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Subjectively Bigger

It’s no secret that almond prices have taken a heavy breather off their peak as industry expectations coalesce around a large upcoming crop. The recent Subjective Estimate of 3.0B pounds conducted by UDSA-NASS and communicated by the Almond Board of California adds additional reason to anticipate downward supply-side pressure looking ahead to the 2020 harvest in the Fall. This estimate is +17.6% more than 2019, itself an +11.8% increase from the year before. Should a 3.0B crop materialize in 2020, this would be a two-year increase of +32.4% in supply.

There are two natural questions to ask with this in mind. Is the expected increase in supply something unprecedented, and perhaps more importantly, is the forecast reliable? The answer to the former is easiest to answer: Neither the one year or two-year supply increases are unprecedented in recent times. The 2011 crop yielded a supply increase over 19% from the previous year, and if you go back a little more, both 2006 and 2007 crops exceeded the 17.6% increase being forecast. From a finite perspective we’re talking a lot more pounds than in either of those examples, but the reality is supply fluctuations have always been a part of the industry.

What is in a Forecast Anyways?

So then is the forecast accurate? Most certainly not if you only consider the singular point of 3.0B pounds. No mathematical exercise, especially one rooted in subjective observations, is going to produce a singular point with any significant confidence in its outcome. Both the Object Forecast (due out in July) and the Subjective Forecast just published, are in fact probability curves and express a confidence number over a range of eventual yields. To some degree the Almond Board has this discussion in their recent newsletter publication discussing improving accuracy of its forecasting models. The problem of course is we all want a single expectation to put into our own business calculations to have clarity on outcomes. We want to know if it’s going to rain, or if it will be sunny, without ambiguity.

Unfortunately, this is not what either forecast model is, or intends to do; and frankly, this is poorly communicated and understood. It would be best to understand the probable range of outcomes using the Almond Board’s own mathematical, but we don’t have that luxury. In our last update we discussed distribution curves using a 10-year moving average. Continuing to do so in evaluating the Subjective forecast and exploring the statistical expectations from past results, this would be the expectation produced with the published 3.0B forecast:

Yield range of 3.226B and 2.898B with a midpoint at 3.060B at 68% probability of falling in this range.

This doesn’t imply that yields outside of this range aren’t possible, nor does it suggest that a larger yield is more likely than a smaller yield in this range. There is equal probability from the peak of the curve in either direction. It does however do a better job of capturing the reality that we have a lot of season to go and quite a few variables are yet to play out. How useful it is when the range varies by 327.5M pounds, which is enough to shift markets, is the appropriate question and is effectively what we’re asking of the Subjective forecast. How much weight to give it, is ultimately up to you.

The Position of Demand

The Almond Board’s April Position report was released along side the forecast and is an important document to evaluate as well to understand the current dynamics around demand. From the top level, April Shipments topped 181M pounds setting a monthly record for the 5th straight month, and the 6th time this crop year. On net, shipments were +5.5% ahead of last year’s pace. US domestic shipments lead the charge up 14.8% YoY. This is a strong number for the US domestic market that has for the most part caught up to panic buying that resulted from COVID lockdowns and may be an indicator that almonds have real staying power in the US market even under the current turmoil. The US market had been strong prior to the brunt of the COVID repercussions and there doesn’t seem to be much reason to expect a change in that anytime soon.

What’s the Global Perspective?

Export markets are a bit more of a mixed bag. There are of course localized issues with lockdowns and labor shortages, but on the whole, we have seen the flow of almonds continue rather uninterrupted. However, export shipments turned negative YoY in April down -5.3%. The big culprits for this are India, down -56.3% MoM; South East Asia Region, off -51.4% MoM; and the Middle East Region, off -54.7% MoM. These are not seasonal shifts.

COVID-19 has certainly taken a toll in these markets. China has been the epicenter from day one and India in reeling from a major outbreak and the supply chain disruptions as a result. However COVID related issues may not tell the whole store. If read between the lines and recognize that both SE Asia and the Middle East are effectively pass-through markets, you understand the vulnerability to any market disruption. Supply chain COVID issues aren’t the only thing at play. The pricing correction we’ve seen is likely exacerbating the situation in these areas. India is similar to these markets in that it is heavily dominated by traders working the commodity through the markets. In all cases, market stability and financial stability go hand and hand as the end user is always going to take the lowest price. With the falling almond prices, it may very well be that the trading nature of these markets has taken a toll on those importing almonds. What we’re seeing here is certainly heavily influenced by COVID-19, but the reality is falling commodity prices are likely contributing in a very significant way as well. As the expectation of a larger crop persists, and thus continued soft almond prices, these markets may not be quick to recover where exposure was long.

Stability in Mature Markets

Europe, North America continue to buoy export markets. These mature markets are in a better position to take advantage of lower almond prices. Should the expectation of a large supply increase continue to dominate Industry perspective, a recovery in those markets struggling with depressed prices will be important for overall market health, thus it will be important to watch these markets and how quickly they can correct. In the meantime, we see continued strength in export markets in general. We see the transition falling in line with normal carry over levels, but should recovery happen quickly and domestic trends continue, there is still some risk of a tight transition.

Conclusion

At the end of the day, any forecast or position report is but a data point(s) in the broader market analysis that we all must evaluate ourselves. The reality of a larger crop in 2020 is practically guaranteed and current demand is strong; but, market dynamics are ever changing. As always at a juncture such as this, to what extent expectations mirror reality is something we will have to wait and see. We will do our best to lend our insight as we journey through together.

As always, please reach out with questions or comments. We rely on you, our partners, for valuable insights, feedback and anecdotes to help shape our conversation and make this useful for you.

Be Well and Healthy!