USDA-NASS Subjective Forecast and What it Means

Subject Forecast Summary

The USDA-NASS Subjective Forecast was released today and forecasts a 2021 crop size of 3.2 billion pounds. This would amount to a +2.56% supply increase over 2020 crop receipts of 3.12 billion. The USDA-NASS Report rounds to growth to +3%. The forecast projects bearing acres at 1,330,000 with a yield per acre of 2,410 pounds to make the calculation.

We have previously reported that bloom conditions were near-optimal for most regions in California. Early season growing conditions have been favorable as well contributing to low disease pressure. The forecast projects above average yields per acre, but lower than 2020.

Market Consideration

A 3.2 billion pound 2021 crop is above the previous industry consensus of a 2.85-2.90 billion pounds, but by a modest margin. Regardless of size, all forecasts should be taken with a grain of salt. (We highlight this in the next section.) Bottom line, the +2.56% supply increase a 3.2 billion pound crop represents would be a very manageable one for the industry at current demand levels. It also quells any fear of a sharp supply decline reversing demand gains seen over the 2020 crop.

We’re expecting about 650 million pounds as a carry forward into 2021. While this translates to a +9.1% increase in expected marketable supply, this carry forward is well within historical ranges as a percentage of crop. It’s also an important figure in sustaining continuity of supply through the transition helping stabilize supply chains and prices. Pair this carry forward scenario with a 3.2 billion pound forecast and the industry is presented with favorable conditions for further development of new markets opened in response to the large supply increases we saw in 2020. This bodes well for strong demand conditions heading into 2021.

Now if you have any concern that a +9.1% increase in marketable supply seems large, remember that marketable supply does not mean the industry targets to sell this amount. Subsequent years would also see carry forward pounds, reducing the total amount actually sold in a given year. A +9.1% increase in marketable supply actually signals a stable supply scenario similar to the modest +2.45% projected for 2021 crop receipts.

Niche-market fluctuations however are likely to continue. In our April Market Report we touched on the Inshell market and how China’s resurgence and India’s continued growth have put a squeeze on Inshell supplies. Dwindling supplies entering the transition period have edged prices higher. Larger size of Nonpareil and high grades like NPX and J/K Specs have all been impacted this year and have shown price gains beyond the general market. While each crop year brings its own mix of sizes and quality, what we have seen this year, even amidst huge supply increases, is a good indicator of what is to come: highly specific needs will always be in jeopardy of requiring an added premium, and if China and India continue as they have, Inshell too may become harder to find.

Contextualizing a Forecast

With any forecasting exercise, a predictive number does not guarantee the outcome. Any number of different outcomes are still possible. So, let’s add some context to some of what the Subjective forecast is telling us.

The projected 2,410 pounds per acre yield would be the 3rd largest yield per acre on record, just -3% off 2020 numbers. In fact, take a way 2020 figures and the forecasted yield for 2021 would be the largest since 2011. The 10-year average yield per acre is 2,230 meaning an average year would otherwise produce crop receipts totaling roughly 2.96 billion pounds. Setting aside last year’s strong numbers and using a more recent 5-year average, forecasted crop receipts would fall under 2.85 billion.

Conventional wisdom would also suggest that trees coming off of a high yield year would need a bit of a reprieve and struggle to recreate consecutive high yield years. In concept this makes sense: put forth a lot of effort, you need a break. But does this hold muster? Here’s two possible ways to evaluate:

2020’s yield of 2,490 per acre was a +14.75% increase over 2019. Since 1995 we’ve seen just five years where yields increased by at least +14% year over year. Three of the five were followed by yield declines of at least -5.5% with 1999 being followed by almost a -20% decline. However, two of these instances come in back to back years and the subsequent year itself also saw a modest increase clearly indicating that a large YoY increase in yield per acre alone isn’t routinely followed by a decline.

A keen observe however would notice that a large increase in yield YoY does not mean that that particular year would be of notable size. So, let’s instead look at the previous top five crop years by yield per acre and then look at whether there is a common theme in subsequent yields. When we do, we see that in each case a reduction in yield per acre followed. Perhaps the old adage may in fact hold some truth?... But what’s also important to measure is the degree to which yield declined. On average the declines seen were -8.18%. The largest decline was -18.26%, but the smallest drop was a mere -0.45%. So, while the expectation of a reduction in yield may be supported heading into 2021, the -3% that the Subjective forecast suggested is not out of the realm of historical norms. But just for fun, a -8.18% decline in yield per acre would calculate a 2021 crop of 3.04 billion pounds at the expected 1,330,000 bearing acres.

Drought Impact

Drought conditions and water scarcity may yet impact the 2021 crop. There has been some speculation that with dry conditions materializing early this winter orchard removals heading into the year were higher than expected and bearing acres may be below what is currently projected. If that were to in fact be the case, all projected numbers would need to be adjusted.

In either case, water shortages could also impact yields if growers need to ration water and can’t deliver the optimal amounts to trees. This could reduce kernel size, lead to increased disease load impacting quality, and in extreme instances, crop failure. Now it is our expectation that most growers will have had a plan for securing water for the 2021 year, and thus reduce impacts to the overall crop yield, but the severity of the drought warrants discussion and consideration as we have just begun to enter the long dry period that is California’s protracted summer. Issues pertaining to water won’t be going away and looming potential impacts remain. If you missed our April NutNews Podcast, be sure to take a listen as we discuss current conditions at length.

USDA-NASS Subjective Forecast and What it Means

Subject Forecast Summary

Market Consideration

Contextualizing a Forecast

Drought Impact

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