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Peanuts on a Roll

February 6, 2012
By: Jeanne Bernick, Top Producer Editor
p30 Peanuts on a roll
With peanut prices on the rise, Rodney Dawson plans to commit 15% more of his acreage to peanut production in 2012. Extensive irrigation systems help him manage the risk of drought that has impacted Georgia in recent years.  

High peanut prices mean more acres, but margins are key

Rodney Dawson is nuts for peanuts. And why not—the industry has come rolling back after surviving a major foodborne illness scare in 2009. The Hawkinsville, Ga., farmer realized gross profits more than $1,000 per acre in 2011. He’s so satisfied, he plans to commit an additional 15% of his acreage to the crop in 2012.

Peanut butter might be a staple on every shelf, but growing the raw ingredient is often a high-risk proposition. The equipment littering Dawson’s farmyard is one clue that something different is growing here. Blue Amadas-brand combines, a vine lifter and a contraption called a digger/shaker/inverter line up next to peanut carts and rotary disks that look more like construction tools.

According to 2011 University of Georgia Enterprise Budgets, total machinery costs for peanuts average more than $265 an acre. That’s 25% of total irrigated costs of production and 35% of non-irrigated costs.

But peanut profits are healthy right now, thanks to strong con-sumer demand for the low-cost

protein source and a shortage of product due to extreme drought in the South, explains Marshall Lamb of the National Peanut Research Laboratory.

Higher cotton prices also have factored into fewer acres. In Georgia, area planted to peanuts is the lowest since 1982, and planted acres in Texas are the lowest since 1926. Planted area continues to decrease in the Virginia–North Carolina region as growers have switched to more profitable crops such as corn, soybeans and cotton.

Dawson currently farms 7,200 acres of cotton and 950 acres of peanuts—substantial acreage by Georgia standards, which produces 45% of all U.S. peanuts. His plan is to plant at least 1,000 of his cotton acres to peanuts this year. Georgia farmers received an average 29¢ per pound of peanuts in December, which is 23% higher than the same time in 2010, according to USDA.

For those with a decent crop and a handle on managing fixed costs, such as equipment, profits look strong for 2012. Prices are better than they were in 2011 going into spring, notes Nathan Smith, a farm economist with the University of Georgia. There’s a lower supply, so more acres are needed, he says. Early contracts for 2012 peanuts are going between $650 and $750 per ton, still good prices. The question is whether farmers should hold out for even higher prices and plant without a securing a contract first.

Dawson took this risk last year and saw his contract jump $500 or more per ton. "It was the second year in history I didn’t take a contract before planting, and I made a great marketing decision that really paid off," he says.

Conventional wisdom is that the industry might have learned to come with contracts to farmers earlier, says Don Koehler, executive director of the Georgia Peanut Commission. "The big question is, what kind of contracts will they come with? It has been my observation that the first price has never been the best price offered," Koehler notes.

p28 Peanuts on a roll Chart

Peanut production has always been high risk/reward, but never as much as it is today with risk of drought. Southern weather forecasters are predicting this spring will be warmer and drier than normal, and ponds and lakes are low, making them hard to draw on for irrigation.

This past summer’s long, hot drought pummeled farmers, but Dawson put all of his peanut production under irrigation and plans to do the same this year. "We started adding irrigation 30 years ago," he says. In the ’80s, irrigation cost between $700 and $900 per acre. Today, it costs between $1,400 and $2,500 per acre.

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