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Peanut Situation & Outlook Southern Outlook Conference Atlanta, GA September 22, 2008 Nathan B. Smith, Amanda R. Smith

Current Situation • Improved Production Prospects

– 2007 production 1.87 M tons, 8% higher than 2006. (Federal State Inspection Service shows 1.81 M tons inspected) – 2008 production estimate pegged at 2.38 million tons, 3rd largest on record if realized. – US Acreage is up 25% in 2008

• Stocks down from this time last year: – – – –

Farmer stock peanuts in storage are down 52%, Shelled stocks are down 16%, Roasting stock up 37% and Oil stocks are up 18%.

• Exports increasing, up ~60% from 2005. • Domestic food use projected to increase less than 1%.

Peanut Planted Acreages 2004

2005

AL

200

FL

(1,000 acres)

2006

2007

2008*

225

165

160

195

145

160

130

130

145

GA

620

755

580

530

685

MS

-

15

17

19

22

SC

35

63

59

59

71

SE

1000

1218

951

898

1118

NM

17

19

12

10

8

OK

35

35

23

18

19

TX

240

265

155

190

255

SW

292

319

190

218

282

NC

105

97

85

92

99

VA

33

23

17

22

24

V/C

138

120

102

114

123

US

1,430

1,657

1,243

1,230

1,533

*Source: NASS Crop Production Report, Sept 12, 2008

Peanut Yields 2005

2006

2007

2008*

AL FL GA MS

2750 2700 2840 3200

2500 2500 2780 2900

2600 2700 3150 3300

3000 3100 3150 3300

NM NC OK

3500 3000 3270

3600 3200 2850

3500 2800 3400

3500 2900 3800

SC TX

2800 3750

3000 3550

3100 3950

3400 3500

VA

3000

3200

2700

2900

US

2989

2863

3130

3188

Source: NASS Crop Production various issues, *September Estimate

US Peanut Yield

Lbs/Acre

(1978 - 2008)

3,500 3,250 3,000 2,750 2,500 2,250 2,000 1,750 1,500

3,159

78

80

82

84

86

88

90

92

94

Year US

96

98

3188

'00 '02 '04 '06 '08

Total US Peanut Supply 4000 3500

1,000 Tons

3000 2500 2000 1500 1000 500

Production

Imports

Ending Stocks

2007 Estimate 1.1% decrease in US acreage, 3,130 lb yield, 2.151 M tons use 2008 Forecast 25% acreage increase, 3181 lb yield, 2.260 M ton use

'08 For

'07 Est

'06

'05

'04

'03

'02

'01

'00

99

98

97

96

95

94

93

92

91

90

0

Peanut Disappearance by Use 3000

2000 1500 1000 500

Food Use Crush Production

'0 '05 6 E '0 st 7 '0 For 8 Pr oj

'0 4

'0 3

'0 2

'0 1

'0 0

99

98

97

96

95

94

93

92

91

0

90

1,000 Tons

2500

Exports Seed, Shrink, Resid Carryover

Shelled Edible Use in Primary Products 1,000 lbs

Candy

Aug 07’ to Jul 08’

% Diff from 06/07

425,166

+ 2.4%

1,012,263

+ 1.9%

Snacks

320,467

- 14%

Total

2,141,552

- 1.6%

150,204

- 2.3%

Peanut Butter

In-Shell

US Peanut Exports 1200 1000

M lbs.

800 600 400 200

Crop Year

Exports = 18% of total disappearance in 2008

'0 8

'0 6

'0 4

'0 2

'0 0

98

96

94

92

90

0

Input Costs on the Rise Prices Paid Indices by Sub-Component

675

1990-92 = 100

575 475 375 275 175 75 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Nitrogen Supplies & Repairs

Diesel Herbicides

Potash & Phosphate Insecticides

Wage Rates Fungicides

Impact of Fuel & Fertilizer Prices on Cost of Crop Production ($/acre) $700 $600 $500 $400 $300 $200 Cotton

Peanuts 2002

* Does not account for changes in technology.

Corn 2008

Soybeans

Non-Irrigated Crop Comparison September 9, 2008

SUMMARY OF 2008 SOUTH GEORGIA CROP ENTERPRISE ESTIMATES Conventional Tillage By Amanda R. Smith, Nathan B. Smith and W. Don Shurley, UGA Extension Economists, Department of Agricultural & Appl

EXPECTED YIELD CURRENT PRICES GROSS RETURN TOTAL VARIABLE COSTS RETURN ABOVE VARIABLE COST TOTAL SPECIFIED FIXED COSTS

BR Cotton 700 $0.610 $427 $430 ($3) $138

TOTAL COST EXCL. LAND & MGT RETURN TO LAND AND MGT

$568 ($141)

Peanuts 2,700 $500.00 $675 $533 $142 $140 $673 $2

NON-IRRIGATED RR RR Grain Corn Soybeans Sorghum Wheat 85 30 65 55 $5.00 $10.50 $4.50 $4.00 $425 $315 $293 $220 $304 $222 $238 $189 $121 $93 $54 $31 $57 $53 $54 $37 $361 $64

$274 $41

$293 ($0)

$226 ($6)

BREAKEVEN PRICE $0.81 $498.40 $4.24 $9.15 $4.50 BREAKEVEN YIELD 931 2,691 72 26 65 * As of April 21, 2008 Fertilizer Prices per Pound of Nutrient were as follows: N=$0.60, P=$0.70, K=$0.50 ** Calculated using a Diesel Fuel Price at $4.00 Gallon *** Assuming Diesel Irrigation. Electric is estimated to be 45% of the cost of $4.00 Diesel Irrigation

$4.11 56

Irrigated Row Crop Comparison September 9, 2008 SUMMARY OF 2008 SOUTH GEORGIA CROP ENTERPRISE ESTIMATES Conventional Tillage By Amanda R. Smith, Nathan B. Smith and W. Don Shurley, UGA Extension Economists, Department of Agricultural & Applied

EXPECTED YIELD CURRENT PRICES GROSS RETURN TOTAL VARIABLE COSTS RETURN ABOVE VARIABLE COST TOTAL SPECIFIED FIXED COSTS

BR Cotton 1,100 $0.610 $671 $582 $89 $232

TOTAL COST EXCL. LAND & MGT RETURN TO LAND AND MGT

$814 ($143)

Peanuts 3,700 $500.00 $925 $677 $248 $237 $914 $11

IRRIGATED RR Grain Int Mgmt Corn Soybeans Sorghum Wheat 185 55 100 75 $5.00 $10.50 $4.50 $4.00 $925 $578 $450 $300 $657 $316 $333 $306 $268 $261 $117 ($6) $164 $147 $149 $59 $822 $103

$464 $114

$482 ($32)

$365 ($65)

BREAKEVEN PRICE $0.74 $494.31 $4.44 $8.43 $4.82 BREAKEVEN YIELD 1334 3,658 164 44 107 * As of April 21, 2008 Fertilizer Prices per Pound of Nutrient were as follows: N=$0.60, P=$0.70, K=$0.50 ** Calculated using a Diesel Fuel Price at $4.00 Gallon *** Assuming Diesel Irrigation. Electric is estimated to be 45% of the cost of $4.00 Diesel Irrigation

$4.87 91

Outlook • Current prices favor peanuts compared to cotton and corn (dryland). • Bumper crop will cause prices to back off of $500 per ton at harvest. • 2009 plantings will depend on contracts: – Growers are saying will take $600+ per ton price due to higher input costs, – However, growers will be tempted to grow, same or more peanuts if cotton does not rally, – Should consider the possibility of $355 per ton on non-contracted peanuts if have record crop.

Crop Rotations

(GPAC % Growers Applied) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2004

2005 Corn

Cotton

2006 Crn/Ctn

2007 Other

Years Between Peanut Crops (GPAC % Growers Applied)

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2004

2005 < One

Two

2006 Three

Four

2007 > Four

Tillage (GPAC % Growers Applied)

Bottom plow Disc harrow Field cultivator Rip & Hip V-Ripper Hydro-Till Rototill/Tillovator

2004 2005 2006 2007 75 88 67 62 50 69 67 67 38 63 50 29 13 6 10 6 6 6 8 19 25 19 10

Conservation Tillage (GPAC % Growers Applied) 20% 15% 10% 5% 0% 2004

2005 Stip Tilled

2006 No Tilled

2007

2008 Farm Bill Subtitle C - Peanuts • Peanuts were able to remain a separate title (distinguished from “covered commodities”) • Maintains a separate payment limit for peanuts – $40,000 Direct Payment Limit – $65,000 Counter-Cyclical Payment Limit

• Direct Payment same at $36/ton • Target Price same at $495/ton • Advances and timing of DCP same as “covered commodities” • Payment level changes to 83.3% for 2009-2001

Peanut Market Assistance Loans • $355 National Loan Rate • 9 month loan beginning first day of the first month in which loan is made. • Marketing loan may be obtained thru: – FSA county office, – Designated Marketing Association, – or Cooperative Marketing Association

Marketing Loan Changes • Change in Storage, Handling and Associated Cost Rules

– Handling and associated costs (other than storage) will be paid by the Secretary (CCC) incurred at the time peanuts are placed under loan to be repaid at redemption of peanut loan. – Pay for storage, handling, and other associated costs for all forfeited.

• Adjustments of loan rates? “The Secretary may make appropriate adjustments in the loan rates for peanuts for differences in grade, type, quality, location, and other factors.”

USDA Proposal • White paper sent out to peanut industry proposing to adjust loan rates by type to reflect price differentials by type. • Based on NASS prices since 2005 would result in lowering the 2007 loan rate for runners from $355 to $348 per ton. – Also would raise virginia ($382) & spanish ($377)

• Looking a phasing in the loan differentials beginning with 2009 crop.

Peanut Stewardship • Peanut eligible under new CSP program for stewardship payments for “adopting” a resource-conserving rotation (4-year?). • 5-year contract. • Originally proposed as PERS program for peanuts.

4000

800

3500

700

3000

600

2500

500

2000

400

1500

300 200

1000

100

500

0

0

Year Cotton

Peanut

Peanut Farmer Stock Lb/Acre

900

19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07

Cotton Lint Lb/Acre

Georgia Cotton & Peanut Average Yield: 1990-2007

Georgia 7 Major Row Crops Planted Acres* (1,000 Acres)

2003 Corn 340 Cotton 1300 Peanuts 545 Grain Sorghum55 Soybeans 190 Tobacco 27 Wheat 380 Total 2837

2004 335 1290 620 45 280 23 330 2923

2005 270 1220 755 40 180 17 280 2762

2006 280 1400 580 40 155 17 230 2702

2007 2008? 510 435 1030 950 530 625 65 75 285 400 20 17 360 480 2800 2982

*Source: NASS Crop Production, Various Issues, UGA Preliminary Estimate

US Dollar Index

Total Cost of Crop Production, 2002 and 2008 ($/acre) Fixed Costs

Variable Costs

$1,000 $800 $600 $400 $200 $0

Cotton

Peanuts

Corn

Soybeans

2002 2008 2002 2008 2002 2008 2002 2008