No Need to Give Away the Store
December 23, 2013
While it is still too early to draw any definitive projections for the 2014 marketing year, when combined with the recently released October export figures, today’s release of the November Cold Storage holdings should put to bed any concerns about consumption. Meat imports from Mexico are up dramatically, US consumption is up as are meat exports. While the world-wide increase in meat exports was minimal, it is still up over last year’s record pace. Considering the price of almonds, walnuts and pistachios, even with the reduction in Chinese inshell purchases, the pecan industry appears to be headed for another record year of consumption.
There have been concerns expressed about both the size and quality of the US and Mexican crops. Many within the industry expect the US crop to come in between 190 and 200 million pounds, down from earlier projections of 214 million pounds*. However, this should not cause a dramatic increase in prices. Unless the combined loss in production between the US and Mexican crops turns out to be greater than the anticipated reduction in inshell sales to China, shelled pecans should continue to be one of the best values for the price.
With respect to China, through October, inshell shipments were off 50% over the same period a year ago. While part of the reduction can be attributed to the late start of the harvest, the bulk of the reduction is probably due to the larger than normal amount of inshell China purchased last year. Due to last year’s lower than anticipated inshell prices, Chinese traders purchased 40% more inshell than usual. Many of the extra inshell purchases were speculative in nature in anticipation of higher prices going into the 2013 off-year crop. They also purchased the bulk of the South African crop as well as a significant portion of the Mexican crop. With more than enough pecans to handle anticipated consumption, there has been no need for the Chinese to continue spending especially when one considers the possibility of large on-year crops in the US, Mexico, South Africa and Australia in 2014.
Taking a closer look at the Chinese data, it is interesting to note that while meat exports to China have been down the past several years, exports this year are up 100% over the same period a year ago. While it is still too early to say that this trend will continue, like most US Shellers, it would appear that the Chinese traders have discovered that it is cheaper to purchase the meats rather than pay the higher inshell prices and then shell it.
Finally, as has been the case the past several years, there is a definite disconnect between inshell field prices and the prices being offered for shelled meats. It is still cheaper to purchase Mexican meats than to purchase inshell. With the large carry-over from the 2013 crop and the ready availability of meats in almost all sizes, most Sheller’s have been able to stay out of the inshell market. Further, until the Sheller’s can turn a substantial amount of their outstanding inventory into cash, they will stay out of the inshell market as long as possible. Severe shortages of good quality high yielding inshell on both sides of the border will again result in a significant price differential between all sizes of pieces and all sizes of halves; especially Mammoth, Jr. Mammoth and Jumbo halves.
In an environment of internet RFP contract proposals, where low prices speak louder than quality, service or history, once knowledgeable buyers are becoming an extinct breed. Uniformed corporate buying committees are now making the decisions, and if the recently negotiated contracts, and the low prices they were closed at are any indication of what is to come, it is probably in the best interests of the industry that the Sheller’s stay out of the market rather than sustain the losses said contracts will most definitely lead to.
As usual, should you have any questions, please do not hesitate to contact me at 630-879-5200.
*Note: Because the USDA ceased pecan crop production reports earlier this year, 214,233,000 lbs. has been used as an estimate of the 2013 crop. It was derived by averaging the crop estimates of the Texas Pecan Growers, the Tri-State Pecan Growers and the National Pecan Sheller’s Association.