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April 2020: Beyond the Acreage Numbers

What Did the Acre Reports say?

The California Almond Board released their annual almond acreage update on Friday publishing both the USDA’s National Agricultural Statistics Service (NASS) 2019 California Almond Acreage Report and Land IQ’s 2020 Standing Acreage Initial Estimate. Final acres for 2019 crop came in at 1,180,000 per NASS. This was up 10,000 acres from the previous estimate. With crop receipts more or less wrapped up on March’s position report released April 2nd, crop yield for 2019 currently stands at 2,147 per bearing acre. The Almond Board’s reporting last week also estimated the 2020 bearing acres at 1,260,000. This of course leads us into the natural question of what will the 2020 crop yield look like?

2020?

The realities of predicting eventual crop size are complex. We expect the Almond Board’s subjective estimate out in mid-May. This will be our first substantive look into the future on eventual crop size. So with this event on the horizon, we will refrain from attempting to forecast. However, with acreage numbers fresh in our minds, we would like to instead present some simple mathematical scenarios with the information we do know as a means to ground the eventual forecast numbers due out in mere weeks.

It Was Just Average

Let’s start by reviewing 2019’s acre yield of 2,147 lbs/acre. This compares to the 10-year yield average of 2190.7 lbs/acre quite well, only off -2%. During 2019, we know we had the Southern region posting some huge numbers while the North and Central regions struggled at times – the belief being that weather variations between the regions produced localized yield differences. It was a mixed bag, so feels safe to call 2019 an average year; and, statistically speaking, this notion is supported.

If you project forward, simple multiplication will show you that an ‘average’ crop year in 2020, using a moving 10-year average, would yield a crop of 2,760,000,000 pounds. This would be an 8.96% increase over 2019. This is a meaningful supply increase, but not unprecedented.

Beyond a Simple Average

‘But we had a near-perfect bloom’ you might say. ‘2020 is going to be bigger than average,’ others may capitulate. Again, not here to speculate on crop size just yet, but we’ve heard these things too. We’ve also heard that the trees in the South appear to be taking a breather after last year’s stellar yields, but the North has tree limbs already sagging. We’ll continue to wait until May to forecast, but let’s go ahead and present some scenarios outside of ‘average’ to better root ourselves for the coming forecast.

A Normal Distribution curve can be a helpful tool to employ to consider basic probabilities of certain crop sizes materializing. We’ll continue using historical numbers from the past 10-years on acre yield. If you’re not familiar with Distribution curves, the premise here is to understand the probability of a certain outcome while factoring in historical volatility. When using a simple average, it would be natural to point to historical numbers outside of that average and ask what if? Examining probability using a Distribution curve attempts to mitigate these ‘what ifs’ by being inclusive of these historical instances. It will never eliminate a ‘what if’ scenario, but can help us understand how much of an outlier such a scenario is. When for instance the Subjective estimate is published, we can use the probability model to add context. All that said, if you’re unfamiliar, a quick Google search on Normal Distribution should help immensely. Of course, do critique and ask questions if you have them.

A Normal Distribution

The most probable scenarios when using a Normal Distribution curve fall within the first deviation and represent 68% of all possible outcomes, including those on either extreme. In practical terms, this translates to a probable outcome of seeing a crop yield between 2040-2341lbs/acre in 2020. In other words, a 68% chance of a harvest between, 2,570,000,000 and 2,950,000,000.

Of course a distribution curve accounts for a wider range of possible outcomes. You’re welcome to expand at home if desired, but what’s important to remember in doing so is that subsequent inclusions in the range of possible outcomes incorporates increasingly less likely outcomes from a probability perspective as you move further away from average. Knowing this, and with acknowledging the fact that much of the growing season remains, grounding oneself in a statistical model like this that accounts for a wide range of variables across time can be useful in bench-marking forecasts as they materialize to avoiding overly emotional reactions. What the model highlights is that when accounting for all variables across a 10-year period, a crop of 2,570,000,000 or 2,950,000,000, both are equally likely. Crop sizes larger or smaller, are also equally likely, though again, with reduced probability.

Looking Ahead

Looking ahead, we expect strong shipment numbers with the next position report in spite of all the market uncertainty that Covid-19 has presented the industry. There are certainly markets that are experiencing immediate consequences due to containment and mitigation efforts by local governments, but as we discussed in our previous market update, on the whole, product continues to flow worldwide and the domestic market appears strong.

At the same time, we are also expecting the usual seasonal lull of new commitments as buyers exercise patience with the Subjective forecast on the horizon. There are plenty of reasons to expect a larger supply next year and that may play into the expectation of softer pricing. Depending on how April numbers look, there may yet be concern for a tight transition on certain varieties and sizes. How this actually plays out with demand and eventual pricing, we look forward to communicating.

As always, thanks for your support. Please reach out with comments and questions. We always value your input.