Higher yields required for 2006 peanut profits

Two tons per acre likely will not offer a profit for Southwest irrigated peanuts in 2006, with a $375 per ton price, including loan deficiency payments.

“Profit level will be around 5000 pounds,” says Jay Yates, Extension program specialist for risk management in Lubbock, Texas.

“We see no reason to expect significant acreage changes this year,” Yates told a peanut production seminar audience recently in Seminole, Texas. “Georgia and Alabama acreage likely will increase. Texas acreage will remain stable or go a bit lower.”

Yates said top West Texas peanut farmers probably will not reduce acreage. “The best farmers are making high yields and their budgets show no better crop options available. The acreage shift most likely will be from irrigated corn to irrigated cotton.”

Yates bases his outlook on recent production, planting and consumption trends. Since the Rural Investment and Farm Stability Act of 2002, which altered the peanut support program, eliminating quotas, acreage has increased every year. And, although U.S. yield the last two years fell short of the 2003 yield, demand has flattened.

“Food demand is steady,” Yates said, “but we expect another carryover increase this year. Consequently, farmer price is expected to decline.”

Low prices for other crops and increased supply contribute to the drop.

Yates said peanut acreage peaked in 1991 at just more than 2 million, then dropped until the 2002 farm legislation when the trend reversed and started up. Total U.S. peanut acreage topped 1.6 million in 2004. Tops in Texas is Gaines County with 59,000 acres.

Yates said Texas acreage has not increased much within the past few years but has shifted away from the traditional peanut area in Central Texas to the High Plains of West Texas. Texas yields also trend upward with a record 3500-pound average from the 2005 crop.

“We've seen a more pronounced upward yield trend in Texas than in other regions,” Yates said. “That likely because of the shift in acreage.”

Upward trends in production and a flat consumption rate create an oversupply. “The first year with the new farm legislation we saw a big drop in ending stocks for peanuts,” Yates said. “Every year since, ending stocks have gone up.”

A 2005/2006 use forecast sows a 1 percent increase in domestic food use, an 81.2 percent increase in crush, a 1.1 percent increase in seed and residual, a 10 percent jump in exports. Total use increase is just shy of 10 percent.

Yates said the large increase in crush is somewhat misleading. “It's a big change but the number is so small it makes little impact on total use. With better grades, we see less crush.”

He says stocks to use ratio shows a significant change from the 2002/2003 crop-year, which had a 21.9 percent ration. In 2005/2006, that figure is estimated at 41.2 percent. “That could be a problem for prices,” he said.

Contracts for the 2005 crop ranged from $15 to $25 over the loan. Estimates for the 2006 crop indicate “more downward pressure on price than was the case last year. Expect Valencia contracts to be down by $50 a ton. We see little incentive for a price increase.”

Yates said charting past year contract highs offers little assistance in plotting a market strategy for the 2006 crop. “In 2003, March was the best time to sell,” he said. “In 2004, the peak was in June, and in 2005 the peak occurred at harvest.”

He expects the $104 maximum counter cyclical payment will not “be in jeopardy.”

CC payments for the 2004 crop included a $25.55 first payment, a second payment of $15.75 and a final payment of $39.70 for a total of $81.00.

For 2005, CC payments will be $36.40 for the first advance, $36.40 for the second advance and a projected total CCP of $104.

Yates said Extension budgets show irrigated peanuts yielding 2 tons per acre with variable costs of $809 per acre will lose $59 per acre. Irrigated cotton, with an 850 pound yield and $527 per acre variable costs will lose only $25 and dryland cotton, with a 300 pound yield and $209 in variable costs will be $29 below breakeven.

Higher energy and fertility costs take a chunk out of profit potential.

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