Price competition between crops boosts peanuts
Apr 28, 2008 9:38 AM,
By Paul L. Hollis
Farm Press Editorial Staff
Competition is good, especially if you’re a peanut producer. “The price competition between crops has definitely raised our prices and has helped our growers in the peanut markets,” says Marshall Lamb, economist and research leader at the National Peanut Research Laboratory in Dawson, Ga.
If U.S. growers produce average peanut yields in 2008, a national acreage increase of approximately 10 percent to 15 percent will be needed to maintain the “right” carryover level going into next year, says Lamb. “This will also ensure that we have enough supply to try and recoup some of those export markets that’ll be created when China and others pull back,” he adds.
Looking at where the peanut market has been and where it is going, Lamb says the U.S. crop for 2004 was 1.394 million acres and 1.62 million acres in 2005. “And in both of those years, we had extremely good production, as we were blessed with good rainfall throughout the year in most all producing areas. But we over-produced the market,” he says.
In 2006 and 2007, there was a market correction, says Lamb, with 1.2 million acres in 2006 and 1.195 million acres in 2007. The last time acreage was this low, he says, was in 1915.
U.S. peanut demand is about 1.85 to 1.9 million tons. But in 2003, growers produced almost 2.1 million tons. This was followed by 2.2 million tons in 2004 and 2.4 million tons in 2005.
“We were building significant carryover stocks during that time. In 2006, we had production problems and delivered just less than 1.7 million tons. And in 2007, we delivered a 1.87 million-ton crop. I’m not sure how we delivered that amount this past year with the severe drought.”
Turning to other crops, Lamb says that in Georgia in 1996, corn was $3.55 per bushel and producers planted more than 500,000 acres. Corn prices then began to drop, but in 2007, they went back up to $3.75 per bushel as an average price for the entire year, and acreage went back to half a million.
“Right now, corn is more than $5 per bushel, depending on your basis. But the cost of producing corn has gone through the roof, so we don’t know how much corn will be planted.”
Soybeans, he says, are showing the same trend. In 1996, they were $6.50 per bushel and there were more than 400,000 acres in Georgia. When beans moved to more than $6 per bushel for the average price last year, acreage in the state went to 280,000.
“I think we’ll see a lot more soybeans if growers in Georgia can get the seed,” says Lamb. “But beans can be more of a problem to a peanut rotation than continuous peanuts. If you’re serious about staying in peanut production, don’t introduce soybeans on a large scale because you’ll pay for it in the long run.”
A lot of the increases in corn and soybean acreage in Georgia this past year came from cotton and peanuts, but cotton prices have now improved.
Peanuts — at current contract prices — compare favorably with other crops, he says. “The current contract offers are very much in line, in my opinion, with other crops and where we are in the markets.”
The break-even price for irrigated peanuts, to compare favorably with that of irrigated corn, is about $518 per ton. For cotton, the break-even price is $491, and for soybeans, it is $536. For wheat, the break-even price is $610.
“For dryland corn, the break-even price for peanuts is about $391. We just cannot grow dryland corn in our area. You’re lucky to get 30 or 40 bushels, if that much.”
For dryland acreage, the break-even price for peanuts compared to cotton is $498. For soybeans, it’s $527 and for wheat and soybeans, it’s about $630.
“The contract offers we’ve seen are about $525 — it is in line with the other crops, as far as returns,” he says.
As for peanut supply and demand, Lamb says that in 2007, there was a 1.87-million ton crop with a total from carry-in of about 450,000 tons. “We finally got rid of the over-supply from the 2004-2005 crop. We would have received much better prices last year if you didn’t have the over-supply on your back, and that is key to what you’ll get this year since you finally got rid of the carryover.
“That gives us 2.32 million tons with which to work, and we have a demand of 1.85 million tons. It could be higher than that because for the first time in years, China will be a net importer of peanuts because their economy has grown so much. That will open the export market to us. I don’t think we’ll directly supply China, but it will open up some of the markets they were supplying.”
This scenario, says Lamb, will result in a 470,000-ton carryout. “That’s relatively normal. We once thought of a 350,000-ton crop as being normal. But that was when we were delivering peanuts at the first of September. The carryover keeps the mills running until the new crop comes in. But now, we’re not delivering peanuts to the market in any significant fashion until the first of October.”
e-mail: phollis@farmpress.com
