June 2024 Almond Market Report
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The California almond industry received the Objective Forecast on July 10th followed by June’s Position Report on July 11th. Both have the potential to influence markets. We’ll review the key takeaways from both reports and help contextualize what it all means for almond markets moving forward.
Overview - Objective Forecast
The Objective Forecasts projects a harvest of 2.8 billion pounds. This is -7% below the 3.0 billion pounds that was forecasted in May’s Subjective Forecast and 12% above the 2.45 billion pounds harvested during the current crop year. The model assumes bearing acres to total 1.38 million acres, which is unchanged from a year ago. Yields are estimated to increase from 1,790 pounds per acre to 2,030 pounds per acre.
As we had also noted, the Objective Forecast cites generally favorable weather during bloom, including ample bee flight hours, and outside of some wet weather in April that increased pest pressure, growing conditions through May were favorable. Heat waves in June and July have added irrigation burdens to growers, but has helped keep the crop on pace for an expected on-time harvest.
Long time readers of our reports may recall our 2022 Objective Forecast Review. In this report we took a deeper dive into how we should interpret the forecast which went hand in hand with a conversation about how ‘accurate’ the forecast had been. We looked at both the Objective and Subjective Forecasts and noted that as statistical models, they are actually predicting a range of outcomes, not a specific figure. As such, we could estimate those ranges based on past performances. We won’t do this exercise again, but it’s a good reminder that the takeaways were, and still are, simple: Forecasts are statistical models, not tellers of truth; and, accuracy is in the eye of the beholder.
In simpler terms, we can review the Subjective and Objective Forecasts over the past 10 years. The Objective Forecast has on average under-forecast eventual yields, but by just -0.8%. That seems especially accurate, but it has missed by as much as -16% as an undercount and +11% as on overcount. This indicates a high degree of variance year to year which may give it a perception of inaccuracy. The Subjective Forecast on the other hand has on average over-forecast by +0.7% over the same time period. It however has shown less variance, missing by -6.7% on the low end and 8.7% on the high end giving it a narrower prediction band.
Overview - June Position Report
California Handlers continued the unprecedented run of months topping 200 million pounds, shipping 206 million pounds in June. This is the 11th consecutive month shipping 200+ million pounds per month - the longest such streak on record. Shipment totals are currently +5.66% ahead of this time last year. Domestic markets are up +2.29% and export markets are up +6.95%.
Commitments for the current crop are down -23.06%. This is likely a reflection of the smaller inventory levels this year as we can see that commitment totals inclusive of new crop is actually ahead of where it was a year ago by +7%. New contracted commitments in June slowed -13.25% from a year ago.
Computed Inventory is -29.87% below where it was a year ago and has fallen to 685 million pounds with a month of shipments left before the end of the crop year. This keeps the Industry on pace for a carryforward figure that should certainly fall below 500 million pounds. We had projected a carryforward figure in our May Report under 450 million pounds. Whether or not it actually falls above or below this figure, 450 million remains a reasonable benchmark with demand continuing to show strength.
Export Markets
India has topped 380 million pounds on the crop year and seems likely to exceed the 400 million pound threshold in July. It has imported +24% more pounds so far this year than last, adding nearly +74 million more pounds to the books this year. Remarkably, India has accounted for 62% of the growth across all export markets through June. Our Sales team continues to field inquiries from the market and with Diwali falling on November 1st, India is expected to continue its strong buying patterns.
China how now imported -26% less than a year ago falling from 139 million pounds to 103 million pounds. Shipments have been evenly split between inshell and kernel varieties at about 51 million pounds each. The product mix differs from a year ago when china favored inshell at about a 57%/43% split.
On the surface, China has habitually represented an under-tapped market for California Almond Handlers and politics has long complicated its import relationship with almonds. Currently China benefits from a trade advantage with Australia over the US and growing capacity from Australia means there are plenty of opportunities to take full advantage. This is perhaps best illustrated by the reversal of the +13% YoY growth China saw through the end of the previous crop year when the Australian harvest was not as robust.
With trade complications come additional opportunities and there are signs that the Chinese market is alive and well if you look elsewhere in SE Asia. Vietnam as an example has grown +53% this year and the region as a whole is up +32%. These markets have invested in value-add capacities to bag, roast, and salt the almonds they import allowing them to then re-export, much destined for China.
June represented a modest slow down from a year ago for Western Europe. Shipments to the region topped 39.6 million pounds for the month but had exceeded 44.2 million pounds a year ago. On net however, Western European countries have sustained growth on the year and are pacing +4% with a month to go on the crop year.
Spain, EU’s largest market, has slipped behind its pace the last few months and is now pacing -3% growth on the year. Increasing local-regional growth will likely continue to suppress shipment growth from California, but it will continue to need to import to fulfill its needs. The Netherlands snuck past Germany as the second largest European market in May and has maintained this position in June having imported just 400 thousand pounds more on the year than Germany. The Netherland’s free trade status and local capacity for preprocessing will continue to make it a hub for California almonds destined for EU consumption. The Netherlands is pacing +23% growth while Germany is pacing -1%. Elsewhere in the EU, the UK has regained ground it lost a year ago and is up +26% YoY.
Middle Eastern countries have wholly rebounded after a slow start to the year and have especially come on strong at the end of the crop year. The region as a whole was pacing +11% growth on the crop year in May. A month later in June this pace has risen to +18%. The UAE and Turkey, who are both working on sizable bases, have again led the way and are pacing growth rates of +29% and +27% respectively.
The Bulls Are Here to Stay!
We emphatically proclaimed the return of the bull market in our previous report. The calculus has largely remained the same. Monthly shipments remained above 200 million pounds, though were perhaps below what some had wished for. The reality is that there just might not be enough on hand to cover the full demand. With the Industry targeting a 450 million pound carryforward, the stock-to-use ratio (inventory/annual shipments) is roughly 16.5% with the expectation of a similar shipment figure in July. This figure is what we have long tracked as an indication of supply and demand health rather than the actual tonnage being carried forward because it accounts for the need of handlers to maintain shipment needs though a transition period as new crop gets harvested, processed, sized and accumulated. As demand increases over time, the need for additional inventory to remain on hand to support forward operations also increases. So while 450 million pounds may seem large compared to some historical levels, a 16.5% stock-to-use ratio is historically tight. Handlers will only have some much additional capacity to continue to tack on additional shipments until harvest has had time to replenish inventories. As such, record shipment levels in July are simply not feasible and will make prompt shipments command premiums.
Looking forward, a 2.8 billion pound forecast does nothing but add to concerns about tightening supplies and projects for a marketable supply next year of roughly 3.2 billion pounds after factoring in loss and exempt. This is on par with marketable supply for the current year and provides no room for shipment growth. As we had shown in our May Report, supply was already going to be tight at a 3.0 billion pound harvest and the industry just lost an estimated 200 million pounds.
How tight supplies will be relative to demand is ultimately what drives price changes. In the short term, capacity is likely to struggle to keep up with supply. As we mentioned, a small carryforward is going to put a premium on prices through the transition to new crop. Shipment figures are expected to be strong, but suppressed due to diminishing supplies. This will create pent up demand for those markets that might prefer additional volume in the immediate. Enter India. With Diwali falling on November 1st, Indian markets will be looking to bring in additional volume to cover festival consumption. What they can’t get through the transition will have to come as new crop is processed. This will extend demand pressures into the first part of the fall, tying up handler capacity and forcing premiums onto additional shipments. Processors needing to book shipments through the end of the year are going to be dealing with these impacts and commodity prices are inevitably going to continue to rise.