'Those Who Fail to Learn From History Are Doomed to Repeat It'
August 28, 2014
‘Those who cannot remember the past are condemned to repeat it.’ (George Santayana-1905). In a 1948 speech to the House of Commons, Winston Churchill changed the quote slightly when he said (paraphrased), ‘Those who fail to learn from history are condemned to repeat it.’
In July 2011, the pecan industry experienced the highest prices ever with inshell selling at levels as high as $6.25 per point and shelled meats selling for as high as $8.00 per pound. At those levels, the Chinese finally joined the European and US domestic buyers and pulled out of the market. Pecan prices plummeted. While there were a number of reasons for the market decline, the primary reason was the huge disparity between the price of inshell and the price of shelled meats. Inshell prices had no relationship to the price of the shelled meats even though 75% of worldwide pecan sales are in the form of shelled meats. Further, there is only one major buyer of inshell (China) and their purchasing habits continue to dictate what the rest of the world must pay.
Why is this important? For the past three years, the pecan industry has struggled to recover from the market fall that followed. Today, two large pecan shelling plants are up for sale, their owners tired of losing money, and one major Sheller is moving the majority of its operations to Mexico. The inventory over-supply situation has finally been resolved and with the lower prices of the past two crops, consumption has experienced a significant rebound. The higher price of almonds, walnuts and pistachios has also helped. Based on the July Cold Storage Holdings, consumption is now running around 460 million pounds (inshell basis) with US consumption around 286 million pounds (inshell basis). As is often said, ‘There is light at the end of the tunnel.’ Hopefully that light is not a freight train as some within the pecan industry have forgotten what sent the industry into the recent doldrums as they now move to push inshell prices back to levels not seen since 2011. It is important to remember that unless the crop turns out to be considerably smaller than the recent grower crop estimates, the industry will still be faced with a total supply of over 600 million pounds (inshell basis) and that figure does not include stock in Australia, South Africa or what Mexico will ship to China or consume internally. Based on current reports from Georgia, New Mexico and Texas, and barring a natural disaster, the total supply could be greater than last year. While current meat prices, particularly pieces, have firmed dramatically in the past few months, they are still nowhere near the levels of the prices currently being quoted for new crop inshell. Has our industry learned nothing from the past three years? Are short term profits still going to trump long term increased consumption and market stability? If past industry history is any indication, and unless certain segments of our industry try to understand the relationship between meat sales and inshell, everyone should expect another year of Sheller losses and roller coaster prices.
As always, should you have any questions, please do not hesitate to contact me at 630-879-5200.