If you're a peanut butter lover, you probably noticed that prices for your favorite spread increased last year. The reason for the increase has to do with supply and demand. The 2011 peanut crop was smaller than average—increased prices for cotton, corn, and soy meant that farmers grew more of those crops and fewer peanuts, and that smaller planting was further hurt by a terrible drought. A shortage of peanuts at the end of 2011 meant that costs went up in 2012 and the retail price of peanuts and peanut butter soon followed.
Let's fast forward to today. This year's peanut crop is mostly harvested and it is the largest in history—6.47 billion pounds, a 77 percent increase over last year. The peanuts are still being shelled and graded and it will be a little while before we know more about the quality of the crop, but so far things are looking good.
Enthused by the initial crop reports, a number of media outlets, including the Wall Street Journal and The New York Times, have reported that consumers can look forward to lower peanut butter prices soon.
Yes, it's true that the price food manufacturer's pay for peanuts will likely decrease over time. But it's important to understand that most major food manufacturers contract for their raw ingredients 12 months or more in advance.
At my company Peanut Butter & Co. for example, we contracted with farmers in February and March of 2012 for half of our projected needs for 2013, and when we did so, we were contracting at a price that was informed by the higher market price at that time. Our hope is that once the crop is fully harvested there will be a surplus, allowing us to purchase additional peanuts at a lower cost than our preliminary contracts and have a lower blended cost. Savvy stock market investors know this technique as "dollar-cost-averaging."
But it will be months before anything is certain, and we will also have to factor in the early contract prices for the 2013 crop, which is anyone's guess at this point. As I write this, we are still without a new Farm Bill, which is of great concern to our country's peanut farmers. Manufacturers like Peanut Butter & Co. are worried that we will repeat the bust-and-boom that just occurred, which could lead to more volatility for consumers in the future.
So enjoy your peanut butter—and if you see it on sale, be sure to pick up an extra jar. Learn about the Farm Bill and please write your representatives in Congress if you have an opinion about it (if you want to read the testimony of some of America's hard working peanut farmers, just enter "peanut" in the site's search box). And please be patient as companies that are committed to exclusively using USA-grown peanuts (like Peanut Butter & Co.) work through the complexities of supply and demand in a global economy and try to provide as much value to consumers as we can.
Did you notice an increase in the price of your favorite brand of peanut butter at the supermarket this past year? Have you been buying more on sale, eating less, or using coupons to deal with higher prices?