Pecan Market Update

February 17, 2010

Based on the most recent Foreign Ag Statistics Service data, between August 1, 2009, and December 31, 2009, Pecan shipments to China hit a new record; up 300% over the same period a year ago.  Further, more product was shipped during that period than was shipped during the entire 2008 crop year.  Having purchased 27% of the 2008 US crop, it is highly probable that they will purchase an even larger percentage of this year's crop.  When combined with their estimated purchases from Mexico, it is not unreasonable to assume that they will have purchased approximately 25% of the total world supply of Pecans. In the short term, this has been a great development for the Growers.  Not having to deal with the Shellers, they are receiving record prices for their crop, and because this is a smaller than anticipated 'on-year' crop, the industry could be looking at a significant supply problem over the next eighteen to twenty-four months.  This could translate into even higher prices for those growers who are able to produce a good 'off-year' crop.  What the Growers have openly wished for has finally come to pass; they now control market pricing. However, while the following may be an inconvenient truth, it is a fact: there are no major companies, or any business schools anywhere in the world, that advocate the selling of 30% of one's production to a single customer, especially if you have no control over that customer.  Unlike the Shellers who only sold off their excess inventory to the Chinese, thereby protecting their core domestic and European customer bases, the Growers have paid little or no attention to that base, and regardless of what many within the industry would like to believe, buyers don't need Pecans for their confections, baked goods or snack items.  Sure, you can't put Almonds into Pecan pie or Walnuts in Butter Pecan Ice Cream, but those two items make up only a small percentage of total Pecan meat sales. Markets that took decades to develop could be lost in a matter of a few years.  The leaders of the various Grower groups need to take a moment to consider what will happen when the dollar starts to strengthen against the yen?  What happens if the current trade dispute with China expands to other commodities?  What happens if the US decides to supply more aid to Taiwan over the strong objections of the Chinese government?  What happens if some of the inshell being shipped to China is shelled over there and then sent back to the US for sale?  On several occasions, the Almond and Walnut industry have learned the answers to these questions and at no time did they like the answers.  There are no easy answers to the industry's current problems.  However, if the various segments of the industry don't start to work together to try to address them, there is a good chance that no one is going to like the consequences.