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The Globe and Mail

Dry weather pushes peanut cost to record high

This undated file photo released by the U.S. Dept. of Agriculture shows a bag of peanuts.

AP Photo/U.S. Dept. of Agriculture/AP Photo/U.S. Dept. of Agriculture

Peanuts no longer cost peanuts. The price of the bar snack has leapt to a record high on the back of scorching weather and severe drought in key growing regions.

Prices in 2011 have almost tripled in the United States, while in Europe, the largest importer, they are up 60 per cent as the global peanut industry, worth about $18.5-billion (U.S.) a year, is hit by lower supplies in India, the second-largest producer, Argentina, a leading exporter, and the U.S.

The peanut price spike has been felt most acutely in the U.S., where it has forced retailers to push through large increases in the price of peanut butter – a staple of kitchen cupboards and food banks.

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U.S. food manufacturers including Kraft – which owns the Planters brand – and Jif peanut butter manufacturer JM Smucker last month increased their peanut butter prices by 30-40 per cent.

"You've got to wait and spread that peanut butter thinner and make it last a little bit longer until next year," said Bill George, peanut specialist at the U.S. Department of Agriculture.

Peanuts, a variety of legume that grows in the ground, need moisture in the soil when they are planted and while they are growing.

Two years of drought conditions in the peanut-growing areas in the U.S. have dramatically reduced the quality of peanuts used in snacks and confectionery as plants have withered before maturity or produced very few peanuts.

U.S. production is set to be 12 per cent lower this year, according to the Department of Agriculture, driving global peanut inventories to their lowest levels in 14 years.

"Not only was the ground dry at planting time because it was the second year of dry weather, but the rainfall we did get evaporated due to the high temperatures," said Don Koehler, executive director of the peanut commission in Georgia, which produces almost half of America's peanuts.

Production has also suffered as higher prices for cotton and corn at planting time seemed to offer better returns for farmers. "It has been a land grab," said Mark Gravette, director at London-based nut traders Barrow Lane & Ballard.

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Traders expect peanut prices to remain high for the next few months. A bumper crop forecast for Argentina next season could help to alleviate the supply deficit, although prices are not expected to fall sharply.

In Georgia, the acreage for production is expected to rise as the fall in cotton prices drives farmers back to peanuts.

However, in Texas, the second largest peanut producing state in the U.S., some are forecasting that the hot dry weather could last until 2013.

"If we don't get any rain, our acreage is going to go down further," warned the peanut producers' board of Texas.

China, the world's largest producer, has had a good crop, producing about 7 per cent more than the annual average, and has been filling the gap.

"We're buying from China to supply to the U.S.," said Mr. Gravette, adding that there was a lack of quality peanuts in the market.

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