With peanut contract prices last year reaching as high as $1,000 per ton, “planting peanuts was a no-brainer” for Mississippi growers, says Kevin Calhoun, procurement manager for Birdsong Peanut Company.
“High prices brought a lot of growers to last year’s Mississippi Peanut Growers Association meeting,” he said at the organization’s conference this year. “With the outlook this year for prices to be down substantially, it’s good to see so many growers here — it indicates you believe peanuts have a future in your state.”
Calhoun, along with Golden Peanut Company President Kris Lutt and Clint Williams Company President Alan Ortloff, discussed the outlook for peanuts in 2013 at the MPGA meeting.
With a huge oversupply from the all-time record 2012 crop going into the 2013 marketing year, Calhoun says surprise purchases by China helped to brighten what had been an otherwise somewhat gloomy outlook. But still, the outlook is for acreage cutbacks this year of as much as 30 percent to 40 percent.
“Prices for other commodities will have an impact on how many acres of peanuts growers plant this year,” he says. “If current corn and soybean prices hold, we can assume the Southeast states will max out acres for those crops.
“Everyone is expecting huge cutbacks in cotton, but if it stays at 85 cents or better, the drop in acreage may not be as severe as everyone has thought. If we include Mississippi and Arkansas in the Southeast, peanut acres could still probably be over 800,000.”
Even with China’s purchases, Calhoun says, the U.S. still needs to sell a lot of peanuts. “To move this crop, we’ve got to increase consumption, and we have to find other opportunities for exports. Hopefully, the dark days are behind us and peanut consumption will be moving back up as consumers begin seeing lower prices for peanut products.”
Peanut butter is leading peanut product in the U.S., followed by candies, and roasted/salted snacks, he says. “Major players are J.M. Smucker, which bought the Jif brand; Unilever, which was recently sold to Hormel, and we hope they will continue to promote the Skippy brand; and ConAgra, which has Peter Pan, also bought some house brands and is looking to expand. In the candy market, Hershey, Kraft, and M&M Mars are all major players, along with Nestle.
“We bring a lot of the buyers from these companies to peanut country each year and let them see firsthand how the product is grown and processed. This gives them an opportunity to get a feel for our industry and the high quality peanuts produced by our growers.”
Calhoun noted that Jeff Johnson, current Birdsong president, works with Peanut Institute to promote peanuts throughout the world and to include peanuts in humanitarian programs.
“The market today is very different than two or three months ago,” said Kris Lutt, president of Golden Peanut Company. “With the huge supply from the 2012 crop, prices were continuing to go down; we didn’t know where the decline would stop.
“Increased buying from China has been one of the factors that has helped to turn the market around. Domestic buyers then began to feel we had hit the bottom and that they needed to come into the market for some purchases.”
Domestic demand has been good, too, he says. “ One of the benefits of peanut prices coming down is that peanut butter manufacturers, candy manufacturers, and others are promoting their products and we’ve seen more peanut products coming off the shelves. That’s good for our industry.”
But he says, “We’ve still got a huge crop to deal with — a 3.5 million ton crop and only 2 million tons of shelling capacity. And dealing with some of the export markets can be a bit tricky. But we feel we’re heading in the right direction in being able to handle this export business.”
Working on contract details
Noting grower concerns about contracts for 2013, Lutt said, “We’re working with customers on their needs for next year, and on the economics for producers, and we do expect to have a contract out before planting begins. We’re continuing to work on the details.”
“It’s going to be a challenge to overcome this huge crop and huge surplus,” says Alan Ortloff, president of the Clint Williams Company. “China’s purchases may help keep the market from going down, or it may even move it up a bit.
“China is a game changer — but with our surplus, this isn’t going to create high prices.”
The peanut market is “very complicated,” he says. “It’s a moving target, and it’s continuing to develop each week, each month. For the next 8 to 12 months, how much more will China buy? And when will they cut off their purchases? The Argentine crop will become available in late May and June, which will increase supply, and India’s new crop will start coming off in June or July. We don’t know if India will be back in the market in a big way, or their exports will still be limited.”
Only about half the total U.S. peanut acreage was contracted in 2012, Ortloff says, although the percentage was “much larger” in Mississippi, where contract prices as high as $1,000 attracted many new growers.
“The big question now is what will happen to uncontracted peanuts from 2012 and for the 2013 crop. Normally, with a very large crop, the shellers own all the surplus. Manufacturers step back and wait for the market to go down before they buy, and we shellers all compete against each other for the lowest possible price to get the manufacturers to buy from us. It’s a bloodbath. We’ve been there before, and it’s not fun. That’s what we were fearful of this time.
“But this time, a big part of the surplus was uncontracted. The shellers don’t own that part of the surplus; the growers who planted without a contract are the ones taking the risk.”
Some growers in the Southeast have taken the $30 over price that was offered recently, Ortloff says, and others “are sitting back, hoping for more money. A higher price may come about — but I caution everyone not to look for pie in the sky on price.”
The huge crop availability will keep prices from going very high, he says, but China and other factors may keep them from going too low.
“This situation is so different than anything we’ve ever had in the past. Growers who didn’t contract, who were pretty much resigned to taking the loan price, will probably get more than that — but not a great deal more — and it will help keep the market afloat.”
Most shellers are operating around the clock, Ortloff notes. “It’s a difficult pace. We’ve all sold heavily f or the first two quarters of the marketing year, we’re still trying to catch up with the big crop, and we don’t know if we can keep up with demand. Blanching plants are loaded up too, and that’s another factor that will affect markets. Any disruption at shelling facilities, or a dock strike, would have a big impact on the market. “
Analysts say the U.S. will need 1 million to 1.2 million tons less production this year, Ortloff says, “which points to a big reduction in acreage compared to 2012. The price to the grower must be high enough to compete against alternative crops to get them to plant peanuts, but not high enough for them to overplant and push us into another oversupply next year.”
The Southeast and Southwest still have areas of major drought, Ortloff notes, “and nobody knows if we’ll get enough rain before planting time.”
Analysts are projecting that U.S. peanut exports this year will reach 600,000 tons, three times last year’s figure. Some say exports could go as high as 700,000 to 800,000 tons. “800,000 would be four times last year’s exports,” Ortloff says. “That would be huge!”