We have finally made it to the point in time where the market should be stabilizing from a good flow of in-shell, China’s supposed exit and the gift packers meeting their procurement needs for their Fall trade. However, challenges from an overall 2013 domestic crop production coupled with an unreliable cold storage report has the industry in what seems like utter confusion.

As of today the crop has been coming in slow, but steady from a shellers perspective. Yields and quality have been reasonably good despite the challenges we faced in Georgia from rain, but purchasing in-shell Pecans at a marketable level with the goal of making a profit is proving difficult with sub-$4.00/lb. piece prices still floating around on the spot market. The question is, how much inventory at this level is available? The cold storage report dropped just north of 40M lbs. (CS 10-13) in October presenting a little more of a  bullish attitude in the market place as both growers and shellers see the carry-over(lower priced inventory from ’12) depleting at a rate of more than double YOY for the past 10 years. Halves have been and will continue to be very bullish. Currently, high-priced new crop in-shell coupled with the low price piece market is driving halves up. Even with China’s somewhat weak involvement in the market this Fall and Mexico’s “large crop”, halves will most likely get above $6.00/lb. in December due to the shorter supply estimated to be as much as 150M lbs. off from ’12-’13. The million dollar question is how much supply do we have left to last us now from carry-over/’13 production and at what level will the farmer sell verse putting in cold storage? In the next couple of weeks farmers across the entire Southern US will be harvesting and we should have a very good idea as to where the market is headed for ’14 contracting.

If you would like a quote on Pecans, please do not hesitate to contact me on my email jeffworn@georgiapecan.com or in my office 229-244-1321.

I recently read a report written by Karen Halliburton Barber at Rabobank  laying out great specific data as well as summary’s to describe the state of the Pecan industry here in the US and how both international demand/supply have effected and will effect our industry in the future. The title of the report is “Riding the Growth Curve- Can U.S. Tree Nut Exports Continue to Defy Gravity?” and the main bullet point issues were:

• U.S. exports of almonds, walnuts, pistachios and pecans nearly doubled over the past five years, reaching over USD 6 billion in 2012.
• The combination of an increasing concentration of U.S. and competitor sales to China, increasing world production and a slow global economic recovery is expected to soften tree nut demand this year.
• The U.S. pecan sector is facing competition from South Africa’s growing industry, while U.S. almonds are the least challenged sector as production growth in Australia and Spain is limited.
• Chile’s growing industry is the greatest source of new competition for U.S. walnuts. While China is still the world’s largest walnut producer, they are facing an ongoing structural deficit and are unable to satisfy domestic demand.
• U.S. pistachios continue to face global competition from Iran, although this appears to be on the wane.
• Successful U.S. producers will continue to be distinguished by their reputation of high quality and safety, strong international trading relationships, and diversified export base.

The main two factors I read about in this report affecting the Pecan industry both now and in the future are China and South Africa. The report went on to say the following in reference to the affect of China and South Africa ,” The most striking case of increasing competition for the U.S. industry is the loss of market share for pecan exports to China in 2012 to South Africa’s growing industry, which provided a viable sourcing alternative for Chinese buyers facing record-high U.S. prices. South African pecan production more than doubled that year after a short crop in 2011, and it increased 44 percent between 2010 and 2012. The decline in U.S. pecan exports and subsequent crash of U.S. pecan prices delivered a wake-up call and a significant lesson for the entire U.S. tree nut industry’s dependence on China as its largest buyer, underscoring the importance of diversifying its customer base.” 

“U.S. Pecan Industry Gets a Wake-Up Call From South Africa

Growth of the Chinese market over the past five years has transformed the U.S. pecan industry’s traditional domestic focus into an export-driven business, with nearly one-third of the U.S. crop exported to China, resulting in record-high prices for U.S. growers. However, U.S. producers became acutely aware of international competition when these high prices ultimately caused Chinese buyers to switch to South African pecans and the market for U.S. pecans crashed in 2012.

South Africa is positioned to be the next major global player for pecans, despite accounting for only 4 percent of world production compared to the U.S. at 60 percent and Mexico at 34 percent (see Figure 3). Australia also has a niche pecan industry and new pecan plantings have been increasing in South American countries such as Argentina, Chile, Peru, and Brazil. However, it will take another decade for production in those areas to come to fruition.

High Prices, Weather, and Competition Lead to Pecan Market Crash

The crash of the U.S. pecan market in terms of prices and export sales was due to a combination of factors, including high prices and competition from South Africa1. While the U.S. industry was well aware of escalating prices prior to the crash, errors in official U.S. export data for the 2010/11 pecan marketing year, estimated to be overstated by as much as 85 percent on average, hid the decline in exports. These errors have since been corrected.

U.S. pecan prices were driven up by both Chinese demand and extreme drought problems in the main growing regions of the southern U.S. in 2011 and 2012, which decreased production and yields. As a result, U.S. grower prices for in-shell pecans more than doubled between 2005 and 2011 to over USD 3/lb. Retail and wholesale prices for pecan meats also reached record levels.

High prices eventually led to a decline in core consumption of U.S. pecans by domestic and European food manufacturers and ultimately drove Chinese traders—the largest buyers of the world’s in-shell pecans—to diversify sourcing. As a result, U.S. grower prices of in-shell pecans and pecan meats dropped 50 percent between July 2011 and January 2013, reaching a four-year low and making pecans less expensive than walnuts for only the second time in over 30 years. Consequentially, U.S. walnuts—a close substitute for pecans—may also be facing increasing competition from pecans in China due to the unusually low prices, particularly in the ingredient segments of the market.

China intended to buy nearly all of South Africa’s pecans in 2011, but a poor harvest caused by bad weather forced the country’s traders to continue sourcing from the U.S. Yet, in 2012, China bought the majority of South Africa’s record crop of nearly 10,000 tonnes. Following South Africa’s latest harvest in May of 2013, China has again bought the bulk of South Africa’s crop, at prices lower than what they would have had to pay for U.S. pecans, despite the recent fall in U.S prices. This occurred mainly during August, in preparation for the Chinese Mid-Autumn Festival.

Despite Challenges, South Africa’s Growing Pecan Production Could More Than Triple by 2020
The pecan industry in South Africa has grown rapidly in recent years as plantings made over the past ten years are now starting to bear commercial output. South Africa’s overall pecan production is projected to more than triple to over 40,000 tonnes by 2020, according to the most recent World Congress of the International Nut and Dried Fruit Council (INC).

South Africa enjoys the market advantage of an earlier counter-cyclical harvest compared to the U.S. It also has a vast amount of low-cost land available for pecan production. New production is concentrated in desert areas in the north-central and northwestern part of the country, where they grow pecan varieties suitable for arid climates similar to those grown in the western part of the U.S. However, these are large, narrow pecans, and Chinese traders prefer the larger, plumper variety grown in Georgia, the largest producer of pecans in the U.S.

South Africa’s industry faces other challenges as well, including limited water resources, a lack of cold storage, increasing costs for electricity and skilled labor, and a shortage of proper hedging equipment to reduce the impact of alternate bearing production cycles2. Unresolved post-apartheid land redistribution issues are also affecting long-term agricultural investment. Although the South African government is not yet investing in the promotion of the pecan industry, this may change given the long-term economic development potential of its pecan exports.”

In summary of what Karen has stated above and from a $/Lb. stand point, in 2011 we saw Pecan prices reach $3.20/Lb. on in-shell to the US farmer and $10.00+/Lb. retail prices in supermarkets across the US and abroad to the consumer. In 2012 the US and South Africa produced huge crops allowing China to buy inventory much cheaper than the year before averaging in the neighborhood of $2.45/Lb. on in-shell to the US farmer and retail prices as low as $6.00-$7.00/Lb. retail to the US consumer (See ZA export below). As a result of the lower costs to the consumer for the 2012 crop year we have seen record consumption numbers from both a domestic and export stand point. The final 2012 export figures were published last month by the USDA Foreign Ag Statistics Service (FAS) and, as expected, exports were up dramatically.Overall exports climbed from 150.64 million pounds (inshell basis) to 200.62 million pounds; a new record. While exports to China accounted for 34.4 million pounds of the increase, exports to all of the other major pecan importing countries were up. Export shipments of shelled meats continued to rebound; up approximately 11%. (See attached cold storage) Cold storage

South Africa’s expansion in Pecans is undoubtedly an international market changer for the future with their current 2020 projection being 62M Lbs, however the US is expanding rapidly also (See ZA Projection below). Currently South Africa is estimated to have 44,500 Acres planted and is growing at a rate of +-5,000 Acres per year, while in the state of Georgia alone there is currently 140,000 bearing acres. In addition there is approximately 20,000 acres still to young to bear fruit and for the past two years +-7,000 acres annually have been planted in the state which produced a crop in 2012 estimated to be as large as 145M lbs. Besides the US and South Africa, Mexico is the only other major producer contributing to the world supply and they too are expected to have a larger supply in the future. For 2013 Mexico is currently projected to produce 163M lbs. throughout the country’s 6 producing states. Mexico has a huge number plantings that could potentially boost the country’s production to nearly double, but water issues make this very unlikely.

For 2013, the US Pecan crop is projected to be much smaller that last year with the estimate currently being anywhere from 200-225M lbs. (See attached crop projection)September 2013 NPSA Crop Forecast – Final. As a result of the shorter crop we have seen prices rise significantly over the past month and expect the market to only get stronger as harvest gets into full swing. The main two variables at the moment are China and overall supply. China supposedly has a good supply of inventory left over from the 2012 crop and has been somewhat resistant to higher in-shell prices. However, we do believe they will be very interested in high yielding, over-sized in-shell. The question is, how much will they be willing to pay, how much will they buy and what affect will it have on the kernel market? Mexico is projected to have as much as a 185M lb. crop and with carry-in still high it is hard to know how much these two supply’s will supplement the shorter crop.

If you have any questions about this report or would like more information, please do not hesitate to contact me on my email at jeffworn@georgiapecan.com or in my office at 229-244-1321.

Projected growth of South African Crop

Imports of Pecan inshell to Hong Kong in MT