New forecast surprises to the downside

July 13, 2022

For California almond sellers, market fundamentals have looked grim for months. This year’s crop came in higher than predicted, following an even bigger crop in 2020. Shipping it overseas has been a grind. Inflation and a strengthening dollar have hurt global demand. Prices have reacted accordingly.

On Friday, the picture improved for sellers with the release of a new USDA forecast putting California’s almond crop 11% lower than last year. Though the 2022 California Almond Objective Measurement Report points to a smaller drop in supply when including what is anticipated to be a large carry-in, it was welcome news for sellers.

“This should bring the supply side back to a level playing field with demand,” said a California packer on Friday.

The USDA’s National Agricultural Statistics Services (NASS) estimates California’s next crop at 2.6 billion lbs, down 200 million lbs from its May subjective forecast and down more than 300 million lbs from last’s year 2.92 billion lb crop.

The estimate will likely delight growers. Many were withdrawn from the market ahead of the report, hoping it would deliver exactly what it did – a lower crop estimate and higher prices not far behind.

“Growers are obviously going to try and take the market up,” said the packer referred to previously. “I don’t blame them. We’ve been operating below cost for the past two years.”

The Stratamarkets Almond Index climbed 8 cents on the week to $2.16/lb FAS, its biggest weekly gain in months. Still, the estimate could fail to give growers the sustained price pop they want in the weeks ahead. 

Observers expect California to end the current crop year with about 800 million pounds of supply left to ship. It’s unclear how much of that supply will be unsold.

A carry-in that size on top of a 2.6 billion lbs crop would result in a 3% reduction in total supply. If demand in key markets such as the U.S., Europe, and China continues to lag, selling almonds could remain challenging in the months ahead.

Some buyers expressed surprise at the estimate, which many believed would show a crop size from 2.7 billion lbs to 2.9 billion lbs.

“It’s very much at the lower end of what the market thought was out there,” said a U.K.-based trader on Monday. “At the end of the day, I think everybody felt there was more on the trees, but the estimate is the estimate and those are the numbers you work with until you know anything else.”

The trader expressed doubt that buyers would chase offers up given what happened last year, when prices spiked after NASS lowered its objective forecast by 400 million lbs compared with its earlier subjective forecast. The rally died two months later. 

Last year’s rally was fueled partly by sellers withdrawing from the market following the objective forecast, reducing supply. A replay of that scenario this year could reduce liquidity, resulting in low shipments at the start of the next crop year.

“We didn’t have a bad start to the year on shipments because the shipments lines weren’t working,” a California-based trader said, referring to the initial lackluster shipment numbers this crop year. “We had a bad start to the season because no one wanted to sell almonds. We can repeat that very easily.”

NASS’ latest forecast is based on samples it took from 1,760 trees in 880 orchards throughout the state from May 26 to June 27. NASS said warm temperatures led to a shorter bloom period. It noted crop damage from the freeze that hit orchards in the northern stretches of the state’s growing region in late February.

“Frost damage was observed, with reports that some acres would be left unharvested without an adequate nut set,” NASS wrote. “As drought conditions persist, water availability is a top concern for almond growers.”

The adverse weather conditions will take a toll on yields. NASS puts the yield per acre at 1,900 lbs, the lowest since 2009, and nuts per tree at 4,082, the lowest since 1995.

Though yields will fall, the sample analysis NASS conducted found average kernel weight increasing from 1.46 grams last year to 1.47 grams this year. That’s still 7% below the 30-year average kernel weight of 1.57 grams. Some observers expressed surprise that NASS sees nuts per tree and average kernel weight moving in opposite directions. 

NASS estimates that production from the Nonpareil variety will fall 12% from last year. Nonpareil is the most commonly planted variety in the state.

In addition to being lower than its May forecast, the NASS objective estimate is 200 million lbs lower than two separate forecasts conducted by companies active in the market and released earlier this year.

The USDA and the Almond Board of California (ABC) will begin counting crop receipts next month, but the market is at least six months away from knowing if the NASS estimate is close to the actual crop size. Last year, the NASS objective forecast underestimated the crop by 120 million lbs.

But until then, it’s likely to be the default guidepost for most companies.

“The takeaway here is that pressures now are all pointing towards higher commodity prices and buyers should be prepared for the potential for additional upside to come,” a packer wrote in a market report published on Friday.

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