Reasons behind spike in peanut butter prices

Published 10:10 am Wednesday, December 14, 2011

by Dell Cotton

Over the last few weeks there have been many stories written concerning rising peanut butter prices along with higher prices for farmers this year. Since some of these reports don’t quite tell the whole story, let’s attempt to get a better understanding here.

The peanut crop just harvested was the 2011 crop. The situation started to unfold with the 2010 crop, and remember things have to be looked at on a national level. To put it in perspective, Virginia grows 17,000 acres of peanuts — Georgia grows over half a million acres.

In 2010 a drought affected crops throughout most of the Southeast, including Georgia. Yields on peanuts were average or above, but quality was negatively effected. A lower quality crop leads to large losses in the many steps of processing where the good, usable kernels are separated from those that can’t be used for edible quality. This all led to a shorter 2010 crop that could have been overcome with a normal nationwide 2011 crop.

In the months leading up to this past spring’s planting season, prices for the major crops (corn, cotton, soybeans, wheat) rose to levels not seen in years. This led farmers nationwide to plant more of some crops than they typically do and fewer acres of others.

Many growers in peanut areas increased plantings of cotton and decreased peanuts due to the price of cotton and the potential for more profit than from peanuts. Georgia, for instance, had the fewest acres planted to peanuts in history in 2011.

Acres planted was the second strike, and strike three was the weather this past spring and summer. The Southeast once again had drought issues, and we all know what devastating effects dry weather had in Texas, the second largest peanut producing state. The end result is a supply of peanuts much smaller than normal.

You have read that the price of peanut butter has increased from 30 percent to 50 percent over regular prices. This is due to a lower supply and higher prices paid for this lesser supply. As is typical in agriculture, the higher prices don’t necessarily make it totally to the farmer.

Regardless of the commodity grown, farmers have to forward contract. This is demanded by lenders, and is for the most part a smart business move. I would say that at least 85 percent of the 2011 crop of peanuts was forward contracted at a good price, but not at the $1,000 a ton that you have seen.

Did some farmers get paid the higher amount for some of their crop? Sure they did. In our area, most farmers made more than their forward contracted quantity. The so-called extras were sold at the market price. Considering how our local farmers were hammered by drought a year ago, the few extra funds certainly were needed.

Sometimes those who don’t understand blame the farmer when prices rise. The farmer is seldom to blame.

Supplies of peanut butter were already desperately needed at food banks even before the price rose. Peanut butter remains a cheap source of protein, vitamins and minerals for anyone, but particularly for those in need.

It is even more vital now that we buy an extra jar for Franklin Cooperative Ministries or Southeastern Food Bank. They need it.

DELL COTTON is manager of the Peanut Growers Cooperative Marketing Association. He can be reached at