U.S. peanut supplies have gone from short supply the past two years to surplus as a record large 2012 crop is being harvested. At the same time, the industry hopes quality issues causing two major recalls in two years are remedied as the result of abundant new crop supply and good weather.

“Peanut grades are very high this year,” said John Beasley, professor of crop and soil sciences and extension peanut agronomist at the University of Georgia. In addition to the high quality, he noted peanut yields were coming in near or above record levels in Georgia, which is by far the largest U.S. peanut producing state with 45% of total U.S. peanut harvested acreage and nearly 49% of expected total 2012 production.

In its Oct. 11 Crop Production report, the U.S. Department of Agriculture forecast U.S. 2012 peanut production at a record 6,108 million lbs, up a whopping 67% from 3,659 million lbs in 2011, up 47% from 4,157 million lbs in 2010 and 18% above the previous record outturn of 5,162 million lbs in 2008. The huge increase in production was the result of an expected record high yield of 3,832 lbs an acre, up 13% from 2011, and a 48% increase in harvested area at 1,594,000 acres. Peanuts are the third largest U.S. oilseed in terms of harvested area behind canola at 1,737,600 acres and soybeans at 75,693,000 acres and just ahead of sunflower (for oil) at 1,576,500 acres in 2012.

Key to this year’s expected record peanut crop and average yield was a significant improvement in growing conditions compared with the last two years. The U.S.D.A. in its weekly Crop Progress report and its final condition report of the season rated the crop in the eight major peanut growing states at 79% good to excellent as of Oct. 21, up from 43% at the same time in each of the previous two years. In 2011 the crop suffered from drought in Texas and Oklahoma, and in 2010 the problems were in the Southeast.

“The quality of this year’s crop is going to be really good,” Mr. Beasley said. Contributing to the record yields and improved quality were favorable weather conditions this growing season, especially compared with two years ago when aflatoxin, which “likes” hot, dry weather, was more prevalent.

“The weather this year was cooler and wetter,” Mr. Beasley said, “the opposite of two years ago.”

Mr. Beasley noted data from the current harvest in Georgia that showed only 700 tons of peanuts with aflatoxin out of 1.3 million tons tested to date.

“That’s only .05%,” he said, compared with 3% to 4% affected two years ago. Peanuts with alfatoxin levels above threshold levels cannot be used for food.

Adding to supplies early this year was the pace of harvest about a week ahead of average. The U.S.D.A. said 79% of the peanuts in the eight major states were harvested as of Oct. 28, ahead of 67% as the 2007-11 average for the date.

Peanuts supplies already were shooting upwards as the harvest progressed. Peanuts stocks in commercial storage on Sept. 30, 2012, totaled 1,635 million lbs of farmer stock equivalent, nearly two-and-a-half times the Aug. 31 amount and up 31% from a year ago, the U.S.D.A. said in its Oct. 31 Peanut Stocks and Processing report. It was the first time since November 2010 that monthly peanut stocks were above year-earlier levels.

“The large crop is obviously going to drive prices down,” Mr. Beasley said.

Peanut prices have fallen drastically from year-earlier levels. Prices posted last week by the U.S.D.A. by variety were 26.23c a lb for runners, 25.45c for Spanish and 26.41c for Valencia and Virginia, all down more than 55% from about 60c a lb at the same time a year earlier when prices were near their peak after rising for months due to two consecutive years of tight supplies.

Peanut prices received by farmers averaged a record high 31.80c a lb in 2011-12, up 41% from 2011-12, the U.S.D.A. said in its latest Oil Crops Outlook. The department forecast the average price to range from 28.35@31.65c in 2012-13.

But how quickly lower peanut prices trickle down to peanut products remains to be seen.

Peanut oil prices have averaged around $1 a lb in 2011-12, up 30% from 2011-12, but were forecast by the U.S.D.A. at 98@102c a lb for 2012-13, little changed from a year earlier.

The vast majority of peanuts are used for peanut butter, peanut candy and snacks compared to the amount crushed for meal and oil, and the amount of oil produced pales to that of soybean oil. But peanut oil has a favored use around this time of year – deep fat frying of turkeys. While it may be too soon for peanut oil prices to reflect the huge crop this Thanksgiving, it will be worth watching to see if and when prices for other peanut products, especially peanut butter, begin to decline at the retail level after increases of about 40% for some brands a couple of years ago.

On broker said that lower peanut prices should spur demand, but he also noted that the time of stable, predictable peanut prices was over and “will never be seen again.”