Peanut producers are finding themselves in the middle of a “perfect storm” as planting time approaches, says Marshall Lamb, research director for the National Peanut Research Laboratory in Dawson, Ga.

“From a total production standpoint, we have an adequate supply,” said Lamb, speaking recently at a regional production meeting in Shorter, Ala. “But from an edible supply standpoint, the market is tight. The problem is that manufacturers are looking at the total supply. We’ve been to meetings with them, and they don’t seem to want to buy into this right now. They’re looking at the total supply, not the edible supply, and there’s a huge standoff right now between shellers and manufacturers.”

Shellers can’t offer $700 per ton for peanuts without having a contract from manufacturers for that price because the risk is too great, he says. But the manufacturers will not support the shellers at those higher prices.

Farmers do have options for other crops at the current high prices that could push peanuts to more than $700 per ton, says Lamb, but the manufacturers won’t back it right now.

“This situation with prices is not just a 2011 phenomenon,” he says. “This will go into 2012 as well. West Texas acres will be down significantly because their water resources are better allocated to cotton. If you do reduce peanut acres, don’t move to soybeans. Take the opportunity to improve your rotations. The demand for peanut products has increased, and hopefully it’ll continue. We need to maximize the profit on our farms this year.”

This will be a very expensive crop, adds Lamb. “We haven’t been told what peanut seed costs will be, but we know fuel costs are high, and that’ll affect everything else. Don’t let the high prices blind you on the cost-management side. We see people in our area competing for land now at absolutely stupid prices, and it’s not healthy. I think people are looking for short-term gain, but they’ll pay it back. This will probably be more interesting than any year we’ve had, and it’s working in the producers’ favor.”

If you look at harvested peanut acres in the United States since the farm bill passed in 2002, it’s basically a period of one to two low years followed by one to two higher years, says the economist.

Not a good cycle

“This is not a good cycle to be on, but without a futures market to smooth some of the bumps and allow people to speculate a little, it’s probably where we’re going to be. We’re not going to have a futures market for peanuts, and as producers, you don’t want a futures market for peanuts. There’s not enough volume of trade in peanuts relative to other crops to have a really competitive futures market. I’ve been to Washington several times to discuss this, and the conclusion always comes back to the fact that we’re just not large enough to have a futures market,” he says.

Looking at the last three years, 2008 saw 1.5 million peanut acres in the United States, followed by an extremely low year of just over 1 million acres in 2009, and about 1.2 million acres last year.

“As far as yields, from 2003 to 2007, we had very stable yields, going from roughly 2,900 pounds per acre up to about 3,160 pounds per acre or so. But look at what happened in 2008, 2009 and 2010. We got a lot of new products to help manage our peanuts, Extension got the word out about these products, and we had new varieties that yielded extremely well,” says Lamb.

In 2008, the U.S. averaged 3,426 pounds per acre. In 2009, peanut producers averaged 3,400 pounds. Last year, growers averaged 3,250 pounds with one of the worst droughts in years in areas of the lower Southeast.

“Have we set a new yield plateau?” asks Lamb. “It might be a few more years before we find out.”

In 2004 and 2005, the U.S. produced about 2.4 and 2.5 million farmer stock tons, respectively. “We over-supplied the market, and in 2006 and 2007, we produced 1.7 and 1.8 million farmer stock tons. Going into 2008, the markets were very short, early season prices were high, and that spurred the acreage response, producing 2.6 million farmer stock tons. That was a long time ago, and we’re just now getting that pile of peanuts off our backs.”

In 2009 and 2010, the U.S. produced 1.8 and 2 million tons, respectively. “The carry-out that is healthy for the market is 500,000 tons. These are peanuts available from the end of the marketing year — July 31 — until new crop deliveries come in. U.S. shelling capacity is roughly 170,000 farmer stock tons per month, multiplied by three is about 510,000 farmer stock tons,” he says.

Coming into 2007, there were 630,000 farmer stock tons, 1.8 were produced, and 82,000 tons were imported for a total available supply of 2.5 million farmer stock tons.

Take off a 2-million ton demand, and this gave the U.S. 510,000 tons going into 2008.

Reason for early contracts

“This is why there were early contract offers. But in 2008, we produced 2.5 million farmer stock tons. Add this to the 77,000 tons of imports, and it gave us a 3.1 million-ton supply. Take off a 2-million ton demand, and that left a carry-out from 2008 going into 2009 of 1.1 million farmer stock tons, double the amount we need.”

Add this to a production in 2009 of 1.8 million, imports of 54,000 tons, and there’s an approximately 3-million-ton supply, says Lamb.

“Take off demand, and we go from 2009 and into 2010 with 900,000 tons. It takes a while to cycle out excess carry-overs. We brought forward 900,000 tons into this year and produced 2 million farmer stock tons. With 54,000 tons of imports, that gave us 3 million farmer stock tons again.”

The difference, he says, is that a lot of production in 2010 was not of good quality.

“We had a lot of aflatoxin and Seg. 2’s and Seg. 3’s in our area. We had a good bit of aflatoxin in our edible peanuts to increase milling losses, which are normally 4 to 7 percent. The milling losses from dryland peanuts grown in southwest Georgia, southeast Alabama, and central Georgia are running 30 to 35 percent. They can’t blanch it out of the peanuts, and we don’t have the blanching capacity in the Southeast to take care of this crop, so quality is a major issue.”

The extra crushes are added on the demand side, says Lamb, and demand for peanuts has increased very well. “When we take off these extra peanuts for crushing, that leaves us 665,000 tons of carry-out, getting us back to more reasonable number.”

If you look at the amount of peanuts crushed, from 2006 to 2009, it’s always about 230,000 farmer stock tons, says Lamb. This year, it’s up to about 498,000 tons.

“The excess losses on dryland peanuts of 30 percent are hurting us on milling losses, which further reduces the amount of edible peanuts. That’s what we need to start thinking about in peanut production. Don’t think about delivering an in-shell farmer stock peanut. With this problem, we have to think of ourselves as growers of an edible commodity. When we adjust this on an edible basis, the carry-out is about 490,000 farmer stock tons.

“The markets are extremely tight right now, and we have two piles of peanuts. We have total farmer stock, and then we have edible peanuts. That’s causing some confusion in the markets.

Looking at current commodity prices, soybeans, corn and wheat all look good, he says, but cotton is driving the peanut industry, not just here but in west Texas.

“The weak dollar is working in agriculture’s favor, but the problem is in hidden costs. Fuel will continue to go up and add to the cost of everything we touch.”

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