Peanuts (Re)join the Commodity Roller Coaster, Up Nearly 100% in 2 Years

I remember as a kid, the classic PB&J sandwich represented the ultimate parental cop-out. I called it poverty food, even as a child. It was both cheap (from a cost standpoint) and a morally bankrupt form of lunch (and breakfast and dinner) sustenance for parents with as bunch as much culinary creativity as an ant. Also, some mass-market brands were high in insect content, but that's another story (one time, we found a dead roach inside the bottom of a jar, bringing a whole new definition to the "crunchy" varietal of the sticky stuff). Yet the purpose of discussing peanut butter today has nothing to do with the less-than-hygienic processing efforts of certain producers -- or the fact it feels that so many children today are allergic to the stuff than when my generation grew up. No, the reason I bring it up is the booming commodity price of stuff. Since early 2009, the price of groundnuts has nearly doubled to over $1,750 per metric ton.

In context, this price may seem like a one-off seasonal spike and quite high given where peanuts usually hang out -- under $1,000 per metric ton for around half of the past thirty years of traded history. Yet similar spikes have happened in the past. 1990 saw peanuts test nearly identical levels to today. And consumer price increases -- which we'll get to in a minute -- followed then as they will now. Yet this time around, the primary reason for the price increase has little to do with general commodity inflation elsewhere -- or a fundamental shift in demand and consumption patterns. No, the main reason we're seeing booming prices is due to a poor harvest -- the classic peanut culprit that makes the poverty sandwich more expensive in a somewhat cyclical, weather-driven commodity market.

Earlier today, the Chicago Tribune suggests that popular food brands are reacting quickly this time by passing along their own price increases to consumers. To wit, "Kraft will raise prices for its Planters brand peanut butter by 40 percent starting Monday, while ConAgra has instituted increases of more than 20 percent for its Peter Pan brand that went into effect this month. J.M. Smucker, which makes Jif, will introduce price hikes of around 30 percent starting Tuesday."

Yet because the stuff keeps for quite some time -- preserving the bugs and all that -- well-advised consumers with a few minutes on their hands should flock to stores before next week to stock up on the stuff. Like timberlands (which don't need to be harvested when prices are low) peanut butter is one of those cabinet commodities that allow us to truly stockpile inventory levels. As a final thought as you forecast your own working capital requirements before raiding the shelves of lower-price Jif, after the spike of 1990, which saw prices rise over $1,750 for groundnuts on a metric ton basis, the market crashed to under $664 per metric ton later the following year.

Jason Busch

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