Pecans Update

A warehouse holding pecans in Camilla, Georgia caught on fire the week of January 14th. It is estimated that the fire has destroyed at least 8 million pounds of pecans. Some feel that the effect of this will not be felt immediately because of the large crop but may be seen later on this year or into 2009. However, others feel that the amount of pecans destroyed should have some impact on the current market.

In growing news, Growers in the Southeast that have finished harvesting have said that they had good quality along with good production. However, those that are continuing to harvest are seeing quality degrade as it gets later into the season. Overall, growers in Georgia, Alabama and Mississippi saw good crops with good quality.

Many growers in northern Texas and Oklahoma are finished with harvest or are close to being finished in the orchard. Those that are still harvesting have been delayed recently due to precipitation as well as near freezing temperatures during the day. There has been varying degrees of quality in both improved variety nuts and natives. Quality problems seen include scab, lightweight kernels and high unit counts.

Growers in Mexico that are still harvesting are close to being finished if they are not already. One grower estimates that they are 90 percent complete. Although many growers got a late start, the good weather conditions helped harvest move along very quickly. Growers that have recently harvested their crop have reported good quality with yields between 54 to 57 percent. As of Thursday, January 17th the USDA reports that pecan imports from Mexico total 32.49 million pounds of inshell pecans and 15.46 million pounds of shelled pecans.

There has been a lot of talk this crop year about the amount of exports to China as it seems to increase each season. The USDA says that between August and November of 2006 the U.S. exported roughly 2.2 million pounds of inshell pecans to Hong Kong, which is then destined for the Chinese market. However, in the same time frame for 2007 there were roughly 12 million pounds of inshell pecans exported to the same area. That is a 9.8 million pounds increase from 2006 to 2007 in the months of August through November. Many expect the number of exports to China to go even higher once the numbers from December and January come in. Looking at past figures it shows that China previously bought small amounts of shelled pecans but have now switched to buying inshell pecans in much larger quantities. However, most growers have said that the Chinese buyers have only been interested in buying large sized pecans. The total amount of exports of pecans to the world for 2006 between August and November was 15.6 million pounds. For the same time period in 2007 it was 17.3 million with 12 million of that being shipped to Hong Kong which is around two thirds of the total world exports of pecans.

Even though the industry expects to harvest one of the largest crops in history, based on a number of new factors impacting pricing, it appears that there is now more upside risk in the Pecan market than downside potential. Here are some factors to consider:

1. Walnuts, if one can get them, are selling for well over $4.00/lb (for some items pricing is approaching $4.85/lb). For the first time in well over 25 years, Pecans will be priced cheaper than Walnuts. As such, its expected that most in the baking and confectionary industry to switch to Pecans for those items where Walnuts are not absolutely needed. Further, with Diamond switching their emphasis to retail, many wholesale/industrial customers may need to find a substitute for their ingredient needs.

2. Last year the Chinese imported approximately 13 million pounds of Pecans (inshell basis). Those purchases occurred at levels higher than what the Shellers could get for the shelled product. With prices well below those of last year, there is no reason to believe that they will purchase any less. In August and September of this year (USDA import/export year runs August 1-July 31), China had already imported 3.9 million pounds of Pecans. In Jan/Feb of this year, they announced their intention to purchase between 30 & 60 million pounds this year. If they continue to purchase at their current rate, they should easily attain their goal.

3. With the dollar at historic lows against the Euro and Yen, exports are expected to increase dramatically, especially when one compares the prices and availability of Pecans to Walnuts (see #2 above).

4. Even with prices remaining over $4/lb for the past 5 years, Pecan consumption increased to 391,000,000 lbs last year (Based on USDA & FAS figures). With meat prices already $.75 to $1/lb lower than last year, buyers will try to book as much as they can. Further, because this year’s crop is so large, there is little chance of a large off- year crop next year resulting in higher prices as the industry moves closer to next fall. Based on current USDA estimates and historical data for Mexico, here is what the supply situation looks like:

2006 Carry-out 76,408,000

US Crop (USDA est.) 319,605,000

Mexican Imports (est.) 120,000,000

Total Supply (est.) 516,013,000

Assuming that consumption will go up, there is not going to be much left to carry over into next year’s anticipated small crop.

5. The price of water, fuel, fertilizer, etc., has continued to climb raising the cost to crow, process and store the Pecans. For example, many growers are saying that if they can’t get at least $2.25/point, they cannot make out. As such, they have started putting inventory into cold storage in anticipation of significantly higher prices come next fall.

6. After six weeks of declining field prices, inshell prices started to rise last week and have climbed about $.20/pt in that time period.

It is important to remember that while nothing is guaranteed Pecans are a commodity, and unless the crop turns out to be substantially larger than what is currently forecast, most key indicators would seem to indicate that market pricing is at or near the bottom. We will continue to keep you advised.

The Pecan market continues to be firm as the industry moves into the critical last few months of the growing season. With the USDA’s recent upward revision in the size of the 2006 crop, and the optimistic crop estimate coming out of the Texas Pecan Growers meeting, the supply situation shapes-up as follows (figures are expressed on an inshell basis in millions of pounds):

2005 Carryout (9/30)                   142,488               2006 Carryout                                   55,000
2006 US Crop                            206,300               2007 US Crop (Avg. TX est.)            365,000
2006 Mexican Crop (est.)**        78,700               2007 Mexican Crop                       100,000
2006 Total Supply (est.)              427,488               2007 Total Supply                           520,000

**Note: 2006 Mexican Crop figures are estimated by subtracting US inshell exports to Mexico from total imports from Mexico.

Based on the above figures, and the June Cold Storage Holdings, it would appear that consumption is running well above previous estimates. China, which imported a record amount of inshell in 2006/2007, continues to look for product. When one considers that 2007 prices could be the lowest in several years, and the favorable impact the weak dollar will have on exports, consumption should continue to be good. However, as the industry has learned in prior years, a lot can happen in August and September. As such, buyers should not expect to see any fire sales during that period.

Most of the country has been visited by winter weather the past few weeks with many parts of the Pecan growing areas getting ice or snow. Some growers were slowed down a bit by this but welcomed the cooler weather. But of course with some good news, there always must be negative news and the word is that many growers still expressed concerns about the previous warm weather having negative side effects on their pecans. Generally, most growers are seeing good to excellent quality but a short crop.

In the Southeast many have finished harvesting and overall production has been low but with very good quality.

In the Southwest Many have seen low production and a quick harvest season. Strangely enough some growers have seen record amounts of damage done by animals in their orchards. The USDA reports that the quality of nuts being seen has been less than average. However, some growers have seen good quality and other have not; not much help information wise but obviously it has been a mixed bag of quality.

In the South Central although production has been down, many are still reporting good quality with the few nuts that they have.

In Mexico many growers have finished harvesting and have said that it was a quick harvest that was partially aided by freezing temperatures. It has been reported that quality was anywhere between 54 to 59 percent yields although some numbers reflected poorer quality.

Price indications are now starting to form and as always we are happy to answer any questions and fill any requirements that you may have. Thank you for the opportunity.

Many Pecan growers in the Southeast are finished harvesting with some in the process of cleaning up the nuts while a few are reporting that they are having problems with the nuts not coming out of the shuck as fast as other orchards and it has slowed down harvest for them. Many had been slowed down due to wet weather. The USDA reports that “the nuts have begun to be adversely affected by the accumulated rain events combined with the recent warm weather, resulting in slightly reduced meat yields.

Growers in the South Central and Southern areas are almost all finished with harvest. Crop was one of the earliest ever finished. It was reported that the season was quick due to production being only 30 percent of the normal crop, which is what a lot of growers in the area have reported. However, many have reported that the quality was excellent. For many, a late freeze in March and the drought this summer are what caused a decrease in production.

Several growers in Mexico are reporting that they are seeing what much of the US is seeing, short
crops with a very quick harvest season. Many growers are finished with harvest or over 50 percent finished especially in the states of Chihuahua, Sonora and Coahuila. Some areas of Mexico have received some light freezes while others have not. Some growers have reported good demand while others have said that the “demand is slow” or that it is “string demand.”

On Thursday October 12^th, 2006 the USDA released its first estimate of 2006 Pecan Crop estimating the crop to be 201,400,000 pounds (inshell basis). With the recent revisions to the Cold Storage Holdings, and using Foreign Agricultural Statistics (FAS) figures to estimate imports from Mexico, if the crop is harvested as projected, the supply situation shapes-up as follows:

*Note: The National Pecan Shellers Association estimated the carryout to be 150,000,000 lbs and anticipated imports from Mexico to be 67,500,000 at their September 2006 meeting.

The above Mexican import figure is based on FAS figures for the past two years. Using revised USDA/FAS figures, total supply for 2005/2006 was 476,935,000 pounds; 2004/2005 420,807,000 pounds (2004/2005 consumption was 349,372,000 pounds).

Unlike the past four years, most of the growing regions this year experienced better than expected weather (parts of Texas and Oklahoma are still in the midst of a severe draught). With the exception of Oklahoma, which is experiencing the worst pecan weevil problem in years, overall quality should be very good this year and the trees should be well rested for the 2007/2008 on-year crop. If the supply situation does materialize as illustrated, there will be adequate Pecans to go around. However, as the industry has found over the past four years, nothing is certain until the crop is harvested and in the barn.

March 31 cold storage holdings totaled 278 million in shell equivalent pounds.

Last year’s crop, which was the on-cycle, produced far below early estimates for the crop. The latest USDA estimate released in January-06 for the current crop totaled 259.6 million inshell pounds. The final USDA report for the 2005-06 crop will be released in early July.

This falls crop is considered an off crop. It is hopeful that the 2006-07 crop set will be a good one for an off-year crop. A normal off-year crop would produce somewhere between 180 and 200 million inshell pounds. The first estimate (Louisiana) is released in mid June. When looking at the Average of the last 5 “off” crops it can be predicted that the 06/07 crop will be approximately 129,000 m tons in the US and 204,000 m tons in total.

It’s just too early to tell right now but it is felt that the carryout of this year’s crop will be sufficient coupled with a typical off-year crop to keep pecan prices from reaching the very high levels of the last short crop.

As always, after the crop set, weather will play the most significant part in the development of the nut and we will monitor this closely. For now it is anticipated that prices will remain stable in advance of next years off crop.

With the exception of the Western region, there has been a wide range of quality reported. Growers that have not finished harvest yet are concerned that the recent record high temperatures in some parts of the country and the lack of rain will lower the quality of remaining pecans. Its important to note that over 70 percent of the country has had above average temperatures in the past week and many areas are having severe droughts. Much of Oklahoma and Texas are still under burn bans with not much rain in sight.

In the Georgia area, most of the harvest has been completed. The good news is that this past weeks dry weather helped the remaining growers make progress on harvesting their crop.

In Texas harvest is coming to a close but there has not been a tremendous amount of activity reported.

In Arizona and New Mexico the harvest is close to 95% complete with little to no new activity being reported. Buyers and Growers still cannot seem to agree on where the price should be. Growers would rather hold their product in Cold Storage and wait for the higher prices that they want.

In Georgia this week Pecan deliveries by growers were fairly heavy. Demand was good at lower prices. Prices were lower due to increases in supply along with decreased interest for giftpack and fundraising uses. Harvest continues to be active in both South and Middle Georgia with only traces of rain reported in Middle Georgia during the reporting period (11/14-11/18). Temperatures have become colder and less humid. Accumulation buying points continue to report only moderate amounts of nuts from yard trees. A wide range in quality continues to be noted. Most of the yard tree nuts other than Seedlings are of fair quality or poorer.

Buying interest displayed by end users was good for increased supplies. Interest for lots suitable for giftpack, fundraising and inshell uses, although still present, has decreased in the last few days. Commercial shellers are now more active in the market buying the greater share of the nuts offered. During the reporting period, prices weakened particularly for lots not destined for giftpack, fundraising and inshell uses. This resulted in wide ranges for some reported prices. Trading was active for good quality nuts with others moderate.

In Texas deliveries by growers continued to be light. Harvesting in South and Central Texas has increased after a cold front, with strong winds, pushed through the state this past Tuesday (11/15). The wind blew the majority of the nuts that had been hanging on the trees, to the ground. Now the race is on to beat the varmits to them. Demand was still very good for best quality nut offerings suitable for inshell and retail use. Prices paid to growers were firm for the better quality nuts being offered. Quality is still poor and shows little sign of improving until the West Texas crop is harvested. Movement of Natives is slow but should improve in the coming week.

New Crop deliveries by growers were fairly light last week but demand remains good. Availability of lots suitable for gift pack and fundraising uses continue to be below seasonable expectations as quality to date continues to be below average.

Harvest in both South and Middle Georgia continues to be behind the schedule of most years although weather continues to be favorable for fieldwork with warm to mild days and cool to cold nights and no significant rain over the last week.

Accumulation buying points report increasing but still only light amount of nuts from yard trees with a wide range in quality noted. Prices for the better lots of yard tree nuts were slightly higher. Quality of the Stuart variety is below the average of most recent years with lots from well-managed orchards just starting to become available.

Commercial shellers are participating in the market on only a limited basis so overall buying has been limited.

Recently a few grower/sheller operations who would not sell earlier in the year due to wanting to hold inventory in order to get the highest price are now panicking to dump their remaining inventory.

Most processor, including Navarro have no unsold inventory that needs to dumped.

It is expected that prices will be below $4.00 when the harvest gets underway and the flow of inshell pecans begin to come on the markek. This will probably not happen until mid-December. The crop appears to be about two weeks later than usual due to the dry weather that has set in almost all growing areas. Dry weather causes the shuck split to be delayed. It will help if we begin to get some rain to soften and split the shucks so the pecans will come out of the trees.

The Industry is seeing a bit of softness in the typical "March/April/May Sickness" period that is historically the slowest for Pecans. Banks are still charging interest and the Processors are still paying it looking for quick cash deals.

Currently Cold Storages are reported around 192m - If normal movements occur over the next 7 months - this crop will be short during the busiest time of the year. We could see Cold Storages drop as low as 50 million pounds and that would be record lows.

In the West, the Arizona and New Mexico areas demand has been moderate for remaining available supplies. Harvesting was active depending upon area and soil type as the weather was generally dry and cold this week. Most shippers expect to finish harvesting by early next week and the balance by the end of the month depending upon the weather. Drying and grading and delivery of nuts expected to continue until mid March. Trade sources estimate harvesting
to be about 90 percent complete.

The weather forecast calls for warmer temperatures for the next week with a chance of precipitation this weekend. Delivered quality has been generally good for remaining supplies. Some small lots have shown varied quality with varying degrees of kernel discoloration noted.

The South Eastern growing areas for Pecans (Georgia) continues to be very light as that harvest area now nears completion. A few growers will continue to harvest very light amount of nuts through the remainder of the month but the vast majority of growers are now finished for the season. One of the main reasons new crop offers have been difficult to get is because the market has not established a price. Deliveries of lots strictly of a single variety remain insufficient to establish market prices. Harvesting activity during the past week was aided by sunny weather. However, the meat yield of the nuts has been negatively affected by the continued damp, foggy mornings combined with unseasonably warm temperatures since the Holidays. The overall availability of pecans continues below seasonable expectations. Most shellers in the Georgia area are doing their buying in domestic western growing areas where the crop has been stronger.

In the South West – the Arizona and New Mexico growing areas, deliveries by growers to buying points were moderate. Demand continues. Harvesting was very active in most of the areas during the previous week but had been curtailed this past week by scattered precipitation. Harvest on clay type soils has been difficult while many orchards with sandy soils have already been harvested. The weather forecast calls for a chance of precipitation most days this week and early next week. Harvested quality has been very good displaying a low percentage of off-grade nuts. Quality has varied on orchards with heavy bearing older trees. Users continue to buy heavy while shopping actively from other growing areas where available. Although some growers have come to pricing agreements, many in the region are delaying making marketing decisions reluctant to accept price offers at current market levels opting to concentrate on harvesting when possible, accumulating suppliers and drying and grading nuts for later sale.

Deliveries in the Southwest continue to be light with Demand remaining strong. Harvest is slow, but increasing, depending upon the area with most activity on the areas that have sandy type soil. Many growers with orchards on heavier clay type soils are not expected to harvest until early next week. Continued cold temperature has allowed for increased tree defoliation and aided in shuck split as well as lowering moisture levels in nuts. The weather forecasted for the week ahead calls for generally clear conditions but some chance of precipitation.

Deliveries in the South Central area have been picking up and are expected to be heavy by the end of the week. Harvesting in that area is done quickly and should be almost over by the Christmas weekend.

In the south tier of the country Rain continues and as a result, deliveries by growers were light last week. The harvest is starting to wind down and most recent deliveries have been that of the machine harvested blends known as Improved Varieties. The overall availability of pecans continues below seasonable expectations. Accumulation points continue to report very limited amounts of nuts from yard trees with a wide range in quality noted from this area.

In the Central areas, Deliveries by growers were just starting and have started light. A tremendous amount of wet weather has ended some Central harvests before they even had a chance to get started.

In the west, Deliveries have been light, but Harvest is expected to increase and become active as low temperatures dipped to even lower temperatures over several nights early last week. This will allow for increased tree defoliation and to aid in lowering moisture levels in nuts. Harvesting has been slowed by wet orchards particularly in those areas with heavy clay type soils. Growers have been harvesting orchard edges as well as working to dry out orchard floors by drying and harvesting in the center of the orchard to allow drying outward. Growers have been generally accumulating supply for later sale allowing for nuts to dry to acceptable moisture levels. Harvesting in other areas is expected to increase this week. Weather forecast for the next ten days calls for dry conditions. The good news is that early harvested quality in the western areas has been generally good.

Deliveries by Pecan Growers have been fairly light in recent weeks. Availability of lots strictly of single varieties remains too few in number to establish market prices. Harvest activity during the period was curtailed due to a number of rain events. Trade sources report harvest over 70% complete in south Georgia and only 50% complete in middle Georgia with only very light volume coming from orchards being harvested for a second time. The overall availability of pecans continues below seasonable expectations. Accumulation points continue to report very limited amounts of nuts from yard trees with a wide range in quality noted.

This year, the amount of pecans that will be harvested is believed will be dramatically down due to substantial damage from the 2004 hurricanes.

Pecan growers in Georgia and Alabama, two of the primary pecan growing areas, were already expecting a light production year due to reduced nut set on many cultivars, then the hurricanes came late in the growing season and is believed to have caused tremendous damage to pecan crops in these two of the main growing states.

Georgia, which normally produces 120 million pounds of pecans annually, lost an estimated 50 percent of its already reduced pecan crop. Alabama, which took a direct hit from Hurricane Ivan, lost 80 percent of its total crop.

Damage to the pecan trees include pecans blown prematurely from the limbs, twisted limbs and limb breakage, as well as severe tree leaning and loss of entire trees. Approximately 15-20 percent of all pecan trees in the state of Alabama were destroyed. Some believe that theirs is evidence that some trees may not fully recover. Many farmers have tried to save the injured trees by using tractors to pull the trees straight and remove damaged limbs.

Pecan trees take many years to get into full production. The stress on damaged trees may affect pecan production for years to come.

Another problem brought on by the hurricanes is increased pecan disease. One disease that normally doesn't appear, Phytophthora shuck and kernel rot, has appeared in the middle of the Georgia pecan growing area. The disease, caused by a fungus-like organism, occurs when there is an extended period of cool, wet weather much like the weather caused by the hurricanes. The disease causes the kernel to discolor and rot, rendering it inedible. The appearance of this disease simply compounds the situation.

We will continue to keep you updated as the situation develops. Please call if you have any immediate questions or concerns.

The estimate that was released at the Louisiana Pecan Growers Annual Meeting that was held 6/16 is 195 million pounds for the 2004 U.S. pecan crop. The USDA Cold Storage report that was released 6/21/04 showed 211 million pounds in cold storage warehouses. The February report showed about 271 million pounds. This is a disappearance of 60 million pounds for the months of March, April and May. This is extremely heavy disappearance for these months, which is usually the slowest months of the year for the Pecan Industry. The market continues to creep up and no one really knows how high it can get. Some are predicting $5.00 pecans this fall. The Texas Pecan Growers will compile another estimate when they meet in July.

Final statistics aren’t in yet, but New Mexico and much of the west could be coming off a record 2003 crop. What this means to growers is the 2004 year will probably be an “off year” and production may swing the other way with a lighter crop.

This is not good news to buyers as crop prices have been the highest seen in recent years and is expected to continue into the 2004 crop season.

The In-Shell Pecan market continues to run wild.

The Southern Crop early in September / October looked good. In fact it was supposed to be the biggest crop in Georgia’s History – 150 million pounds plus. Then it rained and rained which cause scab disease and other moisture related issues. In addition the wind and rain blew a lot of nuts to the ground. The farmer lost control of his crops.

In November the estimate for the South dropped to 70 million pounds – less than half of what was to be expected. It just dropped again to 60 million pounds.

The somewhat good news is that the crop in the West is plentiful. The trees are very heavy with nuts. Although this is good from a tonnage perspective, we can expect to see a smaller percentage of “larger” nuts and much more smaller nuts.

Pricing on Halves could end up being as high as $3.50 / $3.60 per pound with a spread between the larger and smaller Halves of .10 - .15 cents per pound. This is the worst-case scenario. If inventories prove to be better than expected then pricing could simply remain firm at today’s levels of $3.30 - $3.40 per pound.

The ultimate buying period will be just after the New Year. The heavy buying – gift pack business will be done and that then allows the processors to jump in – the San Filippos, Navarro’s and others to do their heavy buying. The goal is to take advantage of a lull in the market before the frenzy begins again.