Peanut Butter Prices to Rise After Poor Peanut Harvest

By: EW News Desk Team   Date: 13 October 2011

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EW News Desk Team

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EconomyWatch, News Desk Team

 

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13 October 2011

After a hot and dry summer this year, the wholesale price of peanuts have skyrocketed from US$450 to US$1,150 a ton. In response, top peanut butter brands are forced to increase their prices: Skippy is up 30 to 35 percent, and other sellers have announced they would also raise their prices in the ranges of 20 to 40 percent.

Peanut farmers are harvesting their worst crop in 30 years after blisteringly hot weather over the summer wiped out the Runner peanuts, the main variety used to make peanut butter according to the LA Times.

Raw peanuts that cost about $450 a ton in 2010 now go for $1,150 a ton, according to USDA figures.

The crunch will affect the 90% of U.S. households that consume peanut butter — Americans eat about 1.5 million pounds of peanut products annually. The industry, according to the National Peanut Board, contributes more than $4 billion to the domestic economy each year.

“We have quite a peanut shortage this year,” said Tiffany Arthur, an agricultural economist at the U.S. Department of Agriculture’s Farm Service Agency, which makes emergency loans to farmers. “Things are snowballing, and prices are sharply rising.”

High prices are expected to trickle down to consumers soon. Unilever’s Skippy brand will see a 35% increase while ConAgra Foods Inc.’s Peter Pan label will jump nearly 25%. Kraft Foods Co. which launched its Planters peanut butter in June, is raising prices 40 per cent on Oct. 31.

“Nobody on the supply chain can absorb that sort of price increase,” said peanut broker Richard Barnhill in an interview with Kansas City Star. “So the manufacturer will have to pay more for the peanuts, and they’ll have to pass that on in their wholesale prices to the retailers, and the retailers will have to pass that on to the consumers — squarely in the marketplace late this fall, or by January for sure.”

Market experts point to significant supply-side forces behind the peanut shortage.

Probably the first thing that happened was, cotton prices were very high, which was very attractive to the farmer, said Barnhill. So our first problem was we didn’t plant enough peanuts.

"It's been a tough season, it sure has," said Rodney Dawson, a farmer in Hawkinsville, Ga.

Like many farmers, Dawson found at the start of the planting season that he could make more money growing corn and cotton than peanuts. As a result, he and other U.S. growers cut back on planting peanuts.

A miserable drought and scorching temperatures followed in key peanut-producing states like Georgia and Texas. For some farmers this was the second hot summer in a row.

Peanut farmers had to delay planting this spring because of the heat, which cut their production. Others saw the plants they'd put in the ground scorch during the summer when the shoots, which poke back into the ground to produce the peanut seed, burned as they touched the hot soil.

Peanuts weren't the only crop facing a difficult harvest — unpredictable weather has recently complicated the growing seasons for pumpkins and coffee beans. Coffee roasters only recently began scaling back price hikes instituted over the past year.


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