Georgia: Peanuts vs. Cotton

Jeffrey Perloff, (2007), states that market pricing is related to three distinct tradeoffs regarding the decision to produce goods: 1. which goods are produced, 2. how goods are produced, and 3. who receives these goods once they are produced, (p. 3). Georgia’s peanut growing industry scaled back production from 685,000 acres to 508,000 acres in 2009 to bring supply and expected demand closer together. This was in part due to the 2008 distribution of salmonella tainted peanut butter associated with Peanut Corporation of America in Blakely, Georgia, and also partly due to a reduction in European exports due to the global economic recession. Neither of these concerns ended up having a devastating consequence on peanut sales. In actuality, the U.S is in danger of losing too many peanut growers this year due to the unpredictability of pricing in the market and the large amount of peanuts already in storage. In actuality, peanut and peanut butter sales tend to increase during difficult economic times, (Smith, 2010), so the demand for peanuts is expected to increase this year.

Georgia will likely increase arable acreage devoted to peanut production this year to cover some amount of anticipated increase in sales, however, the amount of acreage available may be mitigated by prices for this year’s cotton crop. Cotton is expected to trade at between .70 and .80 per pound, whereas in the previous year cotton traded at between .50 and .60 per pound. This significant increase in the price of cotton is primarily due to deficits in the international cotton market, especially in China, Turkey, and Vietnam, (Smith, 2010). An additional mitigation factor that could affect the peanut crop would be the harvest period. Both cotton and peanuts are harvested at the same time in Georgia leading to possible shortages in the number of machinery and workers available to harvest peanuts as workers needed to harvest peanuts would most likely be harvesting cotton instead.

Canada is the single largest customer for U.S. peanut butter, consuming more per capita than the U.S. Additionally Mexico is expected to continue being one of the best foreign markets. Consumption of peanuts and peanut butter in European markets is expected to be curtailed as sales there are more affected by the economic recession, (Smith, 2010).

References:

Perloff, J. M. (2007). Microeconomics (4th ed.). New York: Pearson Addison Wesley.
Smith, R. (2010, March 10). Contracts short for Virginia-type peanuts. Southeast

Farm Press. Retrieved from http://southeastfarmpress.com/peanuts/virginia-peanuts-0310/index.html

Smith, R. (2010, March 18). Peanut demand remains strong. Southeast Farm Press. Retrieved from http://southeastfarmpress.com/peanuts/peanut-markets-0318/

Smith, R. (2010, March 24). Cotton market bullish awhile. Southeast Farm Press. Retrieved from http://southeastfarmpress.com/cotton/cotton-markets-0324/index.html