California and Mexico: Their Impact on the US Pecan Market
January 22, 2014
A recently aired segment on 60 Minutes, as well as several published articles, has focused on the severe drought currently impacting the State of California. Not since the mid-1800’s have conditions been this bad. Water levels in most of the States reservoirs are the lowest they’ve been since 1976 and the National Weather Service cannot say when conditions will turn around. California receives the bulk of its water between November and March and so far this season, there has been no significant precipitation. The State’s strong environmental lobby hasn’t helped as they are more concerned about some isolated fish populations than the State’s multi-billion dollar agricultural industry. With no significant precipitation projected, California’s farmers are facing their worst year ever.
Why is this important? It’s important because the bulk of the world’s almonds, walnuts and pistachios are grown in California. Prices for all three commodities are at historic levels. Due to the historically high prices, consumers, retailers and industrial ingredient users are looking for cheaper alternatives and pecans are the answer. Not only are pecans competitively priced with almonds, they are cheaper than pistachios and walnuts. Retailers cannot keep the shelves stocked and bakery supply houses have switched a significant portion of their business to pecans. Consumption continues to move along at record levels as can be seen in the recent Foreign Ag Statistics Service export figures; Customs import figures and the USDA Cold Storage Holdings. Yes, meat export shipments were down slightly in December over the same period last year, but when one considers that the last two weeks of the month saw little activity due to the mid-week occurrences of Christmas and New Year’s, shipments held up extremely well. Further, the continued undervaluing of the industry’s current inventory as seen in recent contracting will continue to make pecans the preferred nut.
While there is still an oversupply of pieces, the pile has gotten significantly smaller. Unnecessarily low meat prices, the hand cracking of nuts in Mexico and better yields of US inshell has helped to slowly reverse the problem. Further, with their significantly lower labor cost, as long as the Mexican Shellers continue to ship cheap Mexican meats across the border, the resultant cheaper prices will continue to weigh on the market while at the same time continuing to fuel the current demand for pecans.
Lastly, while thumbing through the pages of DeWayne McCasland’s recently published book ‘They Must Have Been Nuts; The Innovators, Speculators and Giant Personalities Who Created the Modern Pecan Industry,’ I found it interesting to note all of the Shelling companies that are no longer around. While not an all-inclusive list, each company that has passed from existence was illustrated with their name displayed on a headstone (p. 120). While many will look at that page with nothing more than a passing interest, it foreshadows what is happening to the US Pecan Shelling industry as a whole. Competition from Mexico, increased inshell exports to China, unwieldy and costly government food safety regulations and the failure of large corporations to understand the importance of maintaining a strong US supplier base in their drive to cut costs are all adding to the ever increasing mountain of costs facing the pecan industry. Of particular concern is the apparent double standard being forced upon the US Shelling industry by many of the larger US and multi-national food companies when it comes to choosing between US and Mexican shelled pecans. US Shellers are being forced to meet strict food safety standards, are expected to produce to very tight shell tolerances, must meet significantly lower foreign material standards, are being forced to accept 90 to 120 day payment terms and worst of all, are forced to accept unilateral changes to, and or cancellations of, unfavorable contracts. It is becoming almost common practice by more and more food companies to give lip service to quality and food safety while readily accepting lower prices, or price quotes, from south of the border. The clock is ticking, and unfortunately, time waits for no one.
As usual, should you have any questions, please do not hesitate to contact me at 630-879-5200.