Peanut-Butter Makers Face Crunch

Daily News Article — Posted on October 12, 2011

(by Paul Ziobro, The Wall Street Journal, WSJ.com) – …Another hot, dry summer has devastated this year’s peanut crop, sending prices…skyrocketing and forcing peanut-butter brands including Jif, Skippy and Peter Pan into startling price increases.

Wholesale prices for big-selling Jif are going up 30% starting in November, while Peter Pan will raise prices as much as 24% in a couple weeks. Unilever wouldn’t comment on its pricing plans [for its Skippy peanut butter], but a spokesman for Wegmans Food Markets, [a]…supermarket chain in the Northeast U.S., said wholesale prices for all brands it carries, including Skippy, are 30% to 35% higher than a year ago.

Kraft Foods Inc., which launched Planters peanut butter in June, is raising prices 40% on Oct. 31, a spokeswoman said. ……….

The U.S. Department of Agriculture estimates the current spot price for a ton of unprocessed Runner peanuts, commonly used in peanut butter, at about $1,150 a ton, which is up from about $450 a year ago. A pound of shelled peanuts, meanwhile, would fetch $1.20 currently, one broker said, up from 52 cents a year ago.

The tight peanut supply means peanut-butter costs will eventually make their way to consumers, who are facing higher prices on just about everything they buy in the supermarkets. While prices for food consumed at home are broadly up 6% versus a year ago, the increase in peanut butter should be immediately noticeable and take a bite out of disposable income. A 30% increase on an 18-ounce jar of Jif would add 94 cents to the $3.14 price at a Target Corp. store in Jersey City, [NJ].

As with any crop, the challenges facing peanut farmers begin and end with the weather. In Georgia, the leading U.S. peanut producing state, the planting season was the driest in memory for John Harrell, a sixth-generation peanut farmer in Whigham, Ga. Peanuts, typically planted between mid-April and the beginning of June, had to wait until several weeks after that for any rains, he said.

“I don’t remember a year that you didn’t catch a shower or had so little moisture in the ground to get the seed up,” said Mr. Harrell, age 56. “It was dry about as deep as you can dig down.”

Compounding the problems was that some farmers devoted more of their fields to crops like cotton, which was fetching a high price. The USDA Agriculture estimates a 17% drop in the peanut crop this year, to 3.46 billion pounds.

Of added concern is the quality of the crop. Scorching heat, especially in Texas, singed many peanut plants as they developed, leaving more peanuts destined to be processed into oil, rather than the edible-quality that’s shelled and turned into peanut butter. Only 38% of the U.S. peanut crop was rated good or excellent last month, down from about 60% a year ago.

Smucker, the world’s largest peanut buyer [and maker of Jif peanut butter], is taking action to make sure it has enough peanut butter to stock shelves. It temporarily stopped making eight varieties in certain sizes, like 40-ounce jars or reduced-fat creamy spread, which won’t be available again until January.

Write to Paul Ziobro at Paul.Ziobro@dowjones.com.

Questions

1. List the following statistics provided in the article:

wholesale price increase for Jif peanut butter
wholesale price increase for Peter Pan peanut butter
wholesale price increase for Kraft's Planters peanut butter
wholesale price increase for all peanut butter sold by Wegmans Supermarkets
increase in price for a ton of peanuts used to make peanut butter
increase in overall food prices over the past year

2. Which state is the leading producer of peanuts in the U.S.?

3. List the 3 factors that have contributed to the reduction in the peanut supply this year.

4. Would a 30% increase in foods made from peanuts cause your family to reduce the amount of peanut butter, etc. you buy? Explain your answer.

CHALLENGE QUESTIONS:
a) How much peanut butter do you consume in your home each month?
b) By how much will the price of your peanut butter increase per jar?
c) How much more will your family pay for peanut butter over the next year?

Background

GEORGE WASHINGTON CARVER:

George Washington Carver (1864-1943), was an American scientist, botanist, educator, and inventor. While he did not invent peanut butter,
Carver's inventions included the discovery of over 300 different uses for peanuts – such as making cooking oil, axle grease and printer's ink.
Carver earned a Bachelor of Science degree in 1894 and a Master of Science degree in bacterial botany and agriculture in 1897 from Iowa Agricultural College (now Iowa State University).
Carver became a member of the faculty of the Iowa State College of Agriculture and Mechanics (the first black faculty member for Iowa College), teaching classes about soil conservation and chemurgy.
In 1897, Booker T. Washington, founder of the Tuskegee Normal and Industrial Institute for Negroes, convinced Carver to come south and serve as the school's Director of Agriculture. Carver remained on the faculty until his death in 1943.
At Tuskegee, Carver developed his crop rotation method, which revolutionized southern agriculture. He educated the farmers to alternate the soil-depleting cotton crops with soil-enriching crops such as; peanuts, peas, soybeans, sweet potato, and pecans.
America's economy was heavily dependent upon agriculture during this era making Carver's achievements very significant.
Decades of growing only cotton and tobacco had depleted the soils of the southern area of the U.S.
The economy of the farming south had been devastated by years of civil war and the fact that the cotton and tobacco plantations could no longer (ab)use slave labor.
Carver convinced the southern farmers to follow his suggestions and helped the region to recover.
In 1939, he received the Roosevelt medal for restoring southern agriculture. (from inventors.about.com)

Read more about George Washington Carver at: nps.gov/gwca/index.htm.