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Rabobank suggests almond growers retire under-performing orchards

Todd Fitchette WFP_Todd_Fitchette_Almonds-2443.jpg
Under performing almond orchards should be retired, perhaps as soon as the end of this year, as market moves into oversupply.
Almond oversupply: Unprofitable grower prices could stick around for several seasons

California's lengthy run of profitable almond prices may be over for the next several seasons as the rapid pace of planting has apparently overtaken world demand amidst factors beyond the control of the Almond Board of California, the federal marketing order charged with selling U.S. almonds. Because of this, one banking analyst suggests growers with underperforming orchards, regardless of their age, consider retiring them at the end of the season.

The warning to push poor-performing orchards over before the industry-standard of roughly 25 years comes as the U.S. almond industry faces its first-ever three-billion-pound crop ahead of projections.

"The consensus a year ago was that we probably wouldn't hit three billion pounds until 2021 or even 2022," said Roland Fumasi, senior analyst for Rabobank in central California. Fumasi is the organization's expert in fresh fruits, vegetables, and tree nuts.

"Because this three-billion-pound crop is happening a year or two earlier than most people expected, we're seeing a downward pressure in grower prices," he continued. "This COVID issue didn't cause it, but it sure isn't helping either."

Fumasi says underperforming orchards – those that do not meet consistent and profitable yields for their growing region – should be retired soon, regardless of age. He does not want to put a figure on that by telling growers they should remove orchards producing less than a specific number because there are many factors that go into a profitable orchard. Water and other input costs, debt and a variety of issues will determine whether a grower opts to retire an orchard early, he said.

Still, water costs and availability in California being what they are, these margins are tight for even the best-managed orchards where debt is manageable. Growers with access to limited supplies of surface water who would prefer to supplement their well pumping with ditch water will find those costs increasing as competition for surface water grows. Those growers with wells only must decide how much longer they will have access to groundwater as groundwater management plans take hold and pumping is capped or eliminated altogether.

Another reason Fumasi will not recommend a minimum yield for retirement is location. Orchards in the southern San Joaquin Valley tend to produce higher yields per acre than those elsewhere in the state.

"Everyone's cost structure is different, so it's difficult to put a hardline number on this," he said.

Grower prices that a year ago hovered around $2.50 per pounds have since fallen about $1 per pound. Perhaps the biggest contributor to that decline was the poorly predicted crop estimate of 2.2 billion pounds that underestimated actual receipts by about 300 million pounds. Fumasi said as receipts began to exceed the official forecast mid-way through the season, the industry became concerned and prices began to fall.

The U.S. Department of Agriculture will release its official forecast of the 2020 almond season on July 7. Though the almond industry has already subjectively predicted a three-billion-pound crop, the USDA figures are based on a scientific sampling of almond trees and an actual count of nuts on those trees. After last year's forecast underestimated the crop size by almost 14 percent, legitimate concerns remain.

"Everybody's waiting to see what the objective estimate looks like next week," Fumasi said. "If it comes in north of three billion pounds that's going to be disastrous for price, in my opinion."

All likelihood of the record crop sustaining the current estimate is good given the growth in new plantings and total acreage. Total almond acreage in 2019 was up 10 percent from the previous year to over 1.5 million acres as bearing acreage climbed to a record 1.18 million acres. Near-perfect weather conditions during the pollination period in late February gave these trees every opportunity to produce a heavy crop.

"I don't think next week's crop estimate is going to surprise anybody to the downside," he said.

Fumasi expects the large supply to cause depressed grower prices for the next several seasons until marketing efforts and global economic factors favor increased almond demand.

"This is not a one-year blip where we're going to see these prices; I think this is going to be at least a couple years of pain," he said.

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