APC ROADMAP FOR FUTURE Sou outheastern Pecan Gr Growers Con onference 2/23/2019
• Today, more than ever, the pecan industry is in need of a long-term strategic plan • Together, we've crafted that plan, with input from you and others across the industry Vision and strategic • This strategic plan represents a shared vision priorities for industry – for both growers and shellers • It's comprised of five intertwined and Key messages for reinforcing priorities to rally the industry today • Plan is not about mandating change • Goal is to provide options and tools we can use to resolve long-standing challenges, with the hope these will be adopted as benefits are realized 2
Overview of research & analysis – Our findings are grounded in data & facts Topics covered Sources leveraged Belief audits APC investment Consumer behavior & perceptions • 30+ interviews with pecan industry • 12 Officer Group meetings stakeholders • 12 Weekly check-ins • 10+ interviews with commercial • 2 Working Group meetings Demand generation Domestic demand across nuts buyers and other tree nut experts • Countless follow-up discussions Proprietary surveys Internal knowledge base Marketing best practices • Center for Customer Insight • 2,058-respondent consumer survey • Agribusiness and Consumer experts • 152-respondent stakeholder survey Go-forward demand generation • Past case experience Market data, studies, and reports International marketing strategy Tree nut industry International organizations • US Pecan Growers Council • IMF Economic Indicators • National Pecan Shellers Association • WTO Tariff data Voice of pecan stakeholders • CA Admin. Committee for Pistachios • Australian Dept. of Agriculture • American Pistachio Growers • Comenuez Global supply, present & future • California Walnuts • Hong Kong Trade Development Council Supply economics • Almond Board of California • Food Research International • Wonderful Pistachios Market economics & value chain Academia • Blue Diamond • Multiple institutions including but not • USDA limited to: Export market prioritization – University of California 3 rd -party databases • INC Database and Statistical Yearbook – University of Georgia • GlobalData – Texas A&M Options for modernizing industry – New Mexico State University • Euromonitor
Growing costs: High variance by region, differing ability to bear price swings Profitability at market price of $3.00 per in-shell lb. Profitability at market price of $1.75 per in-shell lb. • Approx. 2017 max price 1 • Approx. 10-year low (ex. recession; inflation-adjusted) 2 Cost per acre ($) Cost per acre ($) 1800 00 1900 00 2000 00 2100 00 2200 00 2300 00 2400 00 2500 00 2600 00 2700 00 2800 00 2900 00 3000 00 1800 00 1900 00 2000 00 2100 00 2200 00 2300 00 2400 00 2500 00 2600 00 2700 00 2800 00 2900 00 3000 00 800 800 800 800 East East 900 900 900 900 Yield per acre (in-shell lbs.) Yield per acre (in-shell lbs.) 1000 00 1000 00 1100 00 1100 00 Central Central 1200 00 1200 00 1300 00 1300 00 1400 00 1400 00 1500 00 1500 00 1600 00 1600 00 1700 00 1700 00 1800 00 1800 00 1900 00 1900 00 2000 00 2000 00 … … 2800 00 2800 00 West 3 West 3 Loss of China demand, increasing in-shell supply, and — = Profitable cost/yield ratio other factors could lower in-shell prices — = Unprofitable cost/yield ratio Specific MX grower economics TBD, though structurally — — = Breakeven point advantaged given lower costs 1. Price / in-shell lb. paid by China of ~$2.93 in 2017 2.Inflation-adjusted price of US average in-shell of $1.73 in 2012 3. "West" includes West Texas Source: Nature's Finest Foods; USDA; UC Davis; UGA; Market interviews
Production expense: Pecans more expensive to grow than other tree nuts Regardless of region, pecans generally cost more to grow vs. other tree nuts given lower yield per acre Pecans Almonds Walnuts Pistachios Representative Representative Representative Representative Representative Pistachio East West Almond cost Walnut cost cost Growing cost ~3,200 to 3,750 ~3,750 to 3,900 ~2,000 ~2,500 ~3,300 to 4,900 ($/acre) ~1,000 ~2,000 ~5,000 to 6,000 ~2,600 to 2,800 In-shell yield (lbs/acre) - ~45% ~55% 43.5% 1 50% % meat - Meat yield ~450 ~1,100 ~2,200 to 2,600 ~1,300 to 1,400 ~2,200 to 3,000 (lbs/acre) ~$4.40 ~$2.30 ~$1.40 to 1.45 ~$2.80 to 2.90 Mea eat gr growing cos ost ($/lb) ~$ ~$1.5 1.50 to to $1 $1.70 ~$3.10-$3.60 Weighted Average Cost per pound highly variable — both across and within regions — given differences in scale, yield, weather, alternate bearing seasons, etc. 1. Based on USDA ERS "Fruit and Nut Tree Yearbook" average walnut kernel yield Note: Growing cost per acre excludes amortization of land and tree/establishment investments. Almond figures reported in meat yield basis only. Source: Almond Board; UC Davis; USDA; market interviews
US shellers are under pressure & struggling to compete vs. Mexico Ranges of total shelling costs ($ / meat lb.) Mexican shellers benefit from lower costs With right processes / ~$0.70-$1.80 US shellers investments, and tailwind from lower transport costs, some US shellers competitive Larger MX shellers ~$0.45-$0.85 with MX shellers 0.00 0.50 1.00 1.50 2.00 Directional cost estimates; excludes carrying / transportation costs & mill loss Source: Market interviews 6
Transaction model: Many pain points from how growers & shellers transact today Recurring pain points from interviews and stakeholder survey Growers Shellers Pecans are the de- centralized, Wild West of Significant upfront capital Tension between growers nuts…I think pecan and shellers on price and commitment and high growers over time would interest expenses yield do better if they adopted a [new transaction] model. Every time I look at the Market risk, and pecan model and the No ability to capture "sandwich position" adversarial relationship, upside if demand grows between in-shell price it’s like being in a and pecan prices rise increases and retail different world [relative negotiations to almonds & pistachios]. Source: Market interviews; quotes from interviews with almond and diversified tree nut growers
Consumer demand: US pecan demand significantly lags other tree nuts today 'Top of mind' awareness 1 of pecans in US is Ten-year US pecan consumption stagnant while low relative to other mainstream tree nuts other tree nuts have experienced growth International markets account for majority of pecan % of respondents that consumption growth (4-5% annually) recalled each tree nut 1 60% 56% Almond 72% 43% Walnut 52% 40% 31% Cashew 25% 18% 20% Pistachio 19% 15% Pecan -3% 0% -20% 0% 20% 40% 60% 80% Almond Cashew Walnut Pistachio Pecan % volume consumption growth from '06-16 (kernel basis) 1. Unaided awareness question in July 2017 survey asks for top 3 nuts respondent recalled. Note: Pistachio consumption is in-shell Source: Exactcast APC Research July 2017, INC Statistical Yearbook
Sig Signif ific icant su supply ly comin ing onli line fr from S. S. Afr fric ica & C Chin ina, , and if if no corr rrespondin ing change to consu sumer r demand, mark rket wil ill l be hit it with ith su surplu lus Annual pecan production across top markets Millions of pounds, in-shell US South Africa Others China may produce up • Mexico China to 5-10% of global pecan 16 116 supply; may affect U.S. ~1% 9 10% imports 91 ~1% 403 145 10% 88 South Africa to 36 • 34% 12% 10 348 continue rapid growth, 9% 5% ~1% 37% comprise >10% of world 8 294 supply in ten years – ~1% 44% 1.2B lbs 949M lbs well suited to cater to 324 680M lbs Chinese demand 48% 411 • Must stimulate demand 43% 516 to capture new supply 43% and diversify global demand beyond China 2017 2022 2027 Base case estimate of supply; sources of supply growth may vary based on actual productivity of S. Africa, China, & others Source: USDA FAS/GATS; USDA NASS/ERS; SIAP-SAGARPA; Comenuez; SAPPA; Industry Interviews; Stakeholder survey Forecasting does not account for cyclical nature of crop, or loss of production capacity due to Hurricane Michael; should be viewed as directional approximation
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