Friday, October 14, 2011

Food for Thought

I learned fairly early in my professional life that when I pointed a finger at
someone else my remaining three fingers were pointed back at me. I write this
not to point a finger but to give food for thought.

For several years we have worked with the National Center for Peanut
Competitiveness to build representative farms which would help us direct
farmers in making planting and marketing decisions. Last year at the American
Peanut Council December meeting, Dr. Fletcher presented a prognosis of what it
would take to have enough peanuts planted to meet demand. They look at cost
structures and then at commodities which may compete for acres. Some of the
folks at the table with me sort of scoffed at Dr. Fletcher’s numbers.

We let farmers contract cotton and to some extent corn early and well before
peanut contracts were ever offered. Because those contracts have to be filled
farmers put their most productive land in those commodities. We saw this by the
sharp decline in irrigated peanut acres in Georgia.

You may argue, just make peanut contracts a mandated delivery, but it is not quite
that simple. Cotton and Corn have a futures market and there is a source to
correct an error in contracting. It may be costly but it is at the least
doable. For peanuts there is no futures market and therefore if production is
not there you have no place to go to fix the situation.

Add to this the bad taste some farmers have toward peanuts right now and the
situation becomes more tenuous. Farmers who had extra production because they
irrigated or those who decided not to contract because the price was not high
enough found themselves in the unfortunate situation of indemnifying the poor
quality of some of the peanuts delivered under contract. For the first time in
history peanuts at the farmers stock level didn’t reflect a $200 shelling
margin but instead reflected at least a $400 margin. These farmers were less
than happy with this redistribution of cash.

Now, for 2012 some experts in the livestock feeding business are studying the
prospect of corn prices as high as $10 per bushel. I discussed this prospect
with one broker and with several farmers and the broker seemed concerned but
not alarmed. The farmers see this as an opportunity.

Corn, cotton, and peanuts have a relatively similar cost structure. Farmers are also
struggling with resistant weeds which a corn rotation would allow some very
good management for those weeds. Corn is planted in March and harvested by
August which certainly reduces the producers risk in terms of the calendar.
Irrigated producers in Georgia can anticipate corn yields in excess of 200
bushels per acre.

Farmers, just as any businessman, have to make good economic decisions now more than
ever. The banks are demanding it.

Nothing would make me happier than for Georgia to produce a million tons of peanuts in
2012 and we can do that on 650,000 acres and not bust our rotation under normal
conditions. Still, I can’t fault farmers for choosing their best options. Maybe
we need Dr. Fletcher to come back and tell us what the numbers are to buy back
some of those irrigated acres we have lost.

1 comment:

Mace said...

Have end users bought into the "just in time" approach for obtaining commodities? In my estimation, it doesnt look like the corn market wants to "buy enough acres" for 2012 to satisfy demand and thats your obvious point with peanuts also. Looks like peanut farmers would be wise to plan to sell at the end of the marketing year. Seems to be a trend, until end users "buy the acres" that it will take.