Pecan Market Update

January 24, 2012

On Friday, January 20, 2012, the USDA released the December Cold Storage figures. While the November figures were lowered slightly indicating a little better consumption than originally indicated, the December figures still show sufficient inventories to handle current consumption. When compared to inventories at the same time last year, December's figures were only off 2.5 million pounds (145,450.1 vs. last year's inventory of 147,951.4). With the bulk of the contracts being written at or below last year's record levels, most buyers felt comfortable booking no less than what they used in 2011 even though current contracting levels are still the second highest ever. As such, it would appear that consumption over the next eight to twelve months should remain at or near last year's reduced levels.

As for the market, some confusion has recently been created with the introduction of cheap nutmeat quotes from Mexico. Most domestic contracts have already been written; however, in an effort to disrupt the market, some Mexican Sheller's have started quoting spot prices well below the cost basis of US Sheller's. Based on current market and supply conditions, this has created some unwarranted uncertainty as to where the US market is headed. As my Father oft admonished me, 'if a deal sounds too good to be true, it probably is.' This is even truer in the current market. As more and more Mexican Sheller's try to find markets for the product that they can't sell elsewhere, US Buyers need to be reminded that things aren't always as they appear. On the surface, what has disrupted the market the most are the cheap quotes. Even though the quotes are for spot sales with prompt shipment and immediate payment, the impact on the market has been the same as if the prices were being quoted on long term contracts. However, what should be of more concern is what is not so apparent. I am referring to the fact that one of the Mexican Sheller's quoting these prices has set up a US-based 'shell corporation' to sell their product; a company with no assets whatsoever.

Since the Peanut Corporation of America (PCA) recall three years ago, the FDA has made it clear that it will aggressively pursue and prosecute food processors that put tainted food into the supply chain. Even if a company is eventually cleared of all wrongdoing, one of the key questions a buyer must ask has to do with the kind of financial support their supplier can bring to the table in the event of a recall. In recent years, there have been several instances of product crossing the border with abnormal levels of e-coli, coliforms, plate counts, salmonella, etc. Should the FDA decide to force a recall upon the US company found to have imported the suspect product, it won't make much difference whether the producing plant is GFSI certified or not if the FDA can't hold the producer responsible or force them to appear in a US court. The buyer of said product could find itself liable for 'the whole enchilada.' The Pecan industry has been very fortunate when it comes to pathogen related recalls. However, this success is due in large part to the proactive measures the US pecan shelling industry has undertaken relative to food safety. Unlike many competing nuts, the US pecan shelling industry has one of the highest percentages of GFSI compliant plants anywhere in the world. Not only are the major US Sheller's operating GFSI compliant operations, they have validated kill steps that achieve well above the industry standard 4-log kill, and because they operate on this side of the border, the FDA can easily get to any potential problem. Further, the Sheller's also carry liability insurance that an aggrieved party can get to, in a US court, should the unthinkable happen. In today's food safety conscious marketplace, the term 'Buyer Beware' has taken on an even greater importance. You get what you pay for.

As usual, should you have any questions, please do not hesitate to contact me at 630-377-2628.