Friday, September 30, 2011

The Peanut Market

Recently I have been again looking at the Rotterdam price of peanuts which is the only shelled good indicator left since we lost the Thomasville report.

Shellers seem to be paying about $200 less than they would normally have paid in the past. Does this mean the shelling margin has gone from $200 give or take to now $400? Does it reflect the quality issues with last year's crop? USDA's posted price is correct the way things used to be but now for some reason the shellers are not paying farmers at the same rate as they used to on shelled goods.

Now I don't know their business but doubt this is all because of the quality issues last year. I suppose the cost squeeze could also be impacting the shellers and they need more money. Sadly, it has reduced farmers stock prices by $200 from where they would have been had this been in 1990.

I have to hope at this point the peanut industry including farmers, who never should have contracted at $550 for the 2011 crop, are learning to look at all the factors of which peanut supply and demand is only a small part. What should it cost to buy peanut acres next year?

I often listen to the poultry guys to see what they think corn prices will be. I have heard pretty solid agreement that the recent downward blip was a harvest blip and the price is going back up. There is fair agreement that corn even goes higher and at least one case I have heard suggestions of $10 corn.

Let me explain the logistics of corn. I had a peanut broker who told me we could not store it all. Actually, we can use it all in a matter of weeks. We are a positive basis state and poultry will gobble it up. Also, there are bins which with little work could be put back in use and I have certainly seen corn stored on peanut wagons. I am not sure how many bushels of peanut wagon space we have but it is a lot ad that could be first marketed to free them up for peanut harvest two months later.

Now for the practicality of corn...the cost is about the same as peanut and cotton, just that some of the inputs are different. And, corn offers some benefit in rotation and in the area of pigweed management because you can use 2-4 D. With corn the crop is made by July and harvest by sometime in August, thereby limiting the risk from weather, insect, and disease pressures. Corn has you on the lake by Labor Day weekend.

And, the economics? I said the cost is not so different from well managed peanuts or cotton. So if I can make 220 bushels which is a pretty average number I am likely about a 4400 pound peanut producer. At 250 bushel corn I am more like a 5000 pound producer. Remember this is under adequate irrigation. At ten dollar corn I need thousand dollar peanuts. Eight dollar corn translates to $880 peanuts.

Cotton may be a bit softer but still close to the dollar a pound range and some experts would say much higher. Dollar cotton means for a similar type of producer about $1500 per acre. this is still $700 peanuts and under this scenario acres of both peanut and cotton would yield way to corn.

Looks like an interesting year but I hope farmers will put their own pencil to it and don't sell cheap.

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