Yields are below satisfactory levels due to a warm and dry summer, resulting in reduced nut fill and smaller nuts. Furthermore, the high costs of inputs led to orchard neglect, as farmers The most recent crop estimate from Comenuez indicates production of 141,850 metric tons (mt) in-shell, reflecting a 2% year-on-year (YoY) decrease and about 30,000 to 40,000 mt below initial expectations.
The Mexican pecan harvest started in Aug-23 and is in full swing. The harvest will conclude in early 2024, but the bulk of pecans come from the orchards in November. Chihuahua is Mexico’s most important nut-growing region, accounting for about 60% of national production. In Chihuahua, the harvest of early varieties is around 50% complete, while the harvest of improved varieties is about 35% complete, according to the Mexican Nut Producers Council (Comenuez).
Yields are below satisfactory levels due to a warm and dry summer, resulting in reduced nut fill and smaller nuts. Furthermore,the high costs of inputs throughout 2023 resulted in the neglect of orchards by farmers, further reducing yields. The most recent crop estimate from Comenuez indicates production of 141,850 metric tons (mt) in-shell, reflecting a 2% year-on-year (YoY) decrease and about 30,000 to 40,000 mt below initial expectations.
The poor crop will be disappointing, given that more pecan areas have come into production. Mexico’s total area planted under pecans is estimated at 160,568 hectares (ha), of which 117,114 ha is productive. The remaining areas will come into production in the coming years. According to estimates by Comenuez, Mexico’s production could reach as much as 240,000 mt by 2030. However, these are based on baseline yield increases as new trees start bearing and older trees come into optimal production. Production has fallen short of expectations in four of the last five years due to adverse weather.
Trade with the US and China
The United States (US) and Mexican pecan industries are closely connected. These two countries represent more than 80% of global pecan production. The 2023 US crop could also be smaller, as the latest United States Department of Agriculture estimate pegged production at 248 million pounds (112,500 mt), which is down 11% YoY and the second smallest crop in more than a decade, surpassed only by the 2018 crop, which was 240 million lbs (109,000 mt).
Annually, about 10% of the US crop is exported to Mexico to be shelled and then reimported, making use of cheaper processing costs. Conversely, some Mexican pecans traditionally transit through the US for export to other nations, primarily China. However, the dynamics shifted with the onset of the US-China trade war. The significant decline in Mexican exports to the US during the 2021/22 marketing year (MY) and beyond is attributed to Mexican pecans not transiting through the US en route to China. This was exacerbated by two other factors. Firstly, China has turned to South African pecans, which took a large chunk out of the US and Mexico’s market share. Secondly, China’s import demand for pecans has weakened due to increased domestic production, supply chain disruptions caused by COVID-19 policies, and consumers opting for cheaper alternatives. However, as Chinese demand is anticipated to recover, Mexico could be the main beneficiary.
Additionally, South Africa’s pecan production is not enough to cover the total Chinese demand. China will look to import directly from Mexico, without pecans passing through the US.
Prices to Remain Bullish
In the 2021/22 MY, Mexican pecan prices experienced a decline attributed to reduced exports to the US, coupled with a broader global weakness in nut prices. However, in the 2022/23 MY, pecan prices entered a bullish trend due to disappointing production in both Mexico and the US. Prices are expected to continue trending higher due to several factors.
Foremost among them is the shortfall in Mexican and US pecan crops, creating supply constraints. Additionally, early indications of a recovery in Chinese demand for pecans could further bolster prices. Another supporting factor is the general price recovery observed in various nuts globally and a broader rebalancing of supply and demand.
However, Mexico faces increased competition from South Africa, particularly in light of China's preference for South African pecans. The appreciation of the Mexican peso by 8% against the US dollar over the past year also makes Mexican pecans more expensive in the international market.