Pecan Market Update
June 20, 2011
As has become tradition, the Louisiana Growers are usually the first group to try and put a figure on the upcoming Pecan crop. Even though their estimate comes out very early in the season, over the past few years their track record has been pretty good. This year, due to adverse weather during the early part of the growing season throughout much of the Pecan belt, many within the industry did not expect this year's 'on year' crop to be much above historical averages. Most felt that the crop would be in the range of the 2009 'on year' crop of 301 million pounds, give or take 10 million pounds. However, this past Friday, after polling the attendees to their annual meeting, the Louisiana Growers surprised just about everyone when they projected a 2011 'on-year' crop of only 246.5 million pounds (almost 13 million pounds below the last USDA estimate for the 2010 'off-year' crop). While it is a long way to harvest and the USDA's final estimate, many within the industry feel that the Louisiana estimate is on the low side. The figures put on Georgia, Texas and New Mexico appear to be very conservative (in some cases by as much as 20%). Further, it should be remembered that the figures are subjective in nature.
As for what this will mean for the long term health of the Pecan market, it is still too early to tell. One of the basic rules of supply and demand is that no one is bigger than the market and that the best remedy for high prices is high prices. Certainly Friday's figures will not put any downward pressure on prices in the short run. However, while US buyers saw their costs increase over 60% this past year, the Chinese have now driven their costs up over 100%. Can their market continue to absorb the higher prices? Can an economy dependent on multiple middle men remain competitive in the face of increased costs? Will Chinese consumers continue to demand Pecans when there will be several cheaper nut options available to them (at the moment, Walnuts are selling over $2/lb. cheaper than Pecans)? How much of China's Pecan purchases will be diverted from the US and Mexico as South Africa continues to increase their production? Does this low 'on-year' crop figure signal a change in the alternate bearing cycle of the US Pecan crop (similar to what occurred in the late 1980's) with next year being the new 'on-year?' While US buyers were able to maintain fairly good sales this past year by cutting margins rather than passing along 100% of their cost increases to their customers, can they afford to do so again this year? Regardless of what the final crop figure turns out to be, the industry is going to experience a second year of record prices and decreased consumption, consumption that could take years to rebuild.