Stark disparities have appeared in two key peanut markets as the Chinese are shelling out more for the groundnut amid a scramble for supplies, while on the other hand, record US inventories have meant that farmers there may not have enough warehouse space to store the bar snack.

The divergence comes as regional price differences have widened due to the weather, state subsidies which change farmer behaviour and quarantine rules which affect trade flows.

Peanut prices from China “have gone up dangerously”, says Paul van Velzen, managing director of Aldebaran Commodities, a Rotterdam-based nut and oilseeds trader.

Chart: US peanut prices

Prices in China, a leading peanut exporter, have remained high after a fall in production in the crop year 2014-15 — the result of a decline in planting due to lower prices and bad weather.

About half of China’s peanuts are crushed into oil used for cooking, prized for its subtle nutty flavour and its ability to be heated to high temperatures without burning. Chinese consumers are also turning to nuts as a healthy snack, and producers have had a limited ability to keep pace with the growing demand.

Although Chinese production is expected at about 16.8m tonnes in the 2016-17 crop year, up from the 16.5m in 2014-15 according to the US Department of Agriculture, the large oilseed processing sector in China has continued to be avid buyers, leading to sharp price increases.

For example, peanut oil in Shandong, one of the key growing regions, is trading at about Rmb14,400 a tonne, up 8 per cent from a year ago and the highest since February 2014.

The export prices for peanuts have also continued to rise over the past few months. “The prices keep on going up,” says Mr Van Velzen. European markets, which are large buyers of Chinese peanuts, have been struggling to find any offers.

In the US, farmers are seeing an overhang of inventories thanks to two bumper harvests in 2014 and 2015.

“We had a phenomenal year in 2015,” says Don Koehler, executive director of the peanut commission in Georgia, which produces almost half of America’s peanuts. US production in 2015 totalled 2.8m tonnes, up almost a fifth from the year before.

Mr Koehler says that US farmers were planting more peanuts as cotton and corn prices were low. Cotton was down mainly due to the large stock overhang in China caused by the country’s state stockpiling system.

Peanut farmers also benefit from the US government’s subsidy programme for grains and oilseeds, which supplements the farmers’ revenue if the national price or crop revenue drops below guaranteed levels.

A loan programme also protects peanut growers by providing interim financing for farmers and further insulating them from price declines as the government will take ownership of the loan collateral of peanuts if prices drop below an agreed rate.

Chart: Top 10 peanut exporters

Farmers in the south of the US usually alternate between cotton, corn and peanuts, but with cotton lacking a government support programme, “the recent and forecasted extremely low cotton prices coupled with the other commodities’ low prices has forced Southern farmers to look towards peanuts as the safety net”, says a report on peanut supply and storage from the US National Center for Peanut Competitiveness.

Average US prices are currently 19 cents a pound, down 14 per cent from a year ago and 40 per cent from the start of 2013, according to the USDA. If US peanut prices remain weak, the cost to the taxpayer could be more than $800m a year in 2016, 2017 and 2018, according to a Congressional research paper.

With peanut inventories forecast to rise to a record 1.3m tonnes this year, US farmers could run out of warehouse space. “Without adequate storage capacity, many peanut producers may not be able to store their peanuts in a federal license warehouse” and participate in the government’s loan programme, the NCPC warns.

“We’re telling our members that when they buy the seed, they have got to have guaranteed storage,” says Mr Koehler.

In an ideal world, the US would be increasing its exports, which account for about 20 per cent of its overall production. However, certain importers, including Europe, have stringent quarantine rules on aflatoxins — toxic chemicals caused by mould — limiting the amount of imports from the US. Differing consumer tastes and preferences also restrict the US varieties sold overseas.

China turned to the US in 2012 after its regular supplier India faced a poor harvest due to drought. Although Beijing imposes a 15 per cent import duty and 13 per cent value added tax on peanut imports, US peanut growers have their hopes on Chinese demand.

US peanut industry delegates have been visiting China to promote their wares. “China has been buying peanuts from us,” says Mr Koehler, adding: “There is a lot of activity right now to build relationships with Chinese buyers.”

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