The surplus of U.S. peanuts could be cut almost in half this year, thanks to a combination of fewer planted acres and poor growing conditions in many areas of the Peanut Belt.

“Based on current production estimates, we’re looking at drawing down the surplus by 40 to 50 percent,” says Nathan Smith, University of Georgia Extension economist. “That looks very positive, but there still are a lot of peanuts out there. We had a record supply coming into this year, and we had almost record production last year. When you combine the carryover from last year, we were up 3.5 million tons.”

Smith presented the U.S. peanut outlook during the annual Southern Region Agricultural Outlook Conference held in Atlanta.

Looking at the current price situation, shelled prices went down a couple of years ago, and that has led to lower farmer prices, says Smith. We had strong historical increases in food use with the 2003 and 2004 crops, and last year’s crop was basically even. The Virginia market actually has seen a decline in use,” he says.

As for annual per-capita peanut consumption, the United States is at 6.7 pounds — the highest it has been since 1989.

“Last year, at about this time, more than 100,000 tons of peanuts were forfeited in the CCC storehouse,” says Smith. “In other words, the government took over ownership of about 100,000 tons.

“The big prediction this year was that it would be 600,000 to 700,000 tons, at least, if we produced the average annual yield. These peanuts were forfeited last year and went to fill 2005 crop orders. They used these peanuts for what they were going to use new crop peanuts. It was expected that these peanuts would be crushed, but they were used for edible use in the regular market. That basically displaced another 100,000 tons of the 2005 crop that got pushed to the stocks at the end of this year.”

Recent numbers show that 23,000 tons of the 2005 crop had been forfeited, he adds.

“This year, the latest update has production back to 2002 levels — the last time we had disaster aid, and the carryover number has been cut in half. Planted and harvested acres are down from previous years, a little bit less than 25 percent off of last year’s crop.

“The U.S. planted crop was 1.24 million acres and the harvested crop is set at 1.21 million acres, with an abandonment of less than 2 percent.

“Yield for this year is estimated at 2,645 pounds per acre — quite a drop from last year’s average of about 3,000 pounds — with a total production of 1.6 million pounds,” he says.

Georgia produces about 45 percent of the total U.S. peanut market, says Smith. “South Carolina has become a big player with 60,000 acres, and Mississippi became an official peanut state this year with 16,000 acres. Georgia, Florida and Alabama contributed greatly to the drop in acres this year,” he says.

As far as yields, Alabama has an average yield of 1,900 pounds per acre this year while Florida has an average yield of 2,300 pounds per acre.

“Since 2002, we’ve seen an overall shift of acres in the peanut production belt. Peanuts are moving down the Atlantic Coast to South Carolina and into Mississippi. A majority of the Georgia acreage is in the southwest corner and eastern parts of the state. In Alabama, production is moving west and to the north. North Carolina is now below 100,000 acres and Virginia is a marginal producer with 17,000 acres.

“If Georgia growers get their acreage back up to where it was in 2005, we’ll be cutting into our three-year rotation schemes, which will adversely affect our yields.”

Turning to peanut use — under the new program — U.S. growers are not as dependent on exports, says Smith. Argentina is the main competition of the United States, and they’re concentrating on exporting rather than importing, he says.

“Looking at the balance sheet, if we were looking at a 2 million ton-plus crop as we have the last couple of years, we’d be looking at a similar situation of having too many peanuts. If harvest turns out as it has been projected, we’ll work those ending stocks down by about 40 percent.”

Demand has been estimated at being up by about 1.4 percent on food use, says Smith. “It’s hard to say on exports — we’re basically holding our own. China is the largest exporter, followed by Argentina and the United States. As far as quality edible peanuts, Argentina and the United States are the high-quality suppliers while China and India export a lot of boil-grade peanuts.”

The National Posted Price, which comes out each week, determines the LDP on peanuts, and it’s a “black box” method, he says. “USDA won’t reveal how they do it for fear of manipulation. AMS issues a peanut report of shelled prices, but they will be discontinuing that report. NASS will work towards a weekly report of peanut prices, which is a voluntary report of surveys done with shellers of the total amount they paid for a ton of peanuts. There’s no real market to derive spot prices on peanuts.”

Shellers, says Smith, either buy peanuts out of loan or they give option contracts. “They’re all option contracts, which means shellers have the option of buying from the farmer if they want to. The National Posted Price is actually above the loan rate now, so there’s no LDP.”

Economic considerations this year, brought on by rising energy costs and a surplus crop, have created a cost/price squeeze for farmers, says Smith.

“High fertilizer prices and high fuel prices have been a big consideration for growers this year. Last year, farmers in Georgia didn’t feel the full impact as far as irrigating fields. Fifty percent of our peanuts and about 40 percent of our cotton in Georgia is irrigated. Last year, our growers irrigated either once or twice, so they didn’t feel the full impact of higher energy prices until this year. As the result of higher energy prices, the cost of technologies also has risen.”

U.S. peanut acreage decreased this year primarily because there were not any pricing opportunities, says Smith. “Peanuts had a cost advantage over cotton this past year, but we still planted more cotton because of uncertain pricing opportunities for peanuts.

As for the outlook, the domestic market has slowed, but it’s not going backwards. We’d expect to consume about 2 million tons. We have a buffer because we carried over at least half of that. We have seen prices rise in the shelled market, and that’s a result of the National Posted Price going up. Argentina says they’re increasing acreage, but they have some very dry weather.”

With the cost/price squeeze, Smith predicts farmers will be looking for $380 per ton as a sign next year to plant peanuts. “They’ll also be looking at corn and cotton. This cost/price squeeze leads to a situation where better prices will be needed to encourage peanut plantings. The cotton and corn markets will have an impact on peanut acres in 2007.”

Turning to the farm bill, Smith says producers and grower groups want to keep the current peanut program but fix the National Posted Price to work more like it does with cotton. Growers also would like to see the funding of handling and storage fees for loan peanuts and keep a separate payment limit on peanuts, he says.

email: phollis@farmpress.com