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Contracting Looks Like Smart Move For Peanut Growers in 2012

 

By: Paul Hollis, Southeast Farm Press
3/7/2012 1:49:37 PM

 

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Planting peanuts without a contract could be a risky proposition this year, considering the great likelihood of increased acreage, says Nathan Smith, University of Georgia Extension economist.

"If you plant peanuts without a contract, you run the risk of getting lower prices because the production is likely to be greater this year," said Smith at the recent Georgia Peanut Farm Show in Albany.

Interest in peanut production is high for 2012, thanks to recent production shortfalls and resulting higher prices, he says. All of this sets the stage for an interesting year.

"In Georgia, we had our smallest acreage in three decades in 2011. Our final estimate was 475,000 acres, and the U.S. acreage was down almost as much as in 2009.

"Domestic use has stayed stable and has improved. The current situation is a supply problem with peanuts, and the big question is whether or not we'll have enough peanuts in 2012," says Smith.

A couple of states had record peanut yields this past year, he adds. "Florida tied their record average yield from the previous year and Mississippi had a 4,000-pound yield, and Georgia's yield was adjusted up to 3,520, so some of those 6,000 and 7,000-pound yields we heard about brought up Georgia's average yield.

"We had a higher-than-usual amount of abandoned acreage in Georgia in 2011."

The U.S. average peanut yield in 2011 was basically the same as in 2010, at 3,300 pounds per acre, says Smith.

"The record was set in 2008, at 3,426 pounds per acre, and in 2009, it was close to the record.

"Over the last four to five years, the United States has been above 3,000 pounds per acre, and the trend has been about 3,350. Acreage has responded to market conditions, with boom and boost-type cycles, and we ended up at 1.141 million acres this past year."

Going into 2012, U.S. peanut acreage needs to be above or at least at the level of 2010 acreage just to keep things at the current level, says Smith.

"The projection now is that we'll end the marketing year at about 525,000 tons. In the U.S., the question is how many of those tons are edible because of quality issues from 2010 and 2011.

"Georgia has the same amount of Seg. 2's and Seg. 3's as the year before. Alabama's quality was better than in 2010. So things could get tighter before we start filling back up the pipeline," he says.

For the marketing season that ended in July 2011, the total edible use of peanuts was up, says Smith.

"The domestic market was positive in terms of growth, and it came from candy and snacks instead of peanut butter. When peanut prices went up, we recaptured some market share that was lost in the recession of 2008-2009.

"When they updated the numbers in November, we saw another increase in use for candy. Peanut butter also showed some increase. From the consumption viewpoint, things looked positive."

The United States needs at least 1.3 million acres in 2012 - using a 3,350 pound-per-acre yield - to keep carry-over at current levels, he says.

"That's an increase of about 13 percent or about a 160,000-acre increase in the U.S. I think we could see about a 100,000-acre increase in Georgia, especially if contract prices continue to stay where they are."

If U.S. producers plant 1.3 million acres and have a 3,500-pound yield, it would push ending stocks up to 645,000, which means more peanuts in the pipeline but not a big surplus by any means, says Smith.

"If we have bad year with a 3,200-pound yield, we'll have a really tight situation in the peanut market. If we increase acres by 20 percent or up to 1.4 million acres, with a 3,350 yield, then we're talking about a 650,000-ton carryover.

"If we increase acres by 25 percent and start seeing 650,000 to 700,000-ton carryovers, we may see prices like we saw in 2007-2008."

The U.S. needs at least 1.3 million acres and it could see 1.5 million acres, says Smith. Seed prices are expected to be up 4 to 10 percent, depending on the situation.

"That'll be the main increase in cost this year. Depending on your yield, you could see a $24 to $45 per-ton increase in your production costs."

Costs will be higher, he says, and weather is a concern as La Niņa could keep prices up.

"But the question is, can you afford not to contract peanuts in 2012? Peanut prices will probably be competitive because the market won't let what happened last year happen again this year."

University of Georgia 2012 budgets show that for dryland peanuts at 2,900 pounds per acre and $700 per ton, a grower will have about $111 left over after all costs, including land rent of $65 per acre.

"We did a risk analysis comparing peanuts, corn, cotton and soybeans. Peanuts compare better, and the risks are not as high as you might think.

"There's a 62 percent chance of having a positive return.

"On irrigated land, at 4,200-pound peanuts and estimating costs at $1,150 per acre using a $175 per-acre rental rate, you have about a 72 percent chance of making a positive return. Peanuts, because of the risks involved, need to have a premium."

Smith advises peanut producers to look at their contract terms closely.

"What is the net price you're being offered? Contracts have different terms. If you're offered $750 on 25 percent of your pounds, and we end up with a $500-per-ton price at the end of the season, you'll end up with only a $560 net contract.

"Some contracts have been tied to locking in seed price, which allows you to lock in part of your input cost. This may be the year of the contract. If we plant a lot of acres, the probability is that prices will go down from there."

 

For more on this story:   http://southeastfarmpress.com/peanuts/contracting-looks-good-move-2012-peanut-crop