Pecan Market Update

October 13, 2008

On Friday, October 10, 2008, the USDA released the first of its 2008 Pecan crop estimates estimating this year's crop to be 204 million pounds (inshell basis).  This is in line with the estimate released by the National Pecan Shellers Association two weeks ago (203.75 million pounds) and in line with earlier grower estimates. As such, the supply situation shapes up as follows (figures are expressed on an inshell basis in millions of pounds):

2007 Carryout (9/30 estimate) 181,000
2008 US Crop (USDA estimate) 204,000
2008 Mexican Imports (estimate**) 70,000
2008 Total Supply (estimate) 455,000

**This is a 'net' estimate figure to compensate for the double counting of US inshell by the US Foreign Agriculture Statistics Service

While this is 47% below last year's near record crop, based on current industry inventory figures, there should be more than enough Pecans to handle anticipated demand.  Further, assuming that these projections are realized, it would appear that, for the following reasons, the current market is over priced. 

First, while contract shipments have been very good, there has been little or no spot business in the past six to eight months. Because 2007 prices were considerably lower than prices experienced over the prior 5-year period, many buyers booked 15 to 18 month supplies of pecans thereby eliminating the need to enter the spot market (Some were even fortunate enough to enter into 2-year contracts). After these bookings were completed, the market shot up dramatically, partially on the assumption that the 2008 crop would be smaller than normal due to the very large 2007 crop, but also because of the shortage of larger Pecan halves and pieces as well as the record demand for inshell Pecans in China. With the higher prices, buyers who might have needed additional product decided to either hold off on those purchases or to switch to cheaper nut alternatives.

Second, unlike 2007, Walnut prices have returned to more historic levels in relation to the price of Pecans.  Based on current Pecan prices, Walnut prices are now at least $1.00 per pound lower than Pecans.  As such, unless Pecan prices fall dramatically from current levels, or Walnut prices move higher, many customers who switched from Walnuts to Pecans last year may now switch back to Walnuts.

Third, China is not expected to import as many Pecans as they did last year. There are several factors that will impact their buying habits this year:

1. The Chinese New Year is earlier this year

2. Inshell Walnut prices have come down dramatically in relation to inshell Pecans

3. Inshell Pecan prices are approaching levels that make them less appealing, and in some cases unaffordable, to the Chinese consumer

4. Based on some estimates, there may be as many as 10 million pounds of inshell Pecans either in storage, or yet to be delivered, out of their 2007 crop purchases.  As such, they won't need to be as active during the fall harvest months when prices will probably be at their highest levels.

Fourth, other than the need to purchase inshell to cover some Mammoth, Jr. Mammoth and Jumbo Half contracts, most Sheller's have enough Pecans in inventory to cover the bulk of their fall requirements.  As such, there may be no real need to step into the high priced fall inshell market until after the gift pack industry has completed their purchases.

History has shown that a lot can happen to the crop between October and December. Due to the shortage of large Pecan Halves and Pieces, and the needs of the gift pack industry, early inshell prices will probably remain relatively firm.  However, assuming that the 2008 crop comes in as projected, once the industry has a better handle on just how large this 'off-year' crop really is, don't be surprised to see meat prices weaken as the industry approaches the contracting season.