Industry Buyer's Guide to Nuts

COMMODITY PURCHASING IS
 SUPPLY & DEMAND

FACTORS AFFECTING SUPPLY

Nut crops are different every year.  But those that follow a significant up and down pattern are said to be “Alternate Bearing”, meaning a bountiful harvest every other year with smaller crops in the alternating years.  Almonds and Pistachios are examples of Alternate Bearing Crops. 

Besides affecting the volume of the crop, the alternate bearing cycle will affect the sizes available as well.  A tree has just so much nutrition to go around.  So, when it produces a lot of nuts, they are usually smaller.  Alternately, when the tree produces few nuts, they will be larger.

Weather is another key factor affecting supply.  A pest blight or unfavorable weather at a critical time in the growing cycle can devastate a crop that may have been projected to be a good one.

“Carry in stocks” are those that have been reported as collected, but have not yet been processed.  “Yield”, largely discovered upon processing, is also important.  A large crop with low yield is, in effect, a short crop.

“Carry over” refers to last year’s crop that is being carried-over for sale during the current year.  These stocks increase the available supply for sale.

Imports, which contribute to the overall supply of a product, will affect supply.   For example, during a recent year of high pecan prices, Mexico began exporting product to the U.S.  This supply increase helped hold and decrease prices during a short pecan crop year.  Keeping up with the status of key producer countries will give you a more complete supply picture.
 

FACTORS AFFECTING DEMAND

Demand is influenced by population growth, consumer taste, culinary trends, and buying power.  One example...for years, weight loss experts and the media spoke about nuts as if they were the worst, most fattening thing you could eat.  But, recently nuts have gotten great press as containing essential disease-preventing nutrients.

Therefore, U.S., as well as World Wide Demand will affect available supplies.  These statistics are usually referred to as “U.S. or World Wide Consumption.”

The condition of other tree nut supplies may also affect supply and consumption, because when one nut shoots up dramatically in price, recipes are reformulated and consumption often migrates to other less-expensive nuts.

CONTRACT OR SPOT BUY?

The decision whether to contract or spot buy is a tough one requires buyers to take risks.  Many factors must be considered.  Almonds, for example:

Is this year the short year or the bumper crop year?  If I am buying especially small or large almonds, I should consider if these sizes will be available months from now, or will they have already been contracted up?

At the onset of each harvest, many times there seems to be a frenzy as the industry tries to figure out how much they have of what and while they try to figure out how to get as much for it as possible.  Often times, this frenzy causes prices to start out the new crop year at a higher level than it eventually settles into after the high-demand of the fourth quarter.

Am I long on my current contract, so I don’t HAVE to do anything right now?  Will the price have risen or decreased in January?  Will my size and grade even be available in January?   How does the current market price fit in with historical pricing.  (A historically low price is a good indicator that it’s probably not going down, and you’d better contract for all you need now...and maybe plan to carry over a little to the following crop year.

A buyer may also choose to minimize risk by contracting now for part of his requirements and wait until January to contract for the remainder.

IMPORTING

There are usually 35,000 lbs per container.  Costs incurred by the importer are refrigerated storage, insurance, shipping costs of about $0.07 - $0.10 per pound, and agent compensation (2% of total).

Importers usually make from 3% - 10%.  Larger importers like ConAgra work on 3%-6%, while smaller importers like Hershey work on 6% - 10%.  Arbitration for cashews is handled by AFI.

SHELF LIFE

Frozen nuts generally have a shelf life of two years.  Refrigerated nuts (at 40 degrees) have one year.  Nuts at  room (ambient) temperature under fluorescent lights: 4 months.  Fluorescent light makes nuts oxidize and go rancid faster.  It also darkens pecans.

ABOUT SIZING

Whole or halves are generally sized by count (how many) per pound or per ounce.

Nut pieces are sorted and sized via screens with various sized round openings.  These “holes” vary in size in 1/64 or 1/16 of an inch in diameter increments.

ABOUT GRADING

Nuts are graded for their quality by:  (1)  Color & uniformity of color. (Lighter is usually better.);

(2)  Percent of allowable pieces, damage and foreign material.

In some cases, the nut industry uses the U.S.D.A.’s standards (as documented in the Code of Federal Regulations (7CFR Agriculture Parts 51 & 52).  In other cases, the industry uses its own terminology and grading. 

Where U.S.D.A. and Industry Standards, Grading and Terminology vary, I have listed both.

IMPORTING

There are usually 35,000 lbs per container.

Costs incurred by the importer are refrigerated storage, insurance, shipping costs of about $0.07 - $0.10 per pound, and agent compensation (2% of total).

Importers usually make from 3% - 10%.  Larger importers work on 3%-6%, while smaller importers work on 6% - 10%.  Arbitration for cashews is handled by AFI.
 

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