June 2019 Almond Market Update

Today’s position report shows California handlers shipping 165.2 million lbs in June, up 5.4% versus shipments of 156.8 million lbs in June a year ago. Although a robust number was expected given the high level of commitments going into June, the result is nonetheless impressive given the dwindling 2018 crop inventory. Strength can primarily be attributed to strong shipments into China (up 117% at 9.8 million lbs) and India (up 50% at 15.3 million lbs). Early Diwali in India is putting pressure on current crop needs, while it is encouraging to see demand from China navigating the complexity of tariffs and channels. Most other markets, were flat to slightly down, including the domestic market where shipments fell 8.2% to 57.2 million lbs versus last June.

Season-to-date shipments at 2110 million lbs are just above level (down only 2.1 million lbs) with last year.

Commitments on current (2018) crop continue to run higher than a year ago (283 million versus 239 million lbs), showing new sales of 86 million lbs. Uncommitted inventory at 189 million as a sobering 77 million lbs lower than last year at the same time, pointing to an even tighter transition than into the new crop last year.

Commitments on new (2019) crop are also ahead at 231 million lbs, 75 million lbs higher than reported new crop commitments of 156 million lbs a year ago.

This tees up the all-consuming issue of 2019 crop size. Citing a wet bloom, NASS surprised both buyers and sellers last week with an Objective forecast of 2200 million lbs, well below expectations which were widely viewed in the 2500 to 2600 million lb range. With bearing acreage at 1.17 million acres, the forecast yield of 1880 lbs per acre will be the lowest yield California has seen since the 2009 crop and represents a 3.5% decrease from the 2270 million lb 2018 crop. While sizes of the developing kernels are on par with last year, nut counts per tree are sharply lower (down 17.8%) from 2018. Notably, due to cool weather NASS is calling crop development a week behind last season.

The market is grappling with the forecast. Initial reaction was a 25 cent increase on current crop and 50 cents or more on new crop (current crop standards jumping from $2.90 per lb to $3.15 per lb, while new crop standards bounced from $2.50 per lb to $3.05 to $3.10 per lb). Over the past week we have seen traction in the current crop with domestic and export buyers that had waited for the crop forecast scrambling to cover needs. New crop activity has been muted and primarily confined to premium Asian markets as most buyers wait for the dust to settle. A wide range of offers have reflected diverse opinions. For flavor, new crop NPX 23/25 is seen anywhere between $3.35 and $3.55 per lb, while blanched sliced and slivered is seen near $3.95 on current crop and $3.85 per lb on new crop.

Last year the Objective overshot the mark by 180 million lbs (forecast of 2450 million lbs versus actual 2270 million lbs) Nevertheless, over time the Objective number has been the most accurate available guide of the final crop and has traditionally been the number to use until harvest results support or prove otherwise. There will be more reluctance than usual to adopt the 2200 million lb forecast, but buyers are now acutely aware of the ramifications of an EXTREMELY TIGHT transition (about 330 million lb end July carry-over number) and then potentially a dramatic cut in shipments next season by 6% to get through to 2021 supply.

The last time California had to dramatically constrict supply was in the 2014 season when a short crop crimped shipments by 6.4% and prices ran up sharply amidst drought fears (standards from $3.00 to $4.60 per lb by the end of the season).

That said, there is always the other side of the coin. Although lack of supply can be cited, it is not without some concern that domestic shipments, the exemplar of consumer demand over the past several seasons, are flat season-to-date despite a slug of new products and uses. Almonds, particularly in the snack category have competitive substitutes, with relatively cheap cashews likely to gain favor.

Going forward we can expect firm pricing on both current and new crops. Current crop is pretty much done and buyers will pay a premium if they can find what they need. New crop will find traction over the next several weeks, but we expect that it will be close to levels seen over the past few days. Harvest results will first be available from the south, so it might be mid-September before a feel for the more impacted central and northern regions give us a feel for yields. Even then, as all know, the number will be tough to pin down until the hullers finish in December. Meanwhile, shipments will continue to be key to market health, and from the early strong start to commitments these will likely be supportive.

Jonathan Meyer
CEO
Treehouse California Almonds, LLC.