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Almond marketing juggernaut goes in reverse

This is the train wreck year the California almond industry did not want, but no one should be too surprised that a combo of a 1-billion-pound crop and record prices will not happen again in 2005.

An unprecedented fourth billion-pound crop was too much to ask of Mother Nature and she put her food down hard with lousy pollination and even post-bloom weather, reducing this year’s much needed billion pounds by at least 150-million pounds.

The initial subjective California Agricultural Statistics Service (CASS) forecast released on May 11 was 850 million pounds from 550,000 bearing acreage. This is a 16 percent reduction from the 2004 crop from basically the same bearing acreage. The objective measurement survey is scheduled to be released June 30.

However, record prices will be set for a fourth straight year, but they are too high, according to many handlers, and will undoubtedly set back the market demand. One handler said bulk almonds are likely to disappear from supermarket shelves because of the high prices.

Current grower prices for 2005 Nonpareil almonds are ranging from $3.50 to $3.75 per pound with California varieties bringing $3.25 to $3.50. These prices are more than $1.50 over the 2004 statewide average. By comparison California almond producers received less than $1 per pound in 1999 for basically the same size crop as expected in 2005. Harvest begins in August.

Hold crop standing

Almonds have evolved to the fourth highest value crop in California at $2.03 billion. Even though the crop will be short this year, at a $3 per pound average, it should not lose its standing with a crop value of about $2.5 billion.

The value of California almonds has increased 2,435 percent since 1970 even though acreage is up 224 percent, yield 117 percent and production up by a whopping 602 percent, according to CASS’ Gary Nelson.

Doug Youngdahl, president of Blue Diamond growers, the state’s largest almond marketer representing 3,500 of the state’s 6,000 growers, said an industry poised to market another 1 billion pounds now faces the "less satisfying challenge" of marketing a crop 150-million pounds below demand.

"The industry’s big consumption train has been chugging along with a 5.7 percent compounded annual consumption rate increase for 24 years. Now we have to stop the train and go in reverse for the next marketing year," said Youngdahl.

Almonds are a worldwide commodity and 70 percent to 75 percent of California’s crop is exported. It is the largest exported value crop in the state at $1.3 billion.

Fortunately, the world market will get some relief from the California shortfall, said Youngdahl.

"Spain has much better crop this year than it had last year. It should be about 120 million pounds. Last year it was a disaster in Spain with a freeze reducing production to only 33 million pounds," said the Blue Diamond CEO.

Youngdahl and Rick Kindle vice president of marketing and operations of Gold Hills Nut Co. in Ballico, Calif., said the challenge this year will be to mollify California almond customers and try to reassure them that 2006 production should replenish supplies.

Trade backlash

"There is a tremendous backlash going on in the trade right now that is threatening to kill a big part of retail market. Big chains are not accepting these prices," said Kindle.

Almonds are a key ingredient in many new products developed in recent years, and this short crop will be a setback in continuing that growth.

Youngdahl expects almond product makers to unfortunately reduce advertising and promotion to throttle back growing demand. He said others will look at reducing the quantity of almonds in products like cereals and candy. Others could completely eliminate almonds from the ingredient mix.

"We know it will be a difficult year for our loyal customers and that is unfortunate in light of the tremendous growth we have seen. We hope our customers will bear with us, and we think they will,"

"We need to be building consumption and we are killing consumption and demand with these prices," said Kindle.

Losing loyal customers with a pair of bad crops could spell economic disaster for the future.

There is a tsunami wave of new almond supplies starting in ‘07 and building to 2010.

"There is an amazing number of sticks in the ground with all the almond orchards that are being planted," said Youngdahl, who projects bearing acreage could be 730,000 acres by 2010, one third more bearing acreage than today.

The ‘10 crop could easily total 1.5-billion pounds by then, almost double what is expected to be produced this year.

"We need a good crop again in 2006 to mitigate any harm we experience in the marketplace with the high price for ‘05 almonds," said Youngdahl. That will be another challenge for Mother Nature since there are only about 15,000 acres of new almonds coming into production next season.

The acreage gap falling behind demand is because almond prices were so low in 1999, 2000 and 2001 that there was no incentive to plant more trees. "Growers were paid so poorly during those years that the supply we need today is not here," said Youngdahl.

Forever the optimistic marketer, Youngdahl said the California almonds, already the benefactor of positive health news from eating almonds, could get even better news in the future when those big crops arrive.

Diabetes study

There is an international study under way to confirm the fact that eating almonds reduce the incidences of diabetes.

Also, he said, in the future the glycemic content of food will become important because it plays a key role in how people digest carbohydrates. Almonds’ glycemic content improves digestibility of carbohydrates, said Youngdahl.

"You can be sure that increasingly more consumers will be made aware of these new health claims as we prepare to market the larger crops that are coming," said Youngdahl.

"There is a grower mindset right now that there will be no end to these high prices, but those of us who have been around a few years know history has a way of repeating itself," said Kindle. "We are gong to have to work doubly hard in the future to rebuild some of the demand we will be losing from this year’s short crop and subsequent high prices."

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