Increased Consumption Can Be A 'Double-Edged' Sword

May 29, 2015

The South African pecan harvest is progressing well with many expecting the crop to be as big as, or larger, than last year’s crop.  However, early data indicates that individual nut size is smaller than expected.  While the Chinese prefer to purchase oversize nuts, approximately 50 to 60 count or larger, the preponderance of the harvest is coming out as extra-large or smaller (60 plus count).  This has resulted in lower returns to the Grower than expected and may bode well for US Growers holding or producing larger nuts.

With respect to the US crop, overall consumption continues to be up dramatically.  Based on currently available data, it would appear that September 30 carryout will be below 110 million pounds (inshell basis).  Consumption now appears to be a record 503 million pounds.  Worldwide shipments are up over 31%.  As expected, inshell shipments to China are up 43% over a year ago. However, what is surprising is the fact that shipments of shelled meats to China/Hong Kong/Vietnam are up over 124% surpassing 1.19 million pounds though March.  While this is a small amount when compared to the 83 million pounds of inshell already shipped, it continues a trend of ever increasing meat purchases.

Domestic consumption is also up another 10% over the same period a year ago. However, due to tight supplies, the Domestic market is again being short-changed in order to satisfy oversees demand.  Without additional supplies, this is not good for the long-term health of the industry as the US Domestic market is still the largest consumer of pecans. With over 70% of worldwide pecan sales being in the form of shelled meats, the industry’s proclivity to continue to cater to China’s appetite for inshell threatens to hamper continued market growth.

As for Mexico, the movement of product to the US continues to dwindle. While overall shipments should be about the same as last year, there have been no significant shipments of inshell to the US since April 1st.  Further, based on recently released FAS data, almost 50% of the meats that crossed the border in March were produced out of US inshell processed south of the border.  Mexican Sheller’s and Buyer’s alike have had to turn to an already short US supply in an attempt to fill their demand.

Increased consumption can be a double-edged sword. While everyone benefits in the short run, there is also a tendency to forget recent history resulting in long-term setbacks. One only has to look back to July 2011 to see what can happen when long term market gains are forsaken for short-term profits. Yes, the price of pieces is still too low relative to the cost of the raw materials and must be moved higher to reflect current inventory costs. However, even with the higher prices of competing nuts, it would not take much to reverse recent gains in consumption.  Can the industry afford a repeat of 2012/2013?

As usual, should you have any questions, please do not hesitate to contact me at 630-879-5200.