Table of Contents:
- The Pecan Industry in 2003 – an overview
- Pecan Producing Areas
- California Producing Areas
- Pecan Yields and Growing Costs
- Pecan Market and Grower Prices
- Alternate purchase agreements are becoming more common in the pecan industry
- California Market and Grower Prices
The Pecan Industry in 2003 – an overview
Pecan, the only native nut in the U.S., is commercially grown in 14 states across the country. The trees are of two basic types; native or seedling, and improved varieties. Native pecans are varieties that developed under natural conditions, usually growing wild along river-bottom areas. Seedling pecans are of the same parentage but are produced from seed (nut) and have not been budded or grafted. Improved pecans are varieties that have been genetically altered through breeding and grafting to produce more nuts, and better quality nutmeat than natives or seedlings.
Pecan Producing Areas
The U.S. is the world’s largest pecan producer by far, with pecans also growing in Mexico, Australia, South America, Israel, and South Africa. Pecans are a warm weather crop, requiring some winter chilling, limiting U.S. growing areas to the southern states and the southwest. The top five states in order of native pecan production during 1970-1999 were Texas, Georgia, Alabama, Louisiana, and Oklahoma. The top five states in order of improved pecan production for the period 1998-2002 were Georgia, N.M., TX, AZ, and Alabama. When total production is included, Georgia is the largest producer, followed by Texas, New Mexico, Oklahoma, and Arizona.
There is a significant trend of increased production in the west (west Texas, New Mexico, Arizona and California) and a decline in production in all other areas of the U.S. In 2001, approximately 40% of the U.S. crop was grown in the west. Profitability has also been declining in the south, compared to the west where production per acre is actually on the increase. There have been very few new orchards planted across the U.S. during the last 10 years. Most of the shift in production is due to loss of trees and production in the south, and increased production per acre in the west.
Another trend is the increase of improved pecan production compared to a decrease in native production. Native orchards are severely alternate bearing compared to improved varieties, and are occasionally not harvested at all, in “off” years. Over the last 5 years, native production averaged 30% of the total pecan production.
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California Producing Areas
Primary California producing areas are located in the same areas as other nut crops, from Chico-Orland area in the north to Bakersfield in the south. Limited production is found as far south as San Diego County, and in the southeast desert areas of the state. Pecans are much more tolerant of heavy soils and spring frost than other nut crops, hence the diverse growing area.
The first commercial pecan orchards in California were planted in the mid 1970’s in the Visalia-Clovis area. Planting slowed in the 1980’s along with other nut crops in the state. Production suffered in the early 1990’s resulting in the removal of several pecan orchards in California. In the mid late 1990’s a resurgence of plantings began in the Sacramento valley, as rice and other crops became unprofitable. New plantings continue in other parts of the state as well.
Since that time, California pecan production has increased to its largest crop ever at 3.7 million pounds in 2001, on approximately 2800 acres. California orchards have had their highest production per acre for the last three years, breaking all records for 3-year production across the U.S. Most of this is due to new orchard practices implemented in the late 1990’s including crop thinning, hedging, and the registration of new pesticides to control aphids. California is now the 7th largest of 14 pecan producing states, based on the last five years production. New orchards are being planted every year, but much more limited than in the 1970’s.
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Pecan Yields and Growing Costs
Unlike other nut crops grown exclusively in California, pecans are grown in hundreds of different climates and soils. Orchards are grown from sea level to as high as 5000 ft, and from desert areas of California to humid southeast Georgia. As a result, the peak production per acre varies from 600 lbs per acre in parts of the southeast to 3500 lbs in the southwest. Kernel yields also range from 30% in native trees to 62% in western improved orchards.
Growing costs vary even more. Native orchards commonly receive no cultural input at all until harvest, when the crop is gathered by hand. Western areas require intensive farming practices, including 100% of the water requirement supplied by irrigation, compared to areas in the southeast where 100% of the water needs are supplied by rainfall. Insect control in the humid southeast is many times more expensive than the west, where the only insect we have to control is aphid.
Growing costs in California are probably the highest in the U.S., due to the necessity for dehydrating the crop, high labor and energy costs, and land cost. Fortunately, during the last few years California has had the highest production, highest kernel yield, and highest prices received for the crop.
Over the last 10 years, the most profitable pecan growing areas have been around Las Cruces, NM and selected areas of west Texas. Most California growers have exceeded the net profits of those areas during the last 3 years.
Of all U.S. pecan-growing areas, California has the mildest climate. The chance of catastrophic crop failure from freeze, hail, hurricane, drought or insect is virtually non-existent in California compared to most other growing areas.
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Pecan Market and Grower Prices
The pecan market is probably the most unpredictable of all nut crops. It is unique compared to walnuts, almonds, and pistachios, in that very little of the crop is exported, and as much as 25% of the consumption in the U.S. comes from pecans imported from Mexico. It is the only nut industry with no generic promotion program and only limited state-by-state efforts. It has no large co-op or processor (referred to as “shellers”) controlling more than 15% of the crop, such as Diamond Walnut or Blue Diamond Almond.
In the south and southeast, the industry is made up of small accumulators who buy pecans from growers and then re-sell them to shellers. Growers in the west, and most large growers across the U.S., sell their crop directly to shellers. The shellers then process the pecans to remove the kernels, which are sold to end users such as bakeries, confectioners, ice cream manufacturers, and grocery chains. The majority of the nuts are sold shelled, rather than inshell, and most are sold as an ingredient rather than a snack item.
The grower/sheller relationship most resembles the walnut industry, with price determined by the edible kernel and weight delivered. Samples are taken at the time the pecans are delivered to the sheller, after drying and cleaning, and then hand cracked to determine the edible kernel yield. Price is negotiated on an edible kernel basis, and payment follows within days or months depending on the terms negotiated with the sheller.
Due to a number of factors, the price of shelled pecans to end-users has been wildly fluctuating over the last few years. On several occasions, shellers have been forced to sell their inventory at huge losses. This has resulted in several shellers leaving the industry or going broke. Today, the remaining shellers are very conservative in the price they pay growers, and factor in to their grower price an ever-increasing margin of safety. To avoid selling at a loss, shellers are paying growers a heavily discounted price, to minimize the chance that they might have to resell the shelled pecans at less than they paid for them.
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Alternate purchase agreements are becoming more common in the pecan industry
These speculative prices have resulted in co-operative selling arrangements that minimize the risk to shellers, and maximize the return to growers. One of the most common is called a “pool”, where the grower delivers the crop to a sheller, who pools the nuts with those of other growers. The sheller doesn’t pay for the pecans until after he has shelled and sold the pecans and received payment. The grower receives whatever price the sheller receives, less any shelling cost and profit agreed to when the crop was delivered. It is similar to a co-op, but the grower has no ownership or control of the shelling company.
Another method is called “custom shelling” or “toll shelling”. It is similar to a pool, with the exception that the grower is more involved in the sale of the shelled nuts, participating in the pricing, time of sale and the like. This type of arrangement is usually limited to growers with large quantities.
A third option, and one that has become more popular the last few years, is for growers to put their crop in cold storage for several months in hope that the sheller will not have to speculate on the price as much as during harvest. This has increased the price paid to growers for two reasons; shellers are able to pre-sell the nuts before paying for them, or at the very least have a stable market later in the year. The other benefit is the reduced strain on the sheller’s cash flow at the peak harvest/buying season, allowing him to purchase late in the year with profits from earlier sales.
The increased use of these alternative purchasing methods has had a positive effect on grower prices. Their continued popularity will continue to improve grower prices.
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California Market and Grower Prices
California growers are generally too small to economically sell their crop to shellers outside of the state, due to trucking cost. Until 1983, California growers were limited to sales to local inshell users and the occasional inshell distributor. California pecans have very high kernel yields and are worth much more as shelled pecans. As a result, prices received by California growers at that time were significantly lower than prices received by other western growers.
In 1983 a group of growers and investors built a shelling plant in Visalia, and operated some of the first pecan “pools” in the industry. Since that time, California grower prices have increased dramatically. There are now three pecan shellers in the state, with the largest, Blain Farms, shelling approximately 80% of the state crop. Blain Farms operates “pools” and does not do any speculative buying of pecans. According to official USDA reports, prices received by California growers have been the highest in the U.S. each of the last 5 years.
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By: Brian Blain
April 8, 2003