Supply shortages in key growing regions have caused the price of peanuts to surge to record highs. Peanut prices in Europe are 60% higher than a year ago and the cost of peanuts in the USA has more than doubled in the last twelve months. The price spike is the result of lower production from India, Argentina and the United States.
In 2010, American farmers harvested 2.1 million tons of peanuts. This dropped to 1.8 million tons in 2011, a 15 percent drop that caused prices to more than double to about $1,000 a ton
With raw peanut prices jumping sharply higher consumers have found that staple products such as peanut butter, peanut oil, peanut flour and nut-enhanced cereals have become more expensive in some case by more than 30%.
Peanut production in the United States has been hit by drought conditions in states such as Georgia and Texas. And some farmers have switched production away from nuts towards cotton and corn because higher world prices have offered better expected profits. However if peanut prices stay high well into 2012, there are hopes that growers may start planting in states such as Arkansas and Mississippi where there is current ample water to achieve good harvests.
Questions for discussion:
How will peanut-loving consumers react to these higher prices?
What does the data suggest about the elasticity of supply for peanuts?
Will the elasticity of demand for all peanut products be the same?
How might this effect the producers of products that require peanuts as a raw material?
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