There is No Reason for the Industry to Panic

The USDA released the October cold storage figures today.  At 119.9 million pounds (inshell basis), the industry is carrying the lowest amount of inventory, for the month of October, since 2017.  Further, the USDA revised the September Cold Storage figures to 146.8 million pounds; the lowest carry out since 2016.  Based on currently available information, the supply situation shapes up as follows:

Note: Total supply indicates product available to US marketers and does not include pecans from other pecan producing countries. 2022 Mexican Import figures are NFF estimates based on currently available USDA NASS & FAS data. 

So, with only 20.9 million more pounds than a year ago, how does one explain the current market situation?  The answer is simple: uncertainty.  With another late harvest, rampant inflation, the strength of the dollar overseas, and the war in Ukraine, is it any wonder that buyers are hesitant to jump into the market?  While US consumers are faced with the highest inflation since the late 70’s, inflation in Europe is almost double that of the US which has caused a dramatic strengthening of the US dollar, making US products more expensive.  Then there are the uncertainties created by the war in Ukraine. With winter engulfing much of the continent, EU buyers have elected to remain on the sidelines for now.  Domestic buyers are also sitting on their checkbooks.  How will inflation impact sales and the demand for non-essential items (i.e., nuts)? Other than short-term contracts, most buyers have taken a wait and see attitude. 

Adding to the confusion and market uncertainty is the late harvest.  Both the quantity and quality of the crop has come into question.  As such, even though the overall supply is expected to be similar to last year, the lack of buyers has created weakness in the market, and a hesitancy on the part of Shellers, to buy inshell. This has caused some panic among smaller and mid-sized farmers, who, needing capital to pay their banks, have started lowering the price of inshell in an attempt to increase cash flow.  However, all that has done is to create more uncertainty for the Shellers.  As such, other than one Sheller operating in Mexico, none of the major Shellers are buying or quoting new crop contacts.

Since peaking in May, kernel prices have fallen approximately 15%. That market adjustment could be attributed to the larger than expected 2021 Mexican crop.  However, based on the above figures, the market may now be overcorrecting.  The industry needs to step back, take a deep breath and let reason replace panic. Unfortunately, the industry has never been much good at that.