October 28, 2010 Pecan Market Update

October 28, 2010

On Friday, October 22, 2010 the USDA released the September 2010 Cold Storage report indicating that almost 25 million pounds (inshell basis) of Pecans shipped during the month.  This is in line with historical disappearance for the month of September but a little lower than what many within the industry had expected based on heavier than expected demand.  Based on this figure, it would appear that consumption in 2009/2010 reached a record 457.5 million pounds (inshell basis).  Subtracting approximately 21.6 million pounds of inshell that was shipped to Mexico for shelling and resale in the US, net consumption also set a new record of approximately 435.9 million pounds. The figures are as follows:

2008 Carry-in 94,194,000
2009 US Crop 291,830,000
2009 Mexican Imports 163,067,000
2009 Total Supply 549,091,000
2009 Carry-out 91,612,000
Gross Consumption/Disappearance 457,479,000

With an anticipated 2010/2011 total supply of 467.9 million pounds, the industry can be expected to lose at least 50 million pounds of consumption during the next twelve months.  Further, when one considers the fact that, with the exception of Macadamias and Pistachios, Pecans will be the highest priced tree nut this year, losses in consumption could be even greater. While part of the reason for the current record pricing can be blamed on the late harvest and the large inshell purchases made by China throughout last year, a lot of the current pricing hysteria can be attributed to Chinese speculators.  Based on current US Government export figures, and estimated Chinese consumption information, the Chinese purchased approximately 24 million more pounds of product than needed for 2010. This is not unusual as they traditionally purchase more during the 'on-year' crop to help offset higher prices in the 'off-year.'  However, with the severe meat shortages currently being experienced by the shelling industry, Chinese speculators are purchasing just enough inshell to keep market prices very high resulting in huge profits on product currently held in China.  Based on historical data and information gleaned during a recent trip to China, it is highly unlikely that the Chinese will continue to purchase inshell at current levels. Since 2004, the Chinese have paid an average inshell price of $1.64/lb.  If you remove the record high levels they paid in 2004, that figure is considerably lower.  The price paid for the 2009 crop was $1.57/lb.   Once the 2010 harvest starts and the Sheller's are able to catch up on their back orders, there is a good chance that the speculators will pull out of the market and wait for pricing to reach more traditional levels.  Considering the pricing disadvantage Pecans will have against Almonds and Walnuts, what is currently a very tight supply situation could change dramatically after the first of the year resulting in meat prices that could look significantly different than they do now.