Southern Ag Today

Author: Adam Rabinowitz

  • The Peanut-Cotton Price Relationship

    The Peanut-Cotton Price Relationship

    Peanut production in the U.S. can be described as having a symbiotic relationship with cotton production as the two crops are produced in rotation throughout the southeastern states.  This can create a competitive environment between these crops, with prices a key factor in determining the number of acres to plant in a given year.  Since the peanut quota system was eliminated with the Farm Security and Rural Investment Act of 2002, peanut prices have been determined through market transactions with the first buyers of farmer stock peanuts, in what can be described as a highly concentrated market.  Alternatively, there is more transparency and price data available for cotton with the existence of a futures market.

    Figure 1 shows the relationship between peanut and cotton marketing year average (MYA) prices from 2003 to 2021. The unusually high peanut prices in 2011 and 2012 are from weather-related supply issues.  While there is not a strong trend in the data due to some of the notable outliers, a visual inspection of Figure 1 highlights the positive relationship between these two commodity prices.  For example, when cotton prices have been above 75 cents per pound, peanut prices have been above $450 per ton.  

    Figure 1. Peanut and Cotton Price Relationship: 2003-2021 Marketing Year Averages

    A recent Southern Ag Today article, Navigating the “Winter” in Cotton Farming in 2023, projects an optimistic 2023 futures price for cotton to be 80-85 cents per pound.  Current December 2023 cotton futures prices have been hovering around 80 cents per pound.  At this futures price for cotton, history would suggest a peanut price between $450 and $500 per ton.  

    While this can give farmers a good first estimate of expected prices it must be acknowledged that there can be significant deviation from this range as other factors may affect the price of one commodity that do not move the other prices in the same fashion.  For example, within the range of $450 to $500 per ton for peanuts, the cotton price ranged from a low of $0.478/lb in 2008 to a high of $0.914/lb in 2021.eanut

    Author: Adam Rabinowitz

    Assistant Professor & Extension Specialist 

    adam.rabinowitz@auburn.edu

    Rabinowitz, Adam. “The Peanut-Cotton Price Relationship.” Southern Ag Today 3(2.1). January 9, 2023. Permalink

  • Projected Decrease in Peanut Acreage Could Have Greater Impacts on Overall Production

    Projected Decrease in Peanut Acreage Could Have Greater Impacts on Overall Production

    Peanut acres in the U.S. decreased 5% in 2021, but with strong yields, total production ended almost 9% higher than in 2020.  The 2022 crop year is shaping up to start with a similar story on acreage. However, early indications point to the potential for a different result at the end of the year.  The prospective plantings report by the USDA was released on March 31, 2022, which showed U.S. peanut farmers intend to plant 3.4% fewer acres in 2022 compared to a year prior.  This decrease in intentions has been driven largely by high prices for other row crop alternatives and thus favorable marketing opportunities for other crops.  This competition for acres has been recognized by shellers who have offered higher contracts over the past few months than had been offered in recent years.

    While a decline in acres of less than 4% does not seem to be very much, especially after a year of high yields, the distribution of that decline has the potential to have a much larger impact on production.  In 2021, the top three states in planted acreage were Georgia, Alabama, and Florida (see Table 1).  These three states accounted for about 71% of the total U.S. peanut acreage last year and are forecast to plant 95,000 less acres this year, a decline of 8.2%. Offsetting some of those lost acres are increases in South Carolina and Texas, with 20,000 additional acres planned in each state.  The challenge here is going to be the weather.

    The West Texas area where peanuts are produced is currently facing extreme drought (U.S. Drought Monitor as of April 14, 2022).  The National Oceanic and Atmospheric Administration (NOAA) expects this drought to continue or expand throughout the spring.  This may make planting extremely difficult in that region.  Even if that intended acreage is achieved, it will be important to watch how yields develop, given the expected continuation of dry weather. Texas is also not the only part of the peanut belt with dry weather.    Abnormally dry and moderate drought continues across the peanut belt in Alabama, the Florida Panhandle, Georgia, South Carolina, and North Carolina (U.S. Drought Monitor as of April 14, 2022).  Beyond spring planting, the southeast expects neutral conditions where tropical moisture will determine if drought conditions persist (Knox 2022).  

    So, on the surface, a small decline in acreage after a large crop may help balance ending stocks for the 2022-23 marketing year.  This would take the current 2021-22 forecasted ending stocks of 2.3 million pounds and significantly tighten market supply.  However, the location of increased acres, current drought and dry conditions, and the potential for persistent drought throughout the summer could significantly impact the fall crop and the peanut market.  The risk of lower yields and less harvested acreage could potentially drop ending stocks significantly to 2016-17 levels of around 1.5 million pounds.

    Table 1. Peanut Acreage in 2021 and 2022 Prospective Plantings 
    State20212022Acreage
    Change    		Percent
    Change
    ALABAMA190,000175,000-15,000-7.9%
    ARKANSAS45,00035,000-10,000-22.2%
    FLORIDA180,000160,000-20,000-11.1%
    GEORGIA790,000730,000-60,000-7.6%
    MISSISSIPPI25,00020,000-5,000-20.0%
    NEW MEXICO6,50011,0004,50069.2%
    NORTH CAROLINA110,000120,00010,0009.1%
    OKLAHOMA17,00013,000-4,000-23.5%
    SOUTH CAROLINA65,00085,00020,00030.8%
    TEXAS170,000190,00020,00011.8%
    VIRGINIA27,00032,0005,00018.5%
    Total U.S.1,625,5001,571,000-54,500-3.4%
         
    Source: USDA NASS Prospective Plantings, March 31, 2022

    Sources:

    NOAA. U.S. Spring Outlook 2022: Drought to expand amid warmer conditions, March 17, 2022. https://www.climate.gov/news-features/understanding-climate/us-spring-outlook-2022-drought-expand-amid-warmer-conditions

    Knox, Pam. April and summer 2022 outlook for Georgia and beyond, April 7, 2022.  https://site.extension.uga.edu/climate/2022/04/april-and-summer-2022-outlook-for-georgia-and-beyond/

    Rabinowitz, Adam. “Projected Decrease in Peanut Acreage Could Have Greater Impacts on Overall Production“. Southern Ag Today 2(18.1). April 25, 2022. Permalink

  • Exports to Canada and Mexico Provide Stability to Peanut Market

    Exports to Canada and Mexico Provide Stability to Peanut Market

    In a typical year, about a quarter of the U.S. peanut crop is exported to foreign countries with the primary destinations being Canada and Mexico.  As seen in Figure 1, these two closest neighbors to the U.S. have continued a steady growth of purchasing of U.S. peanut products.   This has provided a stable base to the peanut export market over the years, accounting for between 33% and 48% of the overall exports during the last five years.  This trend has continued in 2021, where the period of January to July has seen a 5% increase in exports to Canada and Mexico compared to the same period during 2020.  

    Alternatively, China has been a relatively new buyer of U.S. peanuts over the last decade.  Early in the decade, China had purchased U.S. peanuts through third-country agreements, The first substantial shipments directly to China came in 2016 when low priced in-shell peanuts were purchased for oil production.  After buying 30% of the U.S. exports in 2016, China pulled back in subsequent years, averaging roughly 13% of the U.S. export market from 2017-2019.  While this did result in a general upward trend in overall exports (excluding 2016), a combination of trade disputes, tariffs and higher prices played a factor in the decline of exports to China after 2016.  In 2020, China once again substantially increased their purchasing to a record level for that country.  However, from January to July 2021, exports to China have dropped 55% compared to the same period in 2020.  At the current pace, this will result in the third highest export quantity to China. 

    While it is promising in terms of trade with China, competition from India, higher prices, and the potential for current purchases being related to the Phase One trade agreement raise questions about the stability of peanut exports to that market.

    The European Union (E.U.) is another market of concern, with export quantities included in the rest of the world data in Figure 1.  Challenges with trade to the E.U. have focused on aflatoxin testing where standards target a four (4) parts per billion (ppb) aflatoxin level instead of the U.S. 15 ppb.  Furthermore, with at least 10% of the shipments being subject to testing and failed shipments being returned or requiring cleaning, there are concerns about sending peanuts to that market.  While peanut exports to the rest of the world are up 17% for the period of January to July 2021 compared to the same period in 2020, they are down 40% compared to the same period in 2019.  All things considered for the peanut market, trade to Canada and Mexico provides the stable foundation for what appears to be a changing landscape of export markets for the industry.

    Figure 1. Peanut Exports to Canada, Mexico, China, and the Rest of the World: 2010-2020
    Source: Data from the USDA Foreign Agricultural Service

    Rabinowitz, Adam. “Exports to Canada and Mexico Provide Stability to Peanut Market.” Southern Ag Today 1(43.1d). October 18, 2021. Permalink