Peanut prices headed up because of drought

Illinois is a long way from the drought-ridden south – but local consumers of peanut products will soon be feeling the pain because of low crop yields.

This year’s peanut crop is projected to drop 13 percent from last year, according to the United States Department of Agriculture.

That will translate into pricier peanuts. Makers of JIF peanut butter, for example, have already announced a 30 percent price hike is on its way.

Chad Godsey, cropping systems specialist and assistant professor with Oklahoma State University’s plant and soil sciences department, said that the heat this summer has made it hard for planters and producers to get enough water on their peanuts.

“There’s not many plants that can survive when you have so many days over 100 degrees Fahrenheit,” he said. “Basically the heat sterilizes the pollen.”

With peanut demand high but supply low, companies purchasing the crops from farmers could pay a higher price. Companies might pass off the higher cost of business to consumers, according to Mike Siemienas, a spokesman for grocery retailer Supervalu, which owns Jewel-Osco and Save-a-Lot stores, among others.

“Consumers will likely see price increases for peanut products across the industry,” Siemienas said.

Major peanut player J.M. Smuckers announced recently that its 30 percent price hike for JIF will start in November.

Price increases could also be on the books for Elgin-based John B. Sanfilippo and Son, one of the nation’s biggest nut suppliers. The company is a manufacturer and producer of peanut products, which it distributes through private brands and its own brands, including Fisher and Orchard Valley Harvest.

Chief Financial Officer Mike Valentine said the 1,600-person operation bought about 100 million pounds of peanuts in 2010 at 50 cents a pound for a total cost of about $50 million – an amount he believes might double with the coming harvest.

Carryover from last year’s crop, which Valentine also said suffers from quality issues because of last year’s drought, will last through the next two months. But after that, the more expensive harvest will be used, he said.

“Come November we hope to have price increases in place, but certainly by January we absolutely have to have price increases in place, the whole industry does,” he said.

Valentine Gelata, vice president of operations for Mellos Peanuts in Chicago said, “It’s just a scary world right now,” for the peanut industry. However, Mellos, a wholesale manufacturer and distributor of peanuts that employs 8 full-time employees, is “certainly not going to make any major price increases,” he said.

“We’re still working off contracts that were made prior to these current issues, so as long as our contractors will honor the agreements we’ve had over the years, we’re going to be okay,” Gelata said.

Alabama, Florida, Georgia, Mississippi, New Mexico, North Carolina, South Carolina, Texas and Virginia produce the bulk of the country’s peanuts. The drought is most extreme in Texas and Oklahoma, according to the USDA.

Executive Director of the Georgia Peanut Commission Don Koehler said many farmers who opted to plant more profitable corn and cotton crops – as

opposed to peanuts – also contributed to lower yields. According to the USDA 1.14 million acres of peanut crops were planted in 2011 – 141,000 acres less than in 2010.

“We knew that the situation was tight in terms of the acres that were planted,” Koehler said. “But it’s been complicated by the weather.”