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Why the quality of California’s next almond crop could decline, and what it means for market prices

June 1, 2022

As California’s almond crop develops, few market participants doubt that it will produce another large supply. However, some participants are expressing uncertainty about its ability to produce an abundant quantity of high-quality kernels.

Low market prices and rising farm costs are prompting some growers in California to cut back on orchard care, which could result in lower-quality almonds compared with previous years and constraints on the supply of higher-quality almonds. That scenario could have implications for prices in the global container market, creating wider-than-usual price differentials between items.

“I do think overall the quality will be worse this year across the board,” said a Kern County packer.

Low global container market prices in recent years have resulted in lower returns for growers, while costs for fertilizer, fuel, and crop protection materials are rising. In addition, water costs appear set to continue to increase as drought conditions in California persist.

If growers can’t eke out a positive margin by increasing revenue, an alternative is to cut farming costs.

“Overall market pressures on rising overhead costs are impacting the industry, while the ability to capture increased revenues remains difficult as supply remains out of balance with demand,” a packer wrote in a recent market report.

The effects of growers cutting expenses are visible, according to a recent crop progress report from a California packer. Growers are spending less on irrigation and weed and insect control. Foliage in some orchards is yellowing, the packer noted in its report.

Some packers said they’re bracing for higher insect damage due to a lack of winter orchard care and sprays in orchards. Packers are anticipating higher rates of chip and scratch, and higher occurrences of split, broken, and shriveled almonds due to a lack of moisture. 

“It’s all going to be bad compared to what a typical, average year is,” a Stanislaus Count packer said. “Growers are not putting as much care into the acreage because, why? It doesn’t pay.”

A reduction in quality could cut the supply of larger-sized, U.S. Extra No. 1-grade kernels. The reduced supply could provide price support for those items, which are popular in markets such as the Middle East, China, Japan, and Korea.

Conversely, a quality reduction could increase the supply of Select Sheller Run (SSR) grade and STD5 kernels, further eroding price support for those items, which are typically sold to markets such as Europe and used to make ingredient products.

“It’ll probably be a good thing for processors and SSR users,” said the Stanislaus County packer referred to previously.

The consequences can already be seen in prices.

An analysis of Stratamarkets assessed prices shows a 60-cent U.S. Extra No.1 grade price premium to Select Sheller Run-grade items this crop year, up from 39 cents in the 2020-2021 crop year. In that same period, the percentage of almonds marked as inedible due to some form of damage increased from 1.64% of the crop last year to 1.96% this crop year, according to data from the Almond Board of California.

A look at the NPX 23/25 price premium to STD5 shows a similar result. This crop year, the premium is 90 cents on average, up 27 cents from last crop year as shown in the following chart:

Though some market participants believe those premiums could continue to widen, others are less certain.

They note that many growers are unlikely to cut back on orchard care, which means the kernel quality from their orchards could be unaffected. They note that global buyers have proven to be more flexible in switching to lower-quality substitutes when prices suit them, which could lessen the constraint on higher-quality kernels.

Market participants will start to get answers to the quality question in August when harvesting and processing begin. While they expect few surprises from top-level supply, just how much of that supply turns out to be high-quality kernel remains a wildcard.

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