WSJ -- Farms Awash in Peanuts / After Shortage Sent Peanut-Butter Prices Soaring, Record Crop Should Ease Cost ...........
October 18, 2012
Farms Awash in Peanuts
After Shortage Sent Peanut-Butter Prices Soaring, Record Crop Should Ease Cost
By PAUL ZIOBRO
Peanut-butter hoarders can relax.
U.S. peanut farmers are harvesting a record crop this year, putting to rest fears of repeating the shortage that drove up prices over the past year and prompted some shoppers to load up their pantries with the spread.
The U.S. Department of Agriculture last week raised its estimate for the 2012 peanut harvest to 6.1 billion pounds, blowing through the 2008 record of almost 5.2 billion pounds.
The increase is driving down peanut prices by more than 50% from highs hit in the spring, say peanut brokers, farmers and buyers, providing relief to peanut-butter makers that could translate into lower prices on store shelves in coming months.
Experts say three things have turned around the peanut market. With sky-high prices being offered due to depleted supplies, farmers planted almost 44% more acres of peanuts this year than in 2011, according to the USDA. Peanut-growing regions in the Southeast and Texas also saw favorable weather including sufficient rain, dodging the drought that scorched the wheat and corn crops in the Midwest.
On top of that, farmers for the most part used peanut seeds that are more disease-resistant, yielding a record number of peanuts per acre and a better-quality crop with more peanuts that can be used in peanut butter rather than be processed for oil.
"We're happy to be back into a normal supply situation after two years of droughts and high heat," said Patrick Archer, president of the American Peanut Council, a trade group. "There will be some easing of consumer prices as a result."
Still, the record crop is posing some challenges. With the large increase in acres planted, farmers in some areas, particularly those new to peanut farming, haven't received equipment they ordered to harvest the crop.
Malcolm Broome, executive director of the Mississippi Peanut Growers Association, said some farmers in the Mississippi Delta haven't received their diggers, which flip the plant to expose the peanuts to the sun, and combines, which separate the peanuts from the vines. These farmers have been getting by with a demonstration-unit combine provided by a manufacturer and borrowed equipment.
"They've worked together to get a problem halfway solved," Mr. Broome said.
Mississippi, one of the smaller peanut-growing states, is on pace to triple its output this year, thanks to farmers like Don Self in Hamilton, Miss. Mr. Self said he normally plants several types of crops, but went all-in on peanuts this year because of a contract that pays him $750 a ton -- about a third more than in 2011.
"We decided to put everything in peanuts," Mr. Self said. He recently began harvesting his field, and said so far he is bringing in about 5,000 pounds an acre, well above the record 3,832-per-pound average across the U.S., according to the USDA.
The peanut supply was devastated over the last two years by hot, dry weather, with some farmers abandoning their entire crops. "We bailed them up and sent them to the cows," Roger Neitsch, a farmer in Seminole, Texas, said of last year's crop.
The 2011 conditions sent prices to a peak of around $1.25 a pound of shelled peanuts in the spring, according to interviews with peanut brokers, buyers and others. Peanuts aren't traded on exchanges and futures contracts aren't available, so prices are set between buyers and peanut shellers, who process the farmer's crop.
The cost pressures soon found consumers facing price increases of nearly 40% on peanut butter. Media reports last autumn of the impending price rise led to a run on the product, stoking worries over whether some makers could get through the year with enough supply. Some stores even limited the number of jars shoppers could buy.
Despite the price increases, the amount of peanut butter sold was up slightly in the 12 months ended Sept. 1, according to data provider Nielsen, boosted in part by the pantry-loading.
Today, peanut prices have plummeted to around 55 cents a pound, peanut buyers say, although retail prices of peanut butter may not reflect the lower costs for several months while the products on shelves continue to be made with the pricier nuts.
With worries about peanut supplies eased, food manufacturers are responding. J.M. Smucker Co. SJM +0.20% has resumed making some varieties of Jif, the largest peanut-butter brand in the U.S., that were put on hold during the shortage, and it and other peanut-butter makers have begun to promote the spread as kids head back to school.
Representatives for Smucker; Unilever NV, which makes Skippy, the No. 2 brand; and ConAgra Foods Inc., which makes Peter Pan, wouldn't say whether they have notified retailers about lowering their prices.
Write to Paul Ziobro at Paul.Ziobro@dowjones.com
Copyright © 2012 Dow Jones & Company, Inc.
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