Almonds: January 2000

Almonds are a relatively mature industry in California, with total production growing from 186 million pounds in 1975 to a recent average of 540 million pounds. The almond tree is a relatively efficient water user, with an average productive life of 25 years. Almond production continues to be attractive due to its low labor requirement, and processing and marketing entities are many and varied. The crop is sensitive to weather risks, especially inclement weather in the early spring, when the trees bloom. The crop is easily stored and transported, and enjoys a viable export market. International competition comes primarily from Spain.

While the market for irrigated almond orchards in the Central San Joaquin Valley remained relatively stagnant during the 1991 season, and strengthened during the 1992 season, the 1993 season showed signs of overheating reminiscent of the inflationary markets of a decade ago, as nut prices rebounded to new highs in the range of $1.60 to over $2.00 per pound. Almond handlers bid against each other in an increasingly competitive market for the 1993 crop, driving nut prices over the $2.00 per pound level. Although it remained to be seen if the world market would absorb the crop at such price levels at the time, the impact on the market for almond orchards was immediate. Growers, flush with the returns of the 1993 pricing, and anticipating similar price points for the coming 1994 crop year, aggressively sought out productive orchards, while sellers raised asking prices to levels unheard of in the past ten years. The high nut prices of 1995 and 1996 continued to accelerate the demand. Current asking prices for highly productive orchards are still in the range of $7,000 to $9,500 per acre, with some sales occurring at such levels.

More recently however, nut prices fell to the $1.25 to $1.30 per pound range as the market absorbed the large 1994 crop. The California forecast of 640 million pounds, which would have been the third largest crop ever, was exceeded, with 683,713,358 pounds actually delivered, making the 1994 crop the largest in history. Based on this information, the California Almond Board voted 7 to 3 to recommend to the U.S. Secretary of Agriculture that a 10% reserve be set for the 1994 crop year. More recently, however, the market has rebounded once again, as the atypical 1995 spring weather caused a light set for the 1995 year’s crop, with the preliminary estimate of 430 million pounds fomenting another round of high prices, with the average 1995 price estimated at approximately $2.40 per pound. The 1996 crop, at 510 million pounds, is reportedly settling near $2.00 per pound.

Historical data for the California Almond Industry, in regards to acreage, production, yield and average grower returns, per pound and per acre, for the period from 1975 through 1998, is displayed on this graph, as follows:

Almonds/Historical Data: Graph 1

Almonds/Historical Data: Table 1

As shown, the productive capacity of the industry increased dramatically during the period from 1980 to 1986, with a 27% increase in bearing acres. However, after six years of low returns (average grower return per acre for 1980 through 1986 = $982), new plantings declined, and non-bearing acreage leveled out, with a resulting stabilization of bearing acreage, and, consequently, productive capacity, in the years 1985 through 1990. Bearing acreage declined from 1990 through 1992, as older orchards were slowly removed. However, with subsequent improvements in the almond price outlook, acreage is once again on the increase, with a resurgence in new plantings.

California almond production is primarily dependent upon weather, especially during bloom. Extreme weather conditions during the 1983 and 1986 seasons resulted in a significant drop in California almond production.

Almonds respond to the basic laws of supply and demand, with nut prices (reflecting demand) experiencing an inverse relationship to production (supply), and these smaller crops generated higher nut prices, while the higher yields of 1987 and 1990 resulted in lower prices. The true measure of an orchard's productivity, however, is not the price per pound received for the crop, but the actual total return per acre. These measures of orchard revenue are, again, displayed, graphically, on the following page.

As can quickly be seen, grower returns per acre have strengthened, demonstrably, in recent years. Greater revenues to the grower have fueled an increase in market demand and a simultaneous increase in the market values of almond orchards. In the years following the weather-induced short crop of 1986, the California almond industry, with its ever increasing productive capacity, was able to aggressively market their product, thus, supporting a stable overall return to the grower of about $1.00 per pound during the 1987, 1988 and 1989 crop years. Unfortunately, a large carry-in from the 1989 crop of about 300± million pounds, on top of a near record 656 million pound crop in 1990, resulted in lower returns to the California almond grower of $0.93 per pound.

Recently, however, demand has increased for almonds, both domestically and abroad. The 1992 crop, at 546 million pounds, generated a price of $1.30 per pound, while the smaller 1993 crop, at 488 million pounds, generated a price of $1.90 per pound. Worthy of note is the growing total value of the annual almond crop, which grew to an historic high of $911,430,000 in 1993. It is also interesting to observe the three crops of 1989, 1991 and 1993, all of relatively similar total volume, at approximately 488 million pounds, yet the total value of those crops grew from $481 million in 1989, to $564 million in 1991, and $911 million in 1993. The erratic weather of the 1994-95 winter, and, most especially, the dramatic storms of the 1995 spring, resulted in a poor set for the 1995 crop, resulting in only 370 million pounds for California. The 1996 growing season enjoyed another wet winter, with more favorable crop development as opposed to the prior year. After the short supply from the 1995 crop, the market drove nut prices to new highs, well over $2.00 per pound. The 1996 crop is reported at 510 million pounds, 38 percent higher than the 1995 production figure and, thus, represents the first Billion Dollar Almond crop.

The 1997 season was characterized from the onset of bloom to the heat of harvest pointed to a very big year for the 1997 California almond crop. Just how big became known after the first of the year when the Almond Board announced the largest crop on record -- 744 million pounds through February. Orchards experienced near-perfect conditions during the critical bloom period as growers throughout the growing region reported little of the bad weather conditions which had plagued previous years' crops. The task now, say industry leaders, is to market the crop and plan for possible future heavy harvests. Almond Board Chairman Joe MacIlvaine commented, "Following on the heels of two relatively short crops, a large crop like this is welcome news. The timing has never been better for the Almond Board to roll out a national campaign to promote almonds.

Domestic consumption has reflected a similar inverse relationship with price, with consumption rising when prices have been low, and decreasing when prices have been higher. Analysis of the price/consumption (on a per capita basis) relationship indicates consumption should remain fairly stable at a stabilized price in the range of $1.25. Thus, the larger crops anticipated in coming years, can be reasonably expected to yield an average price in that range ($1.25/pound), serving to confirm the current general industry optimism.

Sophisticated growers, however, remain confident their new plantings, with their high levels of production, will remain profitable, even at much lower nut prices. This rationale, however, implies shortened economic lives for orchards, as lower nut prices will generate negative net returns sooner in the trees' life, as yields decline in the normal pattern. Conversely, lower nut prices will also accelerate the removal of older orchards. Recent agreements affecting international markets may also serve to increase export opportunities for the California almond industry.

Almonds, then, can be seen to enjoy a relatively stable market, even in light of the rather dramatic current markets, with an optimistic perspective for expansion, driven by record exports of this crop. This industry also enjoys a relatively low labor requirement, a major factor of concern for corporate growers in California. Given the above market environment, almonds continue to be an attractive agricultural investment.

Recently though, the price for almonds has declined dramatically in the $0.85 to $1.00 range, as the expectation of an extremely large crop for the 1999 season looms near. This combined with stiff competition abroad, has placed some skepticism in the market place. Although current prices for almonds sold by handlers has declined, there is currently no market evidence of a reduction in land values at this time, as current sales and listings still indicate relatively strong market values. If these almond prices remain in the aforementioned price range after the 1999 harvest, average grower returns will surely decline, thus, placing negative pressure on land values for irrigated almond orchards. Especially hard hit will be those orchards consisting of older plantings, near the end of their economic life with average production histories less than 1,500 pounds per acre. At these levels it would not be economically feasible to farm these lower producing, older, orchards.