A year ago, at the 2016 Mississippi Peanut Growers Association annual meeting, the outlook for the 2016/17 peanut marketing year was anything but bright: There was a glut of peanuts and contract offers to growers for 2016 were less-than-attractive.
But, surprise! “Everything turned in our favor — and it turned fast!,” Marshall Lamb, research director of the National Peanut Research Laboratory at Dawson, Ga., told Mississippi growers at their 2017 annual meeting at Mississippi State University.
“What a difference a year has made: We’ve gone from a projected oversupply to a tight supply, and the market is now offering growers contracts of $475 to $500 for 2017 peanuts. Plus, offers are roughly the same for last year’s peanuts that are still in the loan. We’re now at a very reasonable carryout level. This is where farmers need to be.”
The turnabout came because of unexpected weather setbacks in other key producing countries that resulted in China coming to the U.S. for peanuts that it otherwise would’ve bought elsewhere. “These are the sorts of things we really can’t predict,” Lamb says.
“In January 2016, U.S peanuts were basically in oversupply, according to stocks and processing numbers, and there were concerns about whether or not we could store the U.S. crop. Farmer stock ton contracts at the time were ranging between $365 and $375. Argentina had a good crop set, were approaching their harvest, and things looked pretty good. India was something of an unknown regarding quantity and quality of their production. We knew China was becoming a major importer of peanuts, but we didn’t know what volume we would be able to ship, because China basically buys on price.”
When Argentina started digging its crop, Lamb says, “It started raining, and the rains simply wouldn’t stop all through the harvest season. It significantly impacted yield and quality, to the extent that they temporarily halted contracting in the international market. They export almost everything they grow, so that took supply out of the market. It rained so much, they were finishing harvesting their crop at the time they were needing to prepare land for their new crop. On our calendar basis here in the U.S., it would’ve been the same as not completing our harvest until the February-April period.”
CHINA CAME CALLING
Then, Lamb says, yield estimates for China’s crop were reduced due to weather. India’s much-needed monsoon rains didn’t materialize, “and they were looking at a 32 percent reduction in their exports. India normally supplies peanuts to China for crushing, but this was the second consecutive year of weak monsoons that limited their crop and their export potential. South Africa had a tremendous drought, with basically a crop failure.”
And that’s when China came calling for U.S peanuts.
China is becoming a leading importer of peanuts at the same time their exports are going down, Lamb notes. Consumption there has increased because their people are eating more peanuts, and due to record high demand for peanut oil because of its health benefits. China exported 830,000 tons of peanuts in 2006-07, and by 2016-17 that had dropped to just 510,000 tons. On the other hand, imports were increasing from a low of 60,000 tons in 2010-11 to 250,000 tons in 2016-17. “U.S. peanut exports to China were up an astounding 1,518 percent in 2016 versus 2015,” he says.
Douglas Holliman, right, Caledonia, Miss., producer, visits with KMC representatives, from left, Hal Waller, Troy, Ala.; Walter Bloodworth, Crawfordsville, Ark.; and Melvin Tucker, Tifton, Ga.; at the annual meeting of the Mississippi Peanut Growers Association.
“The 2016 value of U.S. peanuts sold to China was $148.296 million; they led the Top 10 list of buyers, followed by Canada, Mexico, Vietnam, Netherlands, United Kingdom, Germany, Japan, Spain, and Norway, all of which had increases in their purchases. This reflects excellent work by our industry in getting U.S. peanuts into a position in the world market to help clear a lot of supplies.
“Getting into China was a huge benefit to the U.S. industry, and was the result of efforts by multiple groups in working out procedures to get us logistically positioned to sell peanuts into China. It involved e-commerce transactions, and getting us in position to work with big box stores in China, like Walmart — getting them to push the message about U.S. peanuts. It wasn’t just dumb luck; there was a lot of hard work and good maneuvering by the U.S. peanut industry.”
HUGE PURCHASING POWER
With about 20 percent of the world population, “China has a lot of mouths to feed,” Lamb says. “In terms of purchasing power, they’re No. 1 in the world. They’ve developed a large middle class that wants to buy better foods, including peanuts. They’re an incredibly important partner for us.”
Consumption has also been increasing domestically, he says, going from 6.72 lbs. per capita in 2012 to 7.19 lbs. in 2015. “This is good, steady growth, representing hundreds of thousands of tons of additional peanuts. It’s impressive that the per capita consumption increase is outpacing population increase — and we want that to continue.”
Lamb cited a statement by Bob Parker, National Peanut Board president: “Given the mature market for peanuts, anytime our consumption rate is growing faster than the population growth, we should be pleased and encouraged. Success is not only a growth in total consumption, which we have seen over the past several years, but also a growth in per capita consumption.”
In the last several years, U.S. harvested acreage has fluctuated widely, Lamb notes, due mainly to supply/demand. “In 2014, we harvested 1.3 million acres, and 2015 and 2016 were back-to-back 1.5 million acres. That scares me a bit — that’s a lot of acres, and informal surveys are pointing to another increase in 2017.”
At the same time acres have gone up, he says, “We’ve been seeing definite shifts in yields, due to advances in technology, varieties, etc. But what alarms me a bit is that since 2012 we’ve seen a steady downward trend in average U.S. yields. Looking just at Georgia, Florida, and Alabama, yield has declined from an average 4,353 lbs. in 2012 to 3,877 lbs. in 2016. Is it related to rotation? Are we planting too many peanuts? Are some varieties losing some genetic resistance? We don’t know, but it’s a concern that we’re seeing this yield decline.”
Mississippi hasn’t shared in the downtrend, however: “You’ve had good yields, and you’ve maintained them, due to great research/Extension work, good land, and excellent growers.”
MEETING MILL NEEDS
Total U.S. production reached a peak in 2012, with 3.4 million farmer stock tons. That dropped to 2.08 million in 2013, rebounded to 2.52 million in 2014, 3.10 million in 2015, then down to 2.84 million in 2016.
“U.S. millers can process 280,000 to 290,000 farmer stock tons per month,” Lamb says. “From Aug. 1 until new crop deliveries come in about three months later, we need about 900,000 tons to keep mills operating. In 2011, when had only 380,000 tons of carryout that represented only a bit over a month’s supply for the mills. And that short supply is why, at the end of 2011, the price of uncontracted peanuts shot to $1,000 per ton.
“In 2012, we increased that to 1.26 million tons of carryout — way too many peanuts. In 2013, that dropped to 928,800 tons, and 883,000 tons in 2014. This time last year, we were projecting 1.34 million tons carryout — a tremendous number, and the reason we were seeing very low contract offers, and not much optimism for the 2016 crop year. With a projected production of 2.84 million tons in 2016, things weren’t looking good.
“But then India’s crop hit the skids, Argentina had enormous problems with rain, China had problems with its crop, and we got a July surprise when the numbers for available stocks were reduced. As a result of all that, we’re now looking at 2016 carryout into the 2017 marketing year of only 787,210 tons. We’ve gone from a projected oversupply to a tight supply, which is why the market is now offering growers contracts of $475 to $500 for 2017 peanuts. On top of that, they’re offering roughly the same for last year’s peanuts that are still in the loan.”
Within the domestic market, Lamb says, “I think we can continue the upward trend in consumption. We’ve got a great message. But peanuts are already present in about 94 percent of U.S. households, so we’re not going to get much further penetration. Our challenge now in the U.S. is to continue to increase per capita consumption, and internationally, the major question is whether we can keep our export market strong.”
India received monsoon rains for their current larger crop, he says, “As a result, they’re selling their peanuts somewhat cheaply now. Argentina’s crop is also making good progress as they near their mid-pod set stage, and China is expecting a larger crop due to an increase in acres.”
In 2015 and into early 2016, in relation to Argentina and India, the U.S. was “completely competitive in the international market,” Lamb says. “We moved a tremendous amount of peanuts because of value. But now that India is starting to sell peanuts, in the last three months their price has dropped significantly below China, the U.S., and Argentina. Remember, China usually buys on price — and that could be the bear in the woods in for U.S. exports.
“The peanut market can change so fast. We grow roughly 74 percent of the U.S. crop in Georgia, Florida, and Alabama, and weather problems there can have a tremendous impact. China is by far the world’s largest producer, followed by India, and interruptions there can have an enormous impact on the market. Although Argentine production is small, they export virtually all of their crop, so if they have a problem, that affects the European market. These four producers — China, India, U.S., Argentina — can have a huge impact on the market, and an interruption in one of those places can change the market in a hurry.”