Select Harvest Almond Market Update May 2020

In Our Memory

We at Select Harvest USA present this market update in memory of long-time almond Industry leader Martin Pohl, who passed June 3rd, 2020. Martin was a founding member of Hughson Nut and began his career in almonds in the mid-1970s. We extend our condolences to his family, friends and industry partners. He touched us all.

Shipped Less Than Expected

If you were to simply take the Almond Board’s summary page of their May Position Report, the state of the almond industry may seem fair enough. Both export and domestic shipment numbers remain up YoY (+4.26% and +3.46% respectively). But context is everything and the devil is in the details so they say.

May numbers show significant slow downs in both export and domestic markets. On the domestic front, the industry saw its run of five straight months of record shipments come to a screeching halt posting its worst May since the 2014/15 season. This represents -13.6% YoY and a -26.4% decline over April numbers.

The Export market, while down a more modest -6.9% from April, the year over year decline expanded to -14.1%. On net, almond shipments to all markets was down -13.9% YoY and -15.1% MoM. These are significant adjustments, so what is going on?

Realities of the Market

We calculate the industry sold position at 88.26%, roughly the same as we were last year. We’re forecasting industry carryover to fall somewhere between 400-450 million pounds which yield a stock to use ratio in the 18% ball park. Historically this is a very comfortable position for the industry to be in; however, comfortable is not how many in the industry are feeling. Prices have continued to fall and are now in territory that in some cases may already fall below the cost of production. Why would prices have fallen this low?

The current Subjective forecast is projecting a 20% increase in supply for the 2020 crop yield. Such a large increase in supply is noteworthy itself, but without any shortages likely during the transition, there is no short-term constraint to buoy prices. Rough math will show that even an aggressive 15% demand growth rate for the 2020 crop would produce a carryover in excess of 600M+ pounds next year – well in the territory to keep downward pressure on price. The perception of a glut of inventory is the primary driver of price at this juncture.

At times like this, we would encourage you to review our last few Market Updates where we discuss the statistics behind the forecasting models. the point being any future harvest has yet to be realized. Where supply will actually fall is anything but certain at this point. Of course, markets are not always rational, so we should also take the time to look a little deeper at which markets are experiencing friction and where future opportunities may be.

Market Perspective – Domestic

As noted, the domestic market fell precipitously in May. As the largest market for California almonds, this has a major influence on the Industry as a whole. This decline occurred as many states begun implementing plans to reopen certain aspects of their economies. The consensus from our partners suggests that panic buying had long since stopped and consumption habits had stabilized with strong growth across the grocery landscape. We don’t see downward pressure on consumption. The US consumer we’d expect to help rebound shipments in June.
It should be said that while recent social unrest is a reality in many areas across the US, any impacts on business are currently localized and their timing would not be reflected in May numbers. The slowdown in almond shipment we’ve seen is likely more of a reflection in falling prices and domestic partners looking for a means to balance their positions than anything else.

Market Perspective – Export

Western Europe is a major market for California almonds and saw some significant market troubles. May’s numbers show a -13.9% decline YoY for Western Europe which equated to a -27% decline from April. It’s unclear if there is a primary driver of this decline as the market had remained stable during earlier portions of Covid restrictions. It’s possible a natural dip is being exacerbated by falling prices and buyers looking to hold out until the bottom of the market.

India has continued to deal with local Covid restrictions already suppressing almond shipments. In May shipments were down -26.8% YoY. India is an emotional market and dealing with Covid and price uncertainties may be taking an undue toll. That said, India’s sizable consumer base is especially price sensitive and could emerge as a primary driver of growth into 2020 crop year if prices remain low.

If you’re looking to China for growth opportunities, you may be excited to see their MoM growth rate of +66%. However, this month to month change is actually a normal course of action and China remains behind last year’s numbers. It remains unlikely that any progress will be made in easing the trade barriers currently suppressing consumption while governments are preoccupied managing Covid policies.

Into Summer

We expect some turbulence as markets adjust to both the realities of Covid and low almond prices. As the US and others try to reopen their economies supply chain disruptions are still possible. The US is still considering additional aid packages that may have an impact on the Almond Industry and our consumers. As always please reach out with questions and comments, follow us on Facebook and LinkedIn and view our website for our podcasts, news, blogs and more.