third area of production. We're far off the Gulf and not plagued by frequent drought like west Texas. The Delta offers a dependable third production area that mitigates risk to companies that depend on peanuts."
Jumper says opportunity exists beyond Arkansas and Mississippi, the two largest Mid-South producers. "The Missouri Bootheel, Arkansas, Mississippi and Louisiana all offer opportunity for peanuts," he says.
He estimates Arkansas acreage can top 70,000. "That's enough to justify building the shelling plant."
Peanut acreage could shadow Mid-South cotton production. "It's a perfect rotation, one year out of three in peanuts. Farmers need that additional rotation crop," Jumper says.
He says peanuts offer both a financial and an agronomic incentive to cotton producers. "Currently, peanuts offer the best price opportunity of any crop in our region."
He says cotton producers have told him that yields following peanuts improve as much as 200 pounds per acre.
Mid-South farmers have grown peanuts long enough to be comfortable with them, Jumper says. "It's not a new crop." Some producers, he adds, have been frustrated that they couldn't put together enough acreage to justify buying the specialized equipment necessary to grow peanuts or to expand enough to justify another combine.
Others who have not grown peanuts couldn't get contracts. Hope is that the shelling plant will encourage more acreage.
Farmers may benefit from more than the rotation and the added cash crop advantage, Jumper says. Delta Peanut is farmer-owned, similar to a cooperative but operating as a limited liability company (LLC).
"We have 65 or 70 farm families represented in the LLC ownership," Jumper says. To date, the LLC includes 85,000 units of ownership. Each unit equals one ton of peanuts. One ton of peanuts pledged to the LLC earns the right to purchase one unit.
Delta Peanut likely will add units in the next four years, first offering additional units to current members who bought in at a lower level, "just enough to justify buying maybe one combine but with hope to expand to 1,200 or 1,400 acres. We will also offer units to new purchasers," Jumper says.
Owners benefit from vertical integration. They expand from production only to investing in a value-added segment of the peanut industry.
"This is a good opportunity for Mid-South farmers who have not had a lot of opportunities to vertically integrate off the farm," Jumper says. Some farmers already benefit from cotton gin cooperatives, but consolidation has limited participation in recent years.
"It's another layer on top of production," Jumper explains, "and increases the value of their operations and captures a longer piece of the value chain by shelling their peanuts and selling them directly to candy and peanut butter manufacturers."
He adds that some families will improve opportunities to pass along farms to the next generation because vertical integration adds to equity, an important option when more than one possible successor is in the mix.
Jumper, who came out of retirement to help create Delta Peanut and construct the shelling plant, says an initial challenge was financing the $70 million project. Of that sum, they had to raise $26.5 million in equity, leaving a debt of almost $50 million.
It was a tough time for farmers to raise that kind of money, Jumper says. "Commodity prices across the Mid-South have been low for the last five years, so the timing was hard for farm families. But they coalesced around the idea.
"It was tough talking to lenders, but we worked with them, showed them our business model and convinced them that we were helping create a healthier client. We collected a little north of $28 million in equity. I have to tip my hat to the lenders."
Construction, Jumper says, is behind. "Weather from the fall of 2018 through early 2019 caused delays. We also had to work with the City of Jonesboro for approval."
Building an agriculture facility in the middle of a technology center offered some challenges but the shelling plant meshed with other food processing facilities, he says.
He expects construction to be complete by early to mid-April 2020, "unless we have a dry winter," which could push things along.
The delay is not a big issue, he says. "We have only 85,000 units of ownership and plant capacity will be 190,000 to 200,000 tons. So, the first year we will shell half or a little less than half capacity. A buying point is complete in Mariana, Ark., and "pieces of the buying point at Jonesboro are functional, so we are able to take in peanuts from the 2019 crop.
"We are bringing in peanuts now, sampling, cleaning, grading and transferring to rented warehouses. We expect the shelling plant to be in operation to shell next year's crop. Even with a late start, the plant will be able to shell the 2019 crop and still be able to handle the 2020 crops next fall."
Local economy benefits
In addition to the economic boost construction is bringing to Jonesboro, Jumper says more economic activity will develop after start-up. The plant will employ about 130 mostly skilled workers.
"The facility will be highly sophisticated and will involve a pretty robust training program," Jumper says. "We can’t hire workers off the street who understand food safety, how to run colors, how to manage the quality and safety of peanuts all the way from the warehouse to international shipment."
The plant will be a boon to the local economy in other ways. "The number of pieces of peanut equipment handled by local dealers will be significant. We expect 100 or more peanut combines as well as diggers, fluffers and trucks." He thinks 10,000 loads of freight, cold storage, blanching, and other goods will move through the region.
Jonesboro, Jumper says, is ideally situated for the plant. The proximity to manufacturers and producers offers advantages to each.
"Jonesboro also has good access to the people we will need to manage the plant. We have rail access, favorable freight and affordable utility costs."
Years in the making
Jumper says the project has been six or seven years in the making, beginning while he was working as an executive vice president for the Jimmy Sanders Company in Mississippi. "I got infatuated with peanuts," he says. "I knew it was an economically viable crop, but I needed to learn a lot."
The time, he adds, was not right until recently, when he "decided to come home, come out of retirement and put this thing together."
He says it stands to reason that peanuts would "follow the water," to the Delta.
The mutually beneficial relationship peanuts have with cotton, in addition to the strategic location of exceptional Delta farmers and manufacturing plants that need a consistent supply of peanuts, make peanuts and the infrastructure necessary to process them a good option for Arkansas.
"One similarity with peanuts and cotton," Jumper says, is that they require processing. "Farmers can take corn or soybeans to market as they come out of the field. Peanuts and cotton have to be shelled or ginned. That's good for local economies."
Delta Peanut, he and 65 or 70 LLC member families hope, will be a catalyst to improve on- and off-farm opportunities for current and subsequent generations of Mid-South farmers.
"You put all these things together and see a lot of advantages," Jumper says. "And the market is accepting us a lot quicker than I might have expected."