Almond Outlook 2012 Forward

Posted on July 9th, 2012

Every month, many in our industry anxiously await the following position report or crop estimate.  Once we get this new information, we sit on the edge of our seats for the next.   With this report, we intend to take a look at a look at the long-term trends in production and demand.

California almond production has undergone incredible growth, with yields over 2600 pounds per acre and crops over 2 billion.

You can click on the above or any other images in this report for an up-close view.

Below are some of the factors contributing to increased yields:

Better Water Delivery – More orchards have moved from solid set sprinklers or flood irrigation to the more efficient options of micro sprinklers or drip irrigation.  With time and research, growers have also gained a greater understanding of the trees’ water needs and how to monitor them.

Better Tree Nutrition – There are constant improvements in the timing and quantity of fertilizers applied and the monitoring of the trees’ nutrient health.

Denser Plantings – The average density (trees/acre) have been increasing about 1% annually.

Pruning (lack of) – The industry was over-pruning and losing production as a result.  Recent UC studies have proven the advantages of minimal pruning and helped increase production, especially in the early years of an orchard’s life.

Better Variety make-up – The percentage make-up of less productive varieties like Mission, Neplus, Peerless have greatly decreased (avg. decrease in production of 46% since the 2000 crop year) while we’ve seen increases in highly productive varieties like Monterey (up 684%), Fritz (381%), Butte/Padre (486%), Aldrich (990%), Wood Colony (860%), and others.

Better Pollination Compatibility – Planting the right varieties together.

Rootstock Advances – Almonds have traditionally been grown on peach rootstocks but recent studies have demonstrated the increased vigor and early production potential with peach almond hybrid rootstocks.  So far this is still likely a minor impact on increased yield per acre, but this is one to watch in the future.

Geographic Make-up of plantings – More of the crop is grown in highly productive regions (further south)

Orchard Age – The average orchard age has declined toward a more productive (young) age.  From 1999 to 2006 to 2011, the avg. age declined from 17 to 15.2 to 14.1 years old.  Note, this year it went slightly back up, to 14.3 years old.

Pest management – From improved chemicals to better practices like more growers staying on top of mummy shaking, the improvements in pest management have helped protect the crop better each season.  In the past 5 crops, serious damage levels are running about half of those seen in the 1990’s.

It takes money to make money…and to produce big almond crops too – If you look at any 8 year period, the crops 2004 through 2011 have been the most profitable in almond farming history.  Growers are not pressed to cut corners to save on costs on the likes of less bee hives per acre, cut back on irrigation, fertilizers or an extra bloom spray, etc.

Additional Bearing Acreage is an extremely important contributor to the huge rise in supply.

Almond trees are not considered bearing until 4th leaf (about 3.5 years after planting).  Relatively few almonds were planted 2007 – 2010.  Please keep in mind that it takes years for NASS to track down all the new plantings and thus, there is some understatement in the plantings in the past few years.

We believe 2011 was the start of another wave of large plantings and the chart should reflect this in 3-4 years as NASS gathers more info.  We believe 2012 and 2013 will be among if not the biggest planting years in history.

What’s encouraging planting?

Low interest rates

Low returns outside of agriculture (stocks, bonds, etc.)

Profitable almond prices

Increased yield potential

Growing demand in emerging markets giving growers confidence to plant more

– The central valley’s housing crisis has meant some properties that were soon to become housing or commercial developments, are now being developed into young orchards

– Growers have the capital – this factor cannot be underestimated

What’s holding back even more planting?

Crops like grapes, pistachios, walnuts and others are providing excellent returns and competing for land

Land prices have soared (particularly in the past 6 months) and could attribute to some slow down though we still expect many new plantings in 2013 and perhaps beyond

Difficulty finding land for sale

– Limited water availability in various growing regions

California’s almond crops are less alternate bearing

We attribute this to several factors including:

Variety Make-up – The popular varieties now are less alternate bearing, and also have more spread-out bloom period with the increased plantings of later blooming varieties like Butte/Padre

Geographic Make-up of plantings – More diverse and productive make-up of growing locations

Improved Farming – Better fungicides, improved nutrition management and other practices that help maintain a consistent crop

DEMAND

Several factors have contributed to industry shipments doubling in just 6 years.  Not only have the size of the markets grown, but also the make-up.

Emerging Markets – The growing middle classes in China, India, the Middle East, Eastern Europe, South Korea, and other emerging markets have been the biggest contributor to the rapid growth in demand.

Health Benefits / Domestic market – Almonds are heart smart, nutrient dense, antioxidant rich and have proven health benefits with weight management and diabetes prevention.  As stated by the Almond Board:  California Almonds are an excellent source of vitamin E, magnesium, manganese, and a good source of fiber, copper, phosphorous, and riboflavin. A one-ounce serving has 13 grams of good unsaturated fats, just 1 gram of saturated fat, and is always cholesterol free. And when compared ounce for ounce, almonds are the tree nut highest in protein, fiber, calcium, vitamin E, riboflavin, and niacin.

Growth in the U.S. can largely be attributed to the much greater awareness of the health benefits of almonds.  The impact on consumers has been so profound that demand has become much more inelastic (UCD June 2008 Working Paper “Estimation of Supply and Demand Elasticities of California Commodities”).  Many U.S. consumers consider almonds a necessary part of their diet.  The U.S. remains the leader in almond product introductions, with Innova finding 1,182 almond product intros in 2011.

Almond Board Investments – The Almond Board of California’s budget grows as production grows, and the industry is now spending over 40 million USD per season on market development.  Current focus is primarily in North America (18 Million USD), China (8.5), India (6.1), EU (5.3), and South Korea (1.5).  Research in nutrition and other areas also help increase consumption.

A More Stable Market

World-wide demand is more world-wide.  Just 6 years ago, Western Europe represented 61% of exports and 40.7% of total shipments.  Today, Western Europe represents 34% of exports and 24.5% of the market.  Market conditions vary greatly from Hamburg to Hong Kong to Moscow to Seoul to New Delhi to Dubai to Istanbul to Tokyo to New York.  These varying market conditions have provided fairly consistent demand all season instead of the traditional busy fall followed by several quiet periods January forward.  There is a consistent trend toward more spread out purchasing and shipments.

You can click on the above or any other images in this report for an up-close view.

Decline of the 2nd Hand – With the decline in market share seen in Europe and the departure from the industry by some EU speculative traders, the significance of the 2nd hand on market movement has also declined.  There has been a rise in 2nd hand trading out of Hong Kong, but the influence on the market is nothing like it used to be and has provided for a stable market relative to just 5 or 10 years ago.

FUTURE DEMAND GROWTH

In 2011, Innova found over 5500 new almond product introductions in over 70 countries.  Almonds were the leading nut with approximately one-third share of all new nut introductions.

The increase in assortment of almond uses in various food products (confectionery, bakery, cereal, snack, dairy, snack bars, mixes, salad toppings, etc.) will continue to be a major contributor to increasing consumption.

In the U.S. and some other markets, we see a movement by some consumers back to more wholesome, natural foods, and this bodes well for future consumption growth.

The Almond Board hired the Deloitte Group to forecast demand growth and study where the greatest opportunities lie.  From 2010 through 2016, U.S. consumption was forecast to grow from 458 to 609 million lbs., China from 120 to 396 million lbs., and India from 104 to 166.4 million lbs.  Canada, South Korea, and Russia were also forecast to post impressive gains.  Less than a year after the study was completed, the industry is well on its way to surpassing Deloitte’s projections.

OUTLOOK

Given continued improvements in farming but relatively flat bearing acreage, we anticipate only modest increases in California’s production potential during the next 3 years.  European production potential remains stagnant.  Even with some increase in production from the greater bearing acreage down under, world production growth will not be able to keep up with demand growth at prices levels seen in recent years.  We anticipate the average prices for 2012 – 2014 to be higher than those seen 2008 – 2011.  By around 2015, we anticipate another quick rise in bearing acreage and more moderate prices to allow for further rapid demand growth.  We believe California will produce a 3 billion lb. crop by 2020.

Challenges ahead include the ramp up in world production of many other tree nuts, recessions, currency swings, and undoubtedly more.  The opportunities look like they will continue to outweigh the challenges.  The flattening of our world should continue to be very positive for the California almond industry.

We appreciate any comments or questions.  Feel free to contact Dan Whisenhunt for further discussion.

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