I think conventional wisdom is that the industry might have learned last year to come with contracts a bit earlier. The big question is what kind of contracts will they come with?
It is not our job to tell a farmer what to do but I want to be sure he has all his options. Because many farmers don't look at this blog I hope you will tell your neighbors to gather information as much as possible. The Peanut Commission is a good place to get that information. We have funded work through the National Center for Peanut Competitiveness and they have a host of representative farms which can be a guide to use to compare cotton and corn and peanuts, in terms of cost of producing versus price.
It has been my observation that the first price offered has never been the best price offered. There are also other considerations that must be weighed as you make your planting and marketing decisions.
Weather forecasters have said this Winter and Spring will be a continuation of the current weather pattern and will be warmer and drier than normal.
Look around and you can see the ponds are very low and streams are far from being out of the banks. Reports are that the aquifer is lower than normal after two years of heavy pumping with less than adequate recharge in the Winter.
Reports from the Southwest are not any better, in fact they may possibly be even worse.
If we don't recharge and get water to use for irrigation then another dry year could be a disaster. This said it is a consideration but I don't think it is sound to make all your decisions on what ifs.
So then how does an acre of peanuts stack up on cost versus return and other considerations?
Corn, for instance may reduce a farmer's risk because the growing season is shorter and by August it is harvested and in storage.
These are just a few considerations and we will be looking at more of these at the Peanut Commission as we progress toward Spring.
Sunday, November 13, 2011
Monday, October 24, 2011
Hotter and Dryer Winter
What does this mean for peanuts?
The weather man says we will continue in a hotter and drier weather pattern at least through the Winter. Well we don't grow peanuts in the winter so who cares at this point?
We should all care. Winter is typically the time we charge ponds for irrigtion and recharge subsoil moisture. Many of the ponds are empty and for sure the subsoil moisture is depleated in many areas of the peanut growing belt.
My best advice to farmers is be making plans as soon as you see a price on commodities which can make you money. If the peanut industry fails to get a decent contract out early and I do mean something good before Christmas then do the prudent thing and try to lock in some profit opportunities.
I hope 2011 taught the rest of the industry a lesson but I am concerned they still have not figured it out.
It might be a good time to remember pigs get fed but hogs go to slaughter. Don't get greedy but be sure to look at the market fundamentals of everything.
The weather man says we will continue in a hotter and drier weather pattern at least through the Winter. Well we don't grow peanuts in the winter so who cares at this point?
We should all care. Winter is typically the time we charge ponds for irrigtion and recharge subsoil moisture. Many of the ponds are empty and for sure the subsoil moisture is depleated in many areas of the peanut growing belt.
My best advice to farmers is be making plans as soon as you see a price on commodities which can make you money. If the peanut industry fails to get a decent contract out early and I do mean something good before Christmas then do the prudent thing and try to lock in some profit opportunities.
I hope 2011 taught the rest of the industry a lesson but I am concerned they still have not figured it out.
It might be a good time to remember pigs get fed but hogs go to slaughter. Don't get greedy but be sure to look at the market fundamentals of everything.
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.
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.
Monday, October 10, 2011
Looking to 2012
I am pretty well convinced the peanut industry has not yet learned the complete lesson of supply and demand.
There are good options for farmers at this time so there is absoutely no need sign a cheap contract for 2012. Why plant peanuts for $1500 per acre when you can make $2200 per acre on corn? That may well be the question for 2012.
Of recent, shelled goods have traded at $1.20 and yet all the farmer is being offered is $1000. It has always been a rule of thumb that the farmer should get about $100 for every ten cents of shelled good price. USDA's posted price would have normally been pretty accurate but the farmer is not receiving what has long been an industry norm.
It might be that for 2012 farmers should consider cutting acres ten percent and not contracting and they might find their bottom line in better shape because of it.
Sadly, just as the rest of the industry has not totally learned the lesson many farmers will sign contracts which are far too low. I guess we all need a primer on supply and demand.
There are good options for farmers at this time so there is absoutely no need sign a cheap contract for 2012. Why plant peanuts for $1500 per acre when you can make $2200 per acre on corn? That may well be the question for 2012.
Of recent, shelled goods have traded at $1.20 and yet all the farmer is being offered is $1000. It has always been a rule of thumb that the farmer should get about $100 for every ten cents of shelled good price. USDA's posted price would have normally been pretty accurate but the farmer is not receiving what has long been an industry norm.
It might be that for 2012 farmers should consider cutting acres ten percent and not contracting and they might find their bottom line in better shape because of it.
Sadly, just as the rest of the industry has not totally learned the lesson many farmers will sign contracts which are far too low. I guess we all need a primer on supply and demand.
Wednesday, October 5, 2011
Why Aren't Shellers Paying The Market
Shelled goods hit $1.20 and if by any strange chance you have any 2010 price later peanuts they are worth $1300 give or take a little per ton.
So why was the market at $800 to $850 and suddenly jumped to $1000. $1000 is $300 below the market and if the tariff at the buying point is not too bad it might behoove a farmer to seek a toll sheller and maximize his value. I am still convinced we see a situation not unlike 1990 when prices went to a high of $1436 and I really believe when somebody has to shut the factory down next year farmers stock could well be $500 higher than the current offer of $1000.
Farmers need to be patient. The lack of competition in the shelling industry can only be managed by a strong resolve, a willingness to be creative, and using the calendar to your advantage.
Right now the sellers are reeling from quality issues and because PAC is gone and there is no indemnification fund sheller would almost seem to be indemnifying crop quality issues by offering farmers prices below the market.
So why was the market at $800 to $850 and suddenly jumped to $1000. $1000 is $300 below the market and if the tariff at the buying point is not too bad it might behoove a farmer to seek a toll sheller and maximize his value. I am still convinced we see a situation not unlike 1990 when prices went to a high of $1436 and I really believe when somebody has to shut the factory down next year farmers stock could well be $500 higher than the current offer of $1000.
Farmers need to be patient. The lack of competition in the shelling industry can only be managed by a strong resolve, a willingness to be creative, and using the calendar to your advantage.
Right now the sellers are reeling from quality issues and because PAC is gone and there is no indemnification fund sheller would almost seem to be indemnifying crop quality issues by offering farmers prices below the market.
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.
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.
Monday, September 19, 2011
Downhill Slide Toward an Uphill Climb
The peanut crop continues on a downhill slide.
We are cooler but still dry and the rainfall predicted this week, if it does any good, will be more beneficial for digging than any other thing.
It is too late for anything to happen very good at this date.
So what about un-contracted peanuts for this year's crop. They will have to have them some time and they are going to pay if farmers are patient. Best marketing advice is to put in the loan after January first and then you have until October of 12 to market. All predictions are we run out of peanuts before the '12 harvest so some body will have to have peanuts at a premium price. Remember in 1990 peanuts went to $1436. Hold out for $1500 and sell when you can't stand to hold any longer.
So then what about next Spring?
Unless contracts get to somewhere between $850 and $900 we will not plant enough peanuts.
Compare two and a half bale cotton to two ton peanuts to 220 bu. corn. Those are comparable production prospects for a producer. Now look at the fact you have ended your risk on corn by July and Cotton and Peanut continue the risk to November. Cost of production is not terribly dissimilar.
Corn needs to be planted to irrigated acres to make the yield.
Considering basis on corn we could contract and receive about $8 per bushel for corn. at 220 bushels this is $1760 per acre. Two ton peanuts would have to be $880 per ton to compare. Cotton at two and a half bales is 1750 pounds of lint at a shade over a dollar a pound. Again to compare peanuts has to be $875 to compete with cotton.
A farmer is better off if there are not competitive pre-plant contracts for peanuts to load up irrigated acres with corn if the price holds near $8. Early marketing commitments are going to be critical this coming year on all commodities.
We are cooler but still dry and the rainfall predicted this week, if it does any good, will be more beneficial for digging than any other thing.
It is too late for anything to happen very good at this date.
So what about un-contracted peanuts for this year's crop. They will have to have them some time and they are going to pay if farmers are patient. Best marketing advice is to put in the loan after January first and then you have until October of 12 to market. All predictions are we run out of peanuts before the '12 harvest so some body will have to have peanuts at a premium price. Remember in 1990 peanuts went to $1436. Hold out for $1500 and sell when you can't stand to hold any longer.
So then what about next Spring?
Unless contracts get to somewhere between $850 and $900 we will not plant enough peanuts.
Compare two and a half bale cotton to two ton peanuts to 220 bu. corn. Those are comparable production prospects for a producer. Now look at the fact you have ended your risk on corn by July and Cotton and Peanut continue the risk to November. Cost of production is not terribly dissimilar.
Corn needs to be planted to irrigated acres to make the yield.
Considering basis on corn we could contract and receive about $8 per bushel for corn. at 220 bushels this is $1760 per acre. Two ton peanuts would have to be $880 per ton to compare. Cotton at two and a half bales is 1750 pounds of lint at a shade over a dollar a pound. Again to compare peanuts has to be $875 to compete with cotton.
A farmer is better off if there are not competitive pre-plant contracts for peanuts to load up irrigated acres with corn if the price holds near $8. Early marketing commitments are going to be critical this coming year on all commodities.
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