December 2024 Almond Market Report

Happy New Year!

Happy New Year to our friends and colleagues across the globe. May your year be one of health, joy, and prosperity.

Position Report

December’s Position Report shows that California almond handlers shipped over 233 million pounds of almonds in December. This was the largest December since the 20/21 season and +1.6% larger than a year ago. Both domestic and export shipment volumes were comparable to a year ago with domestic shipments off -1.1%, while export shipments grew +2.5%. On net, handlers have shipped the same volume through the first five months of the crop year as a year ago.

Handlers received 233 million pounds in new crop receipts in December. A year ago, handlers received 360 million pounds in December. This slow down was expected with the earlier harvest and reports from hullers indicating that many would complete their harvest work before the end of the year. Total volume received now exceeds 2.575 billion pounds, +15.6% ahead of this time last year.

New committed shipments in December topped 182 million pounds. This is comparable to pre-Covid buying patterns for December, but is below the more recent average of 230 million pounds. Handlers are now reporting total committed shipments at 561 million pounds, nearly -12% below last year.

Over/Under?

A year ago, handlers added just 218 million pounds in crop receipts between January and July. With an earlier beginning to harvest this year, we have already seen receipts to handlers slow considerably and it is unlikely the industry will add a similar volume this year. While the overall quality has improved over last year, serious damage is still elevated over the 2% historical average and is currently 3.1%. This will further suppress available inventory. Collectively this suggests that final receipts are not likely to top the 2.8 billion pounds that were forecast in July’s Objective Forecast. A figure around 2.7 billion is more likely.

As we have modeled in recent Market Reports, a final yield in this range puts real constraints on shipment growth. Simply maintaining a steady shipment volume from a year ago would put handlers at a stock-to-use ratio solidly below 20% by the end of the season. Handlers have historically targeted a 20% stock-to-use ratio as they transition through harvest to balance their shipment needs. A figure below 20% indicates supply constraint.

While a 100 million pound difference between a 2.8 billion pound and 2.7 billion pound harvest may not seem that significant, each 100 million pound swing in crop receipts represents a change of 3.7 percentage points in a stock-to-use ratio where shipments are flat from a year ago. This is the difference between a final ratio that approaches 20% in July or falls to 16%. The takeaway is that falling below the Objective forecast by even a modest amount puts the industry in a tight supply scenario without any increase in demand.

Water - Fires in January

Our hearts go out to our fellow Californians in the Los Angeles area that have been impacted by the devastating destruction of recent wildfires. Fires of any kind were once unheard of in California during January, but changing and more extreme weather patterns have changed that. For those of us in the fertile Central Valley, we know this all too well and have lasting memories of extreme drought conditions. Fortunately, the past two years have seen drought conditions significantly improve within the primary growing regions and reservoirs replenished helping to start the rainy season in a strong position regarding water storage. All of California’s major reservoirs are at or above their historical averages for this time of year, including the two largest ones in the north (Shasta and Oroville) that both sit at 129% of their historical averages at this time.

December brought several impactful weather systems to California. These systems were generally concentrated in the north bringing less precipitation to the central and southern growing regions. These systems were also generally warm, which limited the accumulation of snow in some of the mountainous regions that feed reservoirs in the spring and summer. That said, the north saw plenty of snow and its snowpack is now 139% of average for this time of year. The Central region is sitting at a reasonable 85% of normal while the South lags at 65%.

Plans to implement SGMA (Sustainable Groundwater Management) continue across California. The 2014 legislation aims to "set forth a statewide framework to help protect groundwater resources over the long-term" and "mitigate overdraft within 20 years" - water.ca.gov. As water districts work towards compliance, significant uncertainty exists in the continuity of water supplies. Irrigation efforts that have heavily relied upon groundwater resources may not be sustainable as these regulations come online. Exacerbating these issue ot water is that in many cases surface water allocations have often remained reduced even when reservoirs were full. Collectively, this paints an uncertain water future.

The rainy season is just getting started however and much can change. We will hope for a quick change in forecast for our fellow Californians further to the south experiencing fires and will continue to track precipitation in and around the growing regions in hopes of ample water this summer.

Export Market Review

India imported over 34.6 million pounds in December. This is +14 million pounds more than in November, but is still -10% below the volume it imported a year ago. India has started the crop year slowly and through the first five months has imported -21% less than a year ago. As we had reported in previous Market Reports, consumption trends within India have not slowed however. Market dynamics have been such that other sources have been the more favorable options. But these sources have become depleted and the acceleration of buying from California is a sign of this reality. Our sales team continues to report high demand from the subcontinent and we expect shipment volume to fully recover as we head into the new year.

Shipments to China continue to be suppressed. On net, Chinese importers now lag -45% on the crop year. In December, shipments direct to China were off -60% and declines are noticeable for both inshell and kernel varieties. Chinese buyers have turned instead to sources that offer trade advantages, which include several value-added markets in Southeast Asia. Vietnam for example is currently up +48% on the crop year, and emerging markets like Malaysia and Singapore are up +83% and +151% respectively.

Western Europe was essentially flat YoY in December and imported over 60 million pounds of almonds. As a region, shipments are off -2% on the crop year after a slow start. Spain, the EU’s largest market is off -16% on the crop year, but second place Netherlands has seen significant growth (+38%) and may push Spain for the top spot by the end of the year as it trails by just 6 million pounds. Elsewhere in Europe, markets like Germany (-20%) and the UK (-8%) are down, while Italy is even and France (+5%) has seen growth.

The Middle East saw another month of solid shipment growth in December. On the crop year, the region is up +34%. Turkey has seen the largest growth, importing over 60 million pounds on the crop year and growing at a rate of +65%. The UAE is up 11% and Saudi Arabia is up +84%. The region has proven resilient in its growth and demand for California almonds and should continue to be a growth engine.

Domestic Headwinds?

In 2023, food producers in the United States continued to lead global markets in introductions of new items containing almonds taking advantage of the nutritional composition and flexibility of almonds that enable better balance between indulgent flavors and healthful nutrition. 2024 should be no different; but, domestic almond consumption isn’t without headwinds.

Consider this reality: as commodity prices from almonds fell and remained low for several years, prices to US consumers largely held steady providing sellers increased margin. During this time, US consumers also experienced widespread inflationary pressures creating an environment where consumers have become particularly sensitive of price increases. As commodity prices increase will sellers recalibrate their expectations to margin, or risk angering sensitive consumers? In the case of new product introductions, pressures to remain price-attractive to the consumer may have already reduced margins making it more difficult to maintain prices as commodity prices increase. As almond prices rise, reformulations or price increases to the consumer may both be necessary and could work to dampen consumption growth domestically.

What’s Next?

Little has changed from a month ago regarding market outlook. Buyers holding out hope that crop receipts would provide some supply-side relief were not rewarded. The reality that harvest will not exceed the 2.8 billion Objective Forecast is now all but certain. 2.7 billion is the new target. With shipments keeping pace with volumes from a year ago, handlers have become more cautious with their inventories knowing that the industry as a whole will not be able to tolerate growth with the supply on hand. We’ve been reporting this for several months now - California almonds are solidly in a bull market.

And real pressures on the supply side are going to persist. While production capacity in other growing regions like Australia and Portugal have increased and been attractive sources from almonds, inventories have been dwindling and are not soon to be replenished. Harvest in Australia for instance is still several months away. February will bring bloom to California growers, but its impact will take time to assess and a whole growing season will lay ahead. The reality for the time being is one of supply constraint.

That of course assumes persistent demand, but there is little to counter the narrative that demand remains strong. While the EU and India sought advantages from other sources to begin the crop year, these sources have been depleted and our sales team continues to report strong interest from these markets. Where shipments lagged to begin the crop year, markets like the Middle East and Southeast Asia picked up the slack and are poised to continue to grow.

While almond prices have climbed off of their lows, current price levels remain below the cost of production in California and historically low. Sustainability of the industry demand a return to supply and demand balance at equitable price levels. With supply constrained as it is, demand strong and growers strained from years of loss, the conditions for upward pressure on prices persist.