Going into the 2020 planting season, hard numbers show the peanut supply-and-demand picture looking relatively better, but low prices for competitive crops, like corn and cotton, still tether the market. Peanut farmers' and shellers' incomes are stressed.
Marshall Lamb, peanut economist and research leader at the USDA National Peanut Laboratory, each year provides a retrospect and outlook of the U.S. peanut market during several meetings throughout the South, including this year's annual Alabama-Florida Peanut Trade Show in Dothan, Ala., Feb. 6.
The decisions made a year ago and resulting outcomes now affect the market. Decisions made for the 2020 crop will affect the 2021 market outlook. "We essentially are always dealing with three crops when you talk about marketing," he said.
In his analysis, he provided several hypothetical scenarios. In one, peanut farmers plant the same total acreage in 2020 as they planted in 2019, or about 1.34 million acres. They roughly harvest the same average yield, or about 4,000 pounds per acre, but with better overall quality. Consumption and exports remain at trend levels. Farmers deliver what shellers need, but what was a slightly oversupplied market becomes a tight one going into 2021.
A lot will happen between planting and harvest in 2020. To get a perspective on the market now, Lamb briefly looked back. The carry-forward, a market indicator, provides the focus.
U.S. shellers can shell between 200,000 tons and 250,000 tons per month. Shellers require a carry-forward supply of between 650,000 tons and 750,000 tons after the marketing year ends on July 31. This supply keeps shellers shelling as the previous year's supply runs out and before the new crop arrives in October. A healthy carry-forward also gives the industry room to grow and meet new demand and marketing opportunities, Lamb said.
In 2017, growers responded to market indicators and ended up harvesting almost 1.8 million acres. Good weather and circumstances delivered a near-record average yield of 4,176 pounds per acre. The 2017 crop outpaced demand, resulting in a carry-forward supply of 1.3 million farmer stock tons going into 2018 marketing year. That 2017 production still echoes over the market, but it's fading.
The carry-forward supply from 2019 into this year is 897,000 tons. Still somewhat high but, again, trending in the right direction for market balance compared to recent years. The scenario mentioned above would result in a potential carry-forward of 671,000 tons going into 2021.
Another scenario: Farmers in 2020 plant 5 percent more acres than they did in 2019 and yield about 2 tons per acre and deliver a perfect crop. The carry-forward hovers around 800,000 going into 2021. A bit too high but not bad.
In the scenarios mentioned so far, a baseline average yield of two tons is used. Though stable around that mark in recent years, average yields and quality do vary from year to year. Drop the average yield by only 250 pounds to 3,750 pounds per acre with 1.34 million acres planted in 2020 and the result is a 505,000-ton carry-forward into 2021. That's an undersupplied market, which jeopardizes growth, he said.
It is important to note, he said, that U.S. peanut exports have increased since 2011 and 2012, when the U.S. exported about 350,000 tons of farmer stock, which at the time was about typical export volume.
"But due to great export development work, currently we have exports around the 750,000 farmer stock ton mark with a noted spike in 2016 of 970,000 tons. And maintaining and growing that export market remains important for the industry, and many people are working on that," he said.
The price for peanuts at the farm level hasn't changed much since the early 2000s, he said, hovering around 20 cents to 21 cents per pound, or around $400 per ton. But the cost of production at the farm level has continued to increase. According to USDA-ERS data, over the last decade the average total cost of production has been $900 to $950 per acre. Returns over total cost have plummeted since 2012 and have been below the cost of production in the last five years.
The average cotton December futures has been below or at 70 cents over the last five years, with brief spikes to as high as 74 cents. Many Southern growers rotate cotton with peanuts, he said, and cotton returns are below cost of production, too.
Southern corn draws a positive basis. With September corn prices at $3.90 a bushel, some southwest Georgia growers can lock in a 60-cent positive basis right now and in parts of southeast Alabama, growers are being offered as high as 80-cent positive basis.
"No crop is competing with peanuts for acreage right now, which is why we are where we are. And we'd need the manufacturer in this discussion mainly because peanut prices, again, are about the same as they were in the early 2000s, but the cost of production has gone up over time. And the manufacturers need to understand that producers, buying points and shellers are the conduit to providing them reliable, high-quality crops," Lamb said.
A tough crop
Shellers want quality peanuts in 2020. The 2019 crop hit shellers hard. The cropping year started out well. By August, though, extreme heat and little rain fell over the Southeastern Peanut Belt, which was "a perfect storm for Aspergillus flavus and aflatoxin," Lamb said.
As of Jan. 14, the Federal State Inspection Service reported 55,750 famer stock tons of the 2019 U.S. crop as Seg. 2 or 3, or about 2 percent of the crop. In 2018, FSIS reported 18,000 FST as Seg. 2 or 3. Quality is a concern. So far, about one-third of shelled early lots fail, or have more than 15 ppb of aflatoxin. "Shellers always ensure that only high-quality peanuts enter the edible markets, and the further processing required to accomplish this in difficult years cut shellers' profits," he said.
So, what should a peanut grower do in 2020? The market is not calling for an acreage increase in 2020, he said. Growers should hold pat on acreage if possible.
"If we plant the same and average the same yields (as in 2019), it will bring the carry-forward down to under 700,000 tons and help us get the market more balanced," he said.
But growers would need to deliver a perfect crop.
"Another crop quality issue or something like that, we might actually hinder market growth. And we don't want to do that because we see how hard we fought to get domestic demand and export demand up to a point that we're at. So, it's a really a touchy situation. We desperately need to improve and supply quality peanuts, so that we can keep this going," he said.