June 2020 Almond Market Update

Treehouse Almond Market Update, June 11th 2020

Almond prices for the past month have been on their knees, knocked down the last 10 to 15 cents after the Subjective Estimate of May 12th which reaffirmed market perceptions of an upcoming 2020 crop around 3 billion lbs. Buyers have been both intrigued and nervous, seeing levels as cheap as we have seen in the past decade but nervous that further erosion is still possible. Sellers have been reluctant to sell at levels which will mean losses for some growers, but also having to face the reality of a swelling carry-over into next season and what appears to be a very good crop on the trees.

Today’s shipment report brings little relief to the seller’s dilemma, while the commitment numbers offer a glimmer of hope. A quick rundown of some key numbers:

May total shipments (153.8 million lbs) down 13.9% / 24.8 million lbs versus last May
May domestic shipment (57.2 million lbs) down 13.6% / 9.0 million lbs
May export shipments (96.7 million lbs) down 14.1% / 15.8 million lbs
China/Vietnam (3.5 million lbs) down 59% / 5.0 million lbs
India (13.2 million) down 27% / 4.9 million lbs
Western Europe (38.8 million lbs) down 14.0% / 6.3 million lbs – with Spain down 4.4 million lbs
Japan (7.3 million lbs) down 2.0 million lbs
South Korea (5.2 million lbs) up 617,000 lbs
Middle East (9.8 million lbs) up 13.1% / 1.1 million lbs

Current crop commitments – 455 million lbs, in a strong position versus a year ago (362 million lbs).
New sales in May of current crop – 111 million lbs-decent for this time of year (compares to 108 million lbs last May).
Current crop sold as percentage of total supply – comfortable at 88.1%, compares to 89.3% last year.
New crop commitments – 287 million lbs – a strong start to season at 8.2% of total anticipated supply, compares to 133 million lbs at same time last year, which was 4.7% of total supply.

One school of thought is that prices have suffered a perfect storm of bearish news (covid lockdowns hurting demand, perfect bloom weather and nutset, strong dollar) that is now baked in and the most likely direction from here is up as low prices encourage consumption.

Meanwhile all the reasons that prices have eroded to this level are still painfully valid and some are perhaps just starting to play out. Primarily the market finds itself down over a dollar per lb after the 2019 crop disillusioned the 2200 million lbs Objective forecast and receipts now sit at 2536 million lbs. This number is baked in. Demand headwinds related to covid lockdowns, however, are now starting show up in shipment numbers.

Domestic consumption, usually the star of the demand show, shows vulnerability as May shipments drop by 13.6% versus a year ago. This was somewhat anticipated as unusually strong March and April were very strong in response to retail shelf clearing and in some channels were an overreaction. Strong domestic commitments in current crop (247 million lbs versus 181 million lbs a year ago) portend well for June through Aug shipments, but the industry cannot rely on domestic shipments to end the year up much more than the current season-to-date 4.1%.

In the export arena both lock-downs and the strong dollar are adding challenges. China appears to be lifting their heads up recently for inshell purchases, but nothing dramatic can be anticipated as tariff issues continue and they are well supplied from the Australian crop. India lock-downs, as reported last month, have been draconian and the approximately 400 containers shipped in May is not a surprise. Indian commerce is now opening cautiously and the low shipment number here will be positive for the local market. Nevertheless, the weight of defaults and renegotiations and origin inshell inventory still be sold after two months of treading water will keep any chance for price appreciation limited. In Europe we see Spanish shipments (usually a good indication of market sentiment) pulling back sharply in May

Selling pressure from sellers, including call pool sellers, that have left it late in the game has kept pressure on pricing over the past weeks and with an ample carry-out anticipated more selling can be expected out of current crop. Most recently we have seen current crop and new crop selling at similar levels. Standards were most recently seen near $1.85 per lb FAS California, with traders tying to bid another 5 to 10 cents lower in the past couple of days. Nonpareils have seen a wide range of pricing. With NPX 23/25 hard to find in current crop and anticipated to be a relatively large size out of the anticipated new crop (large crop means smaller sizes usually) we have seen levels traded near $2.15 per lb FAS. Nonpareil inshell pricing is beaten down to the $1.40 to $1.45 per lb range for current crop, a kernel equivalent of a little over $2.00 per lb.

Looking forward, on the supply side this next milestone is the Objective Estimate on July 7th. Expectations on this number might be for a crop a little less than the 3 billion lb mark. Whatever the number, additional information on nut counts per tree and kernel size will shed light. Early harvest results will then be carefully scrutinized to determine if indeed yield per acre will result over 10% higher than last year as suggested by the Subjective (2381 lbs per acre versus 2150 lbs per acre last year).

The crop number is key. IF the crop is there, another 450 million lbs from new crop will translate into consistent selling pressure. In the past California has not shown an appetite to carry over much more than is needed to bridge the gap into the next crop. The supply side is further exacerbated by a good Australian crop (increasing from 205 million lbs to 234 million lbs) and expectations for strong Spanish production, forecast to swell from 198 million lbs last year to over 250 million lbs for 2020 crop. This season seems to be the big jump in supply that the industry has nervously anticipated for several years but has managed to avoid by a combination of very tight carry-overs and/or weather related impediments.

An increase in seasonal shipments of about 15% to 18% or 400 million lbs appears to be current task in front of California shippers for the 2020 season. California has demonstrated this ability in the past;
2006 — 17%, 152 million lbs
2007 — 18%, 195 million lbs
2010 — 13%, 196 million lbs
2011 — 14%, 231 million lbs
2016 — 16%, 290 million lbs

Each season is unique and comparisons are not fully adequate to provide a roadmap to the coming season. The adage that low prices will cure low prices will again prove itself true, but given the nature of the environment we are facing as lock-downs unwind it may take a little longer than we have seen in past market corrections for cheap prices to translate into inventory clearing shipments. While the industry is enjoying cheap prices (manifested by the strong start to new crop sales) the consumer for the most part has not seen this benefit and we expect that low prices start showing up on retail shelves late in the third quarter with seasonal retail programs. The almond industry is well positioned for a world that increasingly values healthy, plant based foods and shipments will materialize to move the crop, but it will take time.

We end where we began. Buyers are intrigued and nervous, sellers are both reluctant and keen. We anticipate this emotional tug of war will continue with us through the Objective estimate and into early harvest as when actual yields will be closely watched. Meanwhile, prices will likely continue to struggle.

Jonathan Meyer
Treehouse California Almonds, LLC
Ph 559 757 5020
www.treehousealmonds.com