How much are you are willing to pay for your favorite sandwich? If it has peanut butter in it, you may soon be recalculating.
"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."
• Based on late-August conditions, U.S. peanut yields for 2011 are expected to fall to 3,104 pounds per acre, versus 3,311 pounds last year. This follows an 11-percent reduction in harvested acreage.
• Half of the crop in drought-stricken Texas is rated in very poor-to-poor condition, with yields forecast falling to 2,600 pounds per acre, an 11-year low.
• Only 37 percent of the U.S. peanut crop was rated in good-to-excellent condition as of Sept. 11.
• U.S. peanut exports are forecast to decline to 485 million pounds, which — if realized — would be the lowest since 1975-76.
Source: September 2011 Oil Crops Outlook Report of U.S. Department of Agriculture
Peanut butter manufacturers — including The J.M. Smucker Co., which sells the market-leading Jif brand — have been forced to shell out almost double what they paid for peanuts last year. That’s a problem when it takes 540 peanuts to produce a 12-ounce jar of Jif.
"Nobody on the supply chain can absorb that sort of price increase," said peanut broker Richard Barnhill in Albany, Ga. "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."
Some of the early signs:
• Smucker plans to discontinue its less popular lines of Jif peanut butter to free up product for some of better selling jars, such as “Creamy” and “Crunchy.” The company also has increased prices on its “natural” Smuckers line over the last few months.
• Iowa-based grocer HyVee has acknowledged that it passed on higher prices to customers over the summer.
• Trader Joe’s stores in the Kansas City area ran out of its organic peanut butter line in September. The jars were back on the shelves in October, but with a new variety of peanut and a 70-cent price hike.
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 farmers. So our first problem was (that) we didn't plant enough peanuts," said peanut broker Richard Barnhill in Albany, Ga.
Basically, some Georgia and Texas farmers swapped peanuts for drought-tolerant cotton, which was selling at record prices last spring.
Overall, there was a 15 percent reduction in planted peanut acreage. In Georgia alone, the crop is estimated at 30 percent smaller this year — that's potentially 3 billion fewer peanut butter sandwiches in American lunch boxes.
"The second factor that happened was we have not gotten the rain," Barnhill said. "We're in a La Nina (weather pattern): hotter and drier in the Southeast and in the Southwest."
For this reason, many of the peanuts that farmers did manage to get in the ground did not survive the drought conditions. Some of those that survived were struck by crop diseases, making them unfit for food. This was particularly the case for organic production, a case in point being the Valencia variety, which was the original source material for Trader Joe’s organic peanut butter.
John Beasley, a peanut specialist at the University of Georgia, said the peanut crop in his area near Athens is obviously suffering.
"When someone is driving down the road in south Georgia and they see a peanut field it should be solid green across the field," Beasley said, as leaves and vines cover the ground.
This year, it’s a different story.
"In these dry fields, you’ll see down in the rows, and they’ll actually have a silvery appearance, a silver shimmer as you drive by as the leaves turn in on themselves, and you can see the disease in there, the drought stress," he said.
Then there’s one more factor on the supply side. It turns out that the U.S. peanut supply has been dwindling for some time.
"If you compare 2011 plantings with 2008, there was a 25 percent drop. So that’s what is significant. It’s not that we had a 10 percent drop this year, it’s that it’s been dropping for the last several years. And yields have not been as strong," said the USDA’s Arthur.
Strong consumer demand also has helped fuel the shortage.
Arthur said peanut butter consumption has jumped by 10 percent since 2008 versus a normal 1 or 2 percent increase in a year.
She noted that because traditional protein sources like meat are more expensive, some consumers turn to a more shelf-stable high-protein meal with peanut butter.
Still, Arthur said the increase in peanut butter consumption came as a surprise to her department. It was just two years ago that a massive outbreak of salmonella in peanut butter caused hundreds of people to fall ill, and thousands of peanut products to be pulled off shelves.
"I think there was a lot of concern that people would stop consuming peanut butter, but that wasn’t the case," Arthur said.
But the peanut industry didn’t come out of the salmonella scare with its head down. In the months after the recall, peanut industry ads become commonplace in high trafficked areas around the country, including an extensive advertising campaign in the District of Columbia's Metro commuter train service.
"I have no doubt that those promotional efforts positively affected domestic food use of peanuts," Arthur said.
Now the question becomes if high prices will bring down demand for peanut butter.
Dale Brigham, a nutrition specialist at MU, doesn’t think so.
"It is one of those inelastic demands," he said. "I think it is just one of those foods that we think of as part of the American pantry, and we’re not going to give it up if it spikes up in price a little bit."
Jennifer Rice, a Columbia mother of three boys, agreed.
"It's hard to put a price on what kids will eat. We probably wouldn't consider it if it were, like, $10 a jar, because that would be like buying caviar. Even then we might consider it as long as the kids ate it," she said.
For others, though, there’s a stricter limit.
Ruth Miller, a mother of two boys in Livermore, Calif., depends on peanut butter to keep her diabetic son healthy. She keeps tabs on peanut butter prices down to the cent.
"It used to be 99 cents or $1.20 or $1.30 and now you’re looking at $3.30 for the same tiny jar," she said. "I’m going to have to start writing some peanut butter companies, and going, 'what's going on? What’s going on Mr. Jif, what's going on Mr. Peter Pan?'"
Her limit? Four bucks a jar.
Jessica Naudziunas reports for Harvest Public Media, an agriculture reporting project involving six Midwest public broadcasting stations, including KBIA in Columbia. Harvest is supported through a grant from the Corporation for Public Broadcasting. Go to Harvestpublicmedia.org for more information.