US Cold Storage Data Indicates Larger Than Expected Inventory

May 23, 2016

Because the pecan industry has not had the benefit of operating under a Federal marketing order, it has had to rely on best guesses, segmented industry estimates and varied opinions as to the validity of US Government data when trying to determine the actual size of each year’s crop and the resultant consumption. One of the problems associated with the collection of data under such conditions is that there is a ‘coefficient of personal prejudice’ associated with the data being presented based on who is the presenter. As more and more presenters put their personal spin on the data, the actual numbers seem to get lost and the industry begins to believe their own lies. That would certainly appear to be the case with the various crop estimates presented this past year. When faced with the possibility of having to report a crop much larger than projected, 70% of the Growers ‘failed’ to submit their data to the USDA.  Regardless of the alleged funding issues claimed by the USDA, there was no USDA preliminary crop estimate published in January to refute or confirm the earlier low estimate.  To make matters worse, the National Pecan Sheller’s Association, at their February meeting in New Orleans, published a crop estimate that was incorrect before the ink was dry. They deliberately disregarded hard data from the State of Georgia, FAS and Customs to come up with a supply scenario that would justify the high prices they paid to the growers and then passed on to their customers. One only has to look at the FAS data for the past two months and today’s cold storage figures to see what could be looming.  Based on those figures, it would now appear that the US pecan industry could carry more than 150 million pounds into the 2016 crop year.  When one considers the significant price differential between walnuts and pecans, no one should expect pecan consumption to improve in the months ahead.  With over 70% of the world’s pecan consumption based on meats that have to compete directly with walnuts, at current market price levels, most major buyers will have to think long and hard about their 2016 pecan requirements. To foster continued market growth, meat prices must come down to more reasonable levels.  History has shown that meat prices over $6/lb are not sustainable and only serve to increase the consumption of walnuts, almonds and other readily interchangeable substitutes.  Our industry is not known for its ability to learn from history.  Hopefully the memory of July 2011 hasn’t faded too much.

Having said that, the pecan market remains firm. While the supply situation may be better than what earlier forecasts have portrayed, there is still a shortage.  China’s reduced inshell purchases has made more input stock available for shelling, and as such, overall exports are only down about 12.8%. Meat exports to most major overseas markets continue to run slightly ahead of last year.

The same does not appear to be the case in the US market.  Based on current cold storage figures, FAS data and anticipated losses in consumption to cheaper alternatives, it would now appear that domestic consumption is down 15 to 19%.  If that continues to be the case, the domestic market will have lost most, if not all, of the gains experienced over the past two years.

From a supply standpoint, Mexico continues to export more product to the US than they did a year ago. This is primarily due to China’s reduction in purchases. Overall inshell shipments to the US are up approximately 2%.  Meat shipments are also up.  Through May 13th, over 6.4 million more pounds of meats have come across the border. While much of these meats have come from shelling US inshell, to date, US Shellers have only shipped about 23 million pounds to Mexico for shelling.  Last year, US Shellers shipped a little over 28 million pounds to Mexico. With only three shipping months left in the FAS calendar year, it would appear that US shipments of inshell to Mexico for further processing will be about the same as last year.

There is both good news and bad news from South Africa.  The good news; the crop appears to be larger than last year.  The bad news; because there is no available inshell left in the US or Mexico, the Chinese are paying upwards of $6/kg for good quality inshell.  Based on a 50% yield, that equates to $5.44/point to the grower. No Sheller can pay $5.44/point for inshell and sell it below $6 per pound (and stay in business).

In the South, the US pecan crop appears to be progressing well. While weather conditions have been favorable, it is still far too early to make any predictions.  However, in what is expected to be an off-year, a larger than anticipated crop would certainly help prices.

Finally, for those who may not have heard the news, the US Pecan Growers overwhelmingly approved the implementation of a marketing order.  This is a momentous step for the industry and everyone involved is to be congratulated for their efforts. The next step in the process is to get nominees to the Board approved by the Secretary of Agriculture and elected by the industry. Once the Board is seated, the real work begins.  Many within the industry hope to have everything ready to go with the start of the 2016 harvest.  However, a word of caution; it might be better to get the program set up properly and have a good roll-out for the 2017 crop rather than rush and have a lot of problems this fall.  Too much time and effort has been put into the program to risk a rocky start.

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