Spend Matters welcomes this guest post from Liliana Minton, of Mintec.
In April last year we wrote about how peanut prices had fallen 15% to reach the lowest level over a four-year period. Since then, prices reached a five-year low in November 2015.
Peanuts continue to be the most widely consumed snack in the U.S., representing over two-thirds of the snack nuts market. U.S. demand for peanuts has continued to grow over the past few years, with an annual consumption growth rate of 2%. On average, each person in the U.S. eats about 6 pounds of peanuts every year, with more than half of that in the form of peanut butter.
2015 proved to be a very good year for the peanut crop, with production up sharply by 20% from 2014 to reach 6.2 billion pounds. The bumper output was a result of a larger planted peanut area, up 20% from last year to an estimated 1.63 million acres. Also, the condition of the crop was rated mostly as “good to excellent” during the growing season, favouring yields and output.
But why was there such a large increase in planting area this time around?
Well, it all has to do with planting decisions made at the start of 2015, when farmers switched to peanut production and away from cotton, wheat and corn. This was due to very low prices in 2014 and into 2015 for the major crops, due to excess of supply, and peanuts seemed to be a good cash crop in comparison.
In fact, in the main growing state Georgia, the planted acreage was up sharply by 31% from 2014 and represents the highest peanut acreage since 1991. As a result, Georgia is the state reporting a record high production for 2015.
The shift from cotton acreage to peanut acreage led to a decline in output in cotton for the U.S. in 2015. This caused cotton prices to rise going into mid-2015, and now cotton prices have surpassed peanut prices.
While it is too early to say what is going to happen in 2016, some farmers may be looking to emigrate from peanut to cotton in order to achieve higher returns. This puts us in the cycle of lower planted area for peanuts, leading to lower production and higher prices. You may be able to guess what is likely to happen next.