Is the US Pecan Industry Headed Over Its Own 'Fiscal Cliff?'

December 11, 2012

A few years ago, during the course of contract negotiations with a major corporate buyer, the buyer said to me, ‘Why would anyone in their right mind want to be a Pecan Sheller? There is no money in it and it seems that the Shellers take great pleasure in trying to destroy each other regardless of the impact it has on the market, the growers or themselves.’ We find ourselves in just such a situation today.  Twice in the last twenty years one Sheller has tried to manipulate the market. In neither case did it work to the benefit of anyone.  In both cases the Sheller was forced into bankruptcy, buyers did not get their contracts delivered and were then forced into having to pay millions more for their product and growers either didn’t get paid or were forced to take much less than what the market would have brought them had they sold elsewhere. There is no logical reason for what is happening in the meat market today. Based on all of the statistical data, and given the current cost of inshell pecans, the meat market should be trading at least a dollar per pound higher. With no profit margin in the current pricing structure, one can only surmise that the one company currently trying to drive the meat market lower is only doing so in an attempt to cripple the rest of the Shelling industry.  Whatever the oversupply situation was two months ago, there will be none by the end of December.  Since August, the industry has consumed over 80 million pounds of product.  China alone has increased their purchases by over 700% while overall exports are up almost 100% over the same period last year. Since China does not buy much in the way of meats, few of their purchases would have shown up in the Cold Storage figures as they buy the bulk of their Pecans directly from the Grower and/or Accumulator.  That is an additional 21.4 million pounds of consumption above what was consumed during the same period last year.  When one takes into consideration that over 15 million pounds of meats have crossed the border from Mexico since August, and the Cold Storage figures were still reduced by almost 5 million pounds, one can only assume that consumption has gone through the roof. With most Western Growers reporting lower than anticipated yields, with nut sizes being considerably smaller than usual and the tremendous volume of nuts being shipped to China, it is no wonder that there is more than a dollar per pound spread between the price of pieces and halves.  The problem is that with that kind of spread, the Shellers cannot make enough money on the sale of the remaining halves to offset the significant losses being incurred on the sale of pieces.  Further, even those Shellers who purchase significant quantities of Native pecans will lose millions of dollars selling meats at today’s prices.  Growers, who have done very well over the past few years, are already accepting minimized profits at current field levels, and based on current meat prices, may be forced to put their product into cold storage in the hope that they can make money later in 2013 rather than take a guaranteed loss now.  Yes, prices were unjustifiable high the last two years, but attempting to manipulate the market now for one Sheller’s personal gain only hurts everyone; buyers included.  It doesn’t matter how low the price is if you can’t get delivery when you need it or if the product being delivered is of inferior quality.  A wise man once told me that if a deal sounded too good to be true, it probably was.  This is a very dangerous market, so ‘Buyer Beware!’

As usual, should you have any questions, please do not hesitate to contact us at 630-377-2628.