Economic woes trigger price slide for nuts Issue Date: January 14, 2009
By Kate Campbell Assistant Editor
Market prices have dropped in recent weeks for almonds and walnuts; prices for pistachios have stayed steady, but marketers express concern about the long-term outlook.With more than $3.5 billion worth of nuts ready to sell, California farmers are scanning world and domestic markets trying to determine who's buying and at what price. In recent weeks prices for almonds and walnuts have dropped along with orders, causing increased grower anxiety.
During the past several months grower prices for almonds have slipped from a high near $4 a pound in 2006 down to a dollar a pound or less. Walnut prices have been hammered on world markets, although pistachio prices remain stable for now because of a worldwide shortage.
Because of world economic uncertainty, shipments of walnuts have been slowed. Many buyers are waiting to see what the price floor will be. Recently, prices for nuts already shipped to international markets have been renegotiated in transit or lowered on the docks after arrival. A few loads have been refused by buyers and returned, because they claim the prices are too high.
Farmers say they're striving to remain optimistic, however, as they wait for sales to pick up and credit markets to stabilize.
"There tends to be an overreaction with markets: When it's good it's seen as very, very good and when it's bad, many times it's viewed as worse than it really is," said Stanislaus County walnut farmer Paul Wenger. "But really, it's about market psychology and understanding business cycles. This is not a time to misread market conditions and overreact."
Wenger said allowing greater flexibility in sales timelines and payment requirements from handlers may work to the advantage of growers in the long run. He counseled caution and restraint during this uncertain market period.
Experts agree it would have been hard to imagine even as recently as a year ago a more complicated and volatile economic environment than what is going on at the moment: severe global economic downturn, the credit crisis, stock market fluctuations, escalating Middle East conflict, a new U.S. administration.
Walnut growers enjoyed several years of strong prices and sales, Wenger points out, adding that the situation was bound to change. What's different with market conditions now, he said, is how quickly prices dropped and the level of economic uncertainty worldwide.
Adding to grower jitters are fluctuating production costs and concerns about water supplies to the state's $37 billion agricultural sector. Nuts, primarily almonds, walnuts and pistachios, are major California commodities with more than a million bearing acres of orchards planted statewide.
Although the U.S. market is the largest consumer of California nuts, about 70 percent of the almond crop is exported, along with about half the state's walnuts and pistachios. Nut exports totaled about $2.6 billion in 2006, with almonds accounting for about $1.9 billion of those international sales.
But the 2008 almond and walnut crops are the largest in history, presenting a unique marketing challenge in tough economic times. And, while the pistachio crop is small due to alternate bearing cycles, difficulties obtaining letters of credit and a strengthening U.S. dollar make accessing international markets more challenging.
At the Sacramento Valley Walnut Growers facility in Yuba City, employee Satinder Kaur, left, and quality assurance manager Brenda Gonzalez inspect walnuts to ensure their quality.Some long-time nut crop farmers say they've never seen a similar economic situation. Others say current market conditions are within the range of expected fluctuations, given crop size and the soft economy.
Wenger, who is also first vice president of the California Farm Bureau Federation, said the 2007 walnut crop was relatively light, "sales were going through the roof and it looked like every walnut grown was sold and consumed. Fast forward to the 2008 walnut crop," he said. "It's huge. Weather conditions were ideal and quality is exceptional. Now we find that some nuts sold in 2007 were stored and remain in marketing channels, depressing sales for the 2008 walnut crop."
Kiran Black, Sacramento Valley Walnut Growers marketing manager, said growers she deals with are saying they haven't seen similar market conditions in the past.
"Experienced growers are cautioning against panic," Black said. "We need to be flexible in these changing economic conditions and make smart marketing decisions so growers get the best return. There are a lot of unknowns that will affect the next marketing year, but we must keep looking for opportunities to expand the market for walnuts."
"We saw walnut prices drop to 45 cents an in-shell pound in the 1990s, but this is different for us because now our operating expenses are a lot higher," said Glenn County walnut grower Gary Anderson. "I'm concerned about current market conditions and we'll be watching our own budget very closely to avoid creating our own financial problems."
Several nut growers and handlers said current economic and market conditions may cause orchards to be pulled and some handlers and processors may not be able to weather the financial storm. Working through the supply-demand imbalance may take several years for both walnuts and almonds.
"Unfortunately, we have come to recognize that the California almond industry is not insulated from the global financial crisis challenging the world today," said Doug Youngdahl, president and CEO of Blue Diamond Growers, the world's largest tree nut processing and marketing company.
"The erosion of confidence in the financial markets has been observed by all of us within the food industry, mostly at arm's length. Needless to say, we are much better off being in the food industry than in the auto industry," he said.
In 2007 almond shipments surged to a record 1.26 billion pounds. Now, Youngdahl said, large food processors who buy bulk almonds from Blue Diamond are becoming more cautious in their purchasing as they brace for unforeseen global financial news.
Almond customers are reducing inventories in case their own sales of almond products decline, he said. Lending institutions have set tighter and more rigid credit standards, which also has slowed almond sales and shipments.
Through the first five months of the 2008 crop year (August through December), California almond shipments have been flat compared to the previous year, falling short of the 8 percent increase that had been forecast.
"Despite the fact that seven shipment months remain to achieve the forecast, the current slower pace of shipments, combined with the lack of confidence arising from the global financial market meltdown, have impacted almond prices," Youngdahl said. "During the past 90 days, prices have steadily eroded to levels not seen since the beginning of the decade."
Bearing almond acreage for the 2009 crop is estimated to increase by about 45,000 acres, bringing total plantings above 700,000 acres, further swelling supply.
"Analysts expected almond prices could not continue on the path of ever higher production with very high prices, but the price collapse—along with other commodities from oil to cotton—has been dramatic," said Dan Sumner, director of the Agricultural Issues Center at the University of California, Davis. "We're facing a tough economic environment for agriculture. Besides the general economic downturn, nuts are directly affected by the recent rise in the value of the dollar."
As the dollar becomes more valuable compared with other international currencies, offshore customers see their buying power for U.S. products reduced.
"Up until the last couple of months we had record shipments for almonds," said Ron Macedo, a Turlock almond grower and CFBF director. "There are a lot of questions right now—about the economy, the bloom, consumer demand, water. We're sitting back and hoping we'll get some solid answers on market direction in the next couple of months."
He pointed out that there are 70,000 acres of almonds and 21,000 acres of pistachios in Westlands Water District, and more than 200,000 acres in the San Joaquin Valley at risk of not getting adequate water supplies. Although the U.S. Bureau of Reclamation has not yet announced 2009 water allocations, continued dry conditions, along with legal and regulatory restrictions, don't bode well for water deliveries to nourish those trees.
Growers expect to see some reduction in nut orchard acres and long-time producers and handlers say it could take several years before the economic kinks are worked out of the market. In the meantime, growers are being cautioned to expect lower and slower payments from handlers as they work with domestic and international buyers to obtain the best possible prices.
"I'm cautiously optimistic that prices will strengthen," said Ceres almond grower Tim Sanders, who is a Stanislaus County Farm Bureau director. "We're in a wait-and-see mode at the moment. There's no reason our nut crops will not continue to be a highly desirable commodity at home and on the world market. We're going to have to be patient as we work through the current market conditions."
Market conditions favor pistachio farmers this year. Their largest competitor, Iran, suffered a devastating freeze and reportedly saw production drop 75 percent, according to Richard Matoian, Western Pistachio Association executive director. That, coupled with a short crop in California, means prices remain high even though sales have declined in number.
But, Matoian warns, the prospect of a future, steep price decline for pistachios is real, as a large number of non-bearing trees comes on line. Many of the young trees have been planted in the western San Joaquin Valley.
"A bigger crop would warrant more water being put on the trees to help size the crop," Matoian said. "We need a reliable water supply and then we need to get busy planning for the large pistachio crops that will be coming in the future. Otherwise we'll find ourselves in the same situation as producers of other nut crops."
(Kate Campbell is an assistant editor of Ag Alert. She may be contacted at [email protected].)
TIM Price at posting:
16.5¢ Sentiment: LT Sell Disclosure: Not Held
