Record 2017 Pecan Supply Leads to Record US Pecan Consumption
September 07, 2018
With Monday’s release by FAS of the 2017 US Pecan export data, the overall supply picture became substantially clearer. Not only were total exports up over the same period a year ago, so were imports from Mexico and US Domestic Consumption; both records. When combined with the July Cold Storage data, it would appear that there is both good and bad news for the industry. The good news; the pecan industry shipped a lot of product. The bad news; the shelling industry suffered substantial losses for a second year in a row.
The American Pecan Council also released the long promised 2016 crop data (collected back in March). As expected, 2016 crop receipts show that the USDA’s final 2016 crop figures were understated by 40 million pounds, inshell basis (USDA final: 268.7 million pounds; APC final: 308.4 million pounds). This difference is totally due to the fact that only 70% of the Growers voluntarily submit their crop data. The problem got worse last year when the USDA decided to only include the eight largest producing states in their data. While those eight states account for approximately 90% of US production, that still results in a significant understatement of actual production. The APC data indicated that on August 31, 2017, the industry carried-out 126 million pounds of product (inshell basis) of which 33.5 million pounds were ‘uncommitted,’ i.e. available for sale. The USDA Cold Storage data showed 160 million pounds at the end of August. One of the reasons for the difference; growers who are holding pecans that have not been put into commerce are not required to report those holdings to the APC. That is not a flaw in the marketing order but a flaw in the 1938 law. The APC is working with the USDA to find ways to minimize the impact of that flaw. The other reason, until recently, the industry was using 44% for their meat to inshell conversion while the APC uses 50%. With the arrival of a new Executive Director, and the hiring of a senior staff, the industry should expect to get much better data going forward. Alex Ott, the APC Executive Director, has promised to have the 2017 crop data released sometime in September with the first monthly 2018 crop receipt reports starting in October. The release of those monthly reports will be a major improvement over the current reporting system and should help to minimize the impact of the inherent faults of the USDA’s voluntary reporting system.
As stated above, US Pecan Exports were up; 3.8% over the same period a year ago. Based on currently available data, so too was US Domestic Consumption; up 10.5% to set a new record of 537.1 million pounds (assuming a September 30 carry-out of 165.2 million pounds). This was possible because total supply was also up. Not only was the US crop larger than originally forecast, primarily because the US crop was not as adversely impacted by Hurricanes Harvey and Irma as originally forecast, but Mexico, South Africa and Australia all produced record crops. World supply soared to 815.3 million pounds; a record. If current crop projections are correct, and barring some unforeseen natural disaster, world supply could hit 900 million pounds this year.
Finally, while a lot has been said about the Chinese tariffs, to date, the increase in supply has been more of a factor in pricing than the tariffs. US inshell pecan sales to China account for 60% of China’s pecan purchases, yet the removal of that product has not increased demand or prices paid for South African or Australian inshell. In fact, just the opposite has occurred. Chinese buyers took their time purchasing from S. Africa at prices below 2017 levels. Why? Because China purchased too much inshell in 2016 and 2017. There was no urgency to purchase pecans for their Fall festivals as their warehouses were full. Early reports from Mexico also indicate a lack of urgency on the part of Chinese buyers. Much of this can be attributed to the fact that the Chinese economy is trader driven vs consumer driven. If the traders can’t get the product they want, they’ll replace it with something else. Unlike their Western counterparts, the Chinese consumer has little say in what the traders purchase. Yes, China accounts for approximately $220 million in US export sales. However, lower prices and larger inventories will allow both US and EU buyers to increase their purchases. I have often said that the solution for high prices is high prices. The same is true for low prices. While some segments of the industry will be faced with lower revenues, overall, this could be a very good year for the pecan industry.