March 2024 Almond Market Update

Figures from March’s Position Report show that California Handlers shipped over 237 million pounds in March. This represented a -15.7% decline on net from a year ago. However, as we mentioned in our previous report, last March represented peak demand for the crop year. Due to continued shifting of buying patterns after Covid, this peak was not expected to materialize this year. As such, we had projected shipments closer to 200 million for March, yet the Industry topped 237 million pounds. This should be seen as a sign of continued strong demand for California almonds.

Also of note is that the 237 million pounds shipped in March represents the 8th consecutive month that California handlers shipped at least 200 million pounds. No other single crop year has experienced more than 6 consecutive months exceeding 200 million pounds. The only period where a longer streak occurred was between February of the 20/21 crop year and the following November in the 21/22 crop year. 20/21 and 21/22 crop years are the first and second largest shipment years respectively. That isn’t necessarily to suggest that the current crop year will approach the shipment figures we saw in either of those two years, but the current pace of demand is something that we should take note of.

Currently Domestic shipments are off almost -1% on the crop year while Export shipments remain in positive territory as they currently track +3.44% ahead of last year. On net, shipments for the year are ahead +2.25% from a year ago.

Commitments

Currently committed shipments top 575 million pounds. This figure is -11.08% below last year’s figure at this time. While new commitments of 181 million in March didn’t keep pace with outgoing shipments, commitments in March exceeded last year’s pace by +26.5% signally continued strength in monthly purchasing.

To contextualize the current environment around commitment inventory, we also need to consider total Computed Inventory. As per the Position Report, the industry currently has 1.35 billion pounds on hand. This is -11.67% YoY. This would help explain why total commitments are below last year’s figure - there is simply less to sell. So if instead we look at commitments as a ratio of total inventory (Committed Shipments / Computed Inventory) we see that both the current crop year and the previous crop year have a ratio of 42%. By that measure commitments are at the same level they were a year ago.

That said, Computed Inventory is does not account for the exceptionally high rate of rejects that the industry experienced this year. Rejects this year accounted for a -4.22% loss. Historically, the industry has experienced a -2% loss. It is this figure that is used to calculate Computed Inventory in the Position Report. If you recalculate using the current reject rate of -4.22%, Computed Inventory falls below 1.296 billion pounds. This change would push the commitments to inventory ratio we calculated earlier to 44%. This isn’t a large shift, but the change in how we calculate inventory is meaningful as we look ahead to the remaining four months of the crop year.

Supply and Demand

We have historically seen that supply and demand are in balance when the Industry can achieve a carryforward figure that is roughly 20% of the shipment totals for the crop year. Below a 20% stock-to-use ratio and we have observed strong upward pressure on price. Too much above 20% and we have seen the opposite impact. Last month, we presented some forward scenarios that would project a carryforward figure between 530-550 million pounds. These scenarios have only been further supported with March’s shipment figure. To highlight this notion, if we use the adjusted Computed Inventory figure we calculated in the previous section, the industry could target a 550 million carry forward by averaging just 186.5 million pounds each month for the remainder of the crop year. To illustrate how achievable this figure is, consider that the industry hasn’t shipped less than 186.5 million pounds in a month since July of the 21/22 crop year. That alone would suggest a carryforward under 550 million pounds is well within reach.

Market Round-up

China appears to have entered a slump with March imports again falling below figures from a year ago. While March shipments were above February, China imported just 27% of what it did a year ago. Now it is true that last year March represented the peak demand month for the crop year, but that alone would not account for the decline in shipments heading to China. What better explains China’s slower March is a shift away from US suppliers towards Australia where supplies of their preferred varieties are more plentiful and could be perceived as ‘fresher’.

India too has slowed and imported about -4 million pounds less than it did a year ago. India did still import over 23.6 million pounds in March and is still +15% ahead of last year on net. India continues to have an appetite for almonds, but with the highest quality inshell products becoming less available from California handlers, record shipments seem unlikely as we move through the last four months of the crop year. That said, India remains a key buyer and seems all but certain to end the crop year with a robust annual growth figure.

Western Europe as a whole imported -9.8% less in March than it did a year ago. The region remains up +7% on the crop year however. The region’s top two markets in Spain and Germany are effectively flat on the year with Spain pacing -1% and Germany 0%. The Netherlands, Italy and the UK rounding out the top 5 markets are all up on the year pacing +35%, +4% and +45% respectively. France, which grew into the top 5 last year after overtaking the UK has since lost that ranking but has held firm from its gains a year ago and is currently flat on the year.

The Middle East has fluctuated between growth and contraction this year. Coming off of a year in which the region grew by +9%, and a year in which the region has experienced the instability of conflict, some ‘growing pains’ might have been expected. As of March, the region is flat YoY. The two largest markets in the region, UAE and Turkey have both shown growth this year growing at a rate of +7% and +6% respectively. Saudi Arabia as the third largest market is off -18%.

Water

We said we were done with our regular update on water. A month ago the snowpack had rebounded to at or above normal and reservoirs were above average. Nothing much has changed. In fact snowpack and reservoir levels have actually improved. But our assumption had been that with full reservoirs and snowpack that water allotments would be granted at or near 100% from regulators. This hasn’t materialized. While allotments were increased in March, they currently stand at only 30%. While this is certainly better than what was allotted at the height of drought, it is a far cry from the 100% regulators allotted last year. It’s not all doom and gloom however. Agricultural allocations north of the delta have been announced as 100%. Agricultural users in the south on the other hand are slated to receive 35%. So while some of our Central Valley and Northern growers will have access to their full contracted amounts, the South, where the bulk of California’s almonds are grown, is still facing some uncertainty. There is still hope that April will see an additional increase in allocations considering the wet March and continued unsettled weather parts of the state have experienced already in April. But regulators have been quick to remember the drought and continue to signal caution in their expectations.

Wrap-up

Weather has continued to be generally mild and favorable. Conditions are such that future yields are likely to exceed the levels we saw this year. However field reports have been highly inconsistent. Areas that were off last year appear to be doing great while strong areas are now not as robust. Growers are also still working with constrained budgets. As such, preventative care continues to take a back seat. Mitigation procedures and fertigation applications are also going to be scrutinized critically. This will translate to higher stress levels in many orchards and conditions that will prevent yields from reaching their full potential.

This of course hasn’t stopped the speculation of another oversupply scenario now that bloom and early season growing conditions have proven to be favorable. This, along with the harvest in Australia meeting expectations, and buyers becoming accustomed to oversupply and the low prices that come with it, have fed the bearish sentiment among buyers. Buyers seem resigned to buying hand to mouth with the expectation of a future oversupply continuing to keep prices low - perhaps even anticipating future declines.

The bearish sentiment however has a direct and strengthening competitor with whispers of bullish market conditions continuing to strengthen. Our sales team continues to field inquiries from all major markets. Pipelines into end users are much different from where they were a year ago when California handlers had loads on the water and in warehouses across the world. Supply chains were full. Today, pipelines are empty with buyers purchasing hand to mouth. Australia's harvest has added tonnage to global inventory, but they can not cover the needs of global almond users in the same way that California can, and producers can't wait on supplies. Without full pipelines, any tightening of supply could bring real upward pressure to prices. *See Cocoa, a Cautionary Tale

Consider the 186.5 million pound average that we presented earlier that the industry would need to ship through the next four months. We expect to exceed this figure in April. And if the industry averages closer to 200 million pounds per month, the carryforward could easily fall below 500 million pounds. At this point buyers would be reluctant to add tonnage to their books simply because they will need to retain inventory to sustain their obligations before new crop hits their warehouses. Buyers playing the hand to mouth game will have to come to the table and when they find sellers unwilling to overextend themselves, prompt shipments will be at a premium.

Then what happens when new crop comes in? Do prices recede? Consider this: a 450 million pound carry forward would be -350 million pounds less than last year. To bring the same volume to market next year, yields could then exceed current yields by +350 million pounds. Therefore, a 2.8 billion pound harvest would mean the industry could ship the same amount without any growth. Just accounting for modest growth the industry could easily adjust to a yield above 2.8 billion.

So ask yourself this: if demand remains strong through the next month or two, and pressure on prices push prices upwards into the carryforward, at what point would an 'oversupply' scenario actually materialize? And while weather conditions have been favorable for growers, economic conditions have not. A true bumper crop just doesn't seem plausible. We're all waiting for future forecasts to give us hints, but in the game of tug of war between bears and bulls, there is a lot more uncertainty than a lot of people may lead you to suspect.

Cocoa - A Cautionary Tale

Our confectionary customers have been lamenting the steep increase in global Cocoa prices. How steep have the increases been? Here's a chart:

JP Morgan Research also published an article on the topic on April 3rd. What happened? In simple terms producers need cocoa as a fundamental ingredient. When supplies became constrained and buyers who had been buying hand to mouth were forced to come to the table and fight for their share of a commodity that was no longer plentiful you enter into a cycle of bidding war after bidding war. This isn't doctorate level economics. It's Econ 101. Now are almonds destined to meet this fate?... you make that determination. But a little caution can go a long way.