The almond market in California has witnessed significant changes over the last three years, impacting growers and related business alike. This article will look at the trends that shaped the industry in 2022, explore the factors influencing it in 2023, and uncover potential silver linings that can positively impact the almond market’s future.
2022 – Acres Planted
As you can see from the above data, 2022 was at least a 25-year low for new acres of almonds with only 11,160 acres in new plantings. This continues its multi-year trend of reduced acres. There are many contributing factors but some notable ones.
We have all seen a steep increase in costs since the beginning of the pandemic but these everyday costs pale compared to some of the major categories that compose the construction of a new almond field. PVC pipe and fittings comprise about 20% of the total cost of a newly constructed field. When comparing pre-pandemic to May 2022, there was a 141% increase in the cost of PVC pipe and fittings. The price of this material has been stuck at this position consistently through June of 2023. Filtration and manifold systems represent approximately 8% of a newly constructed field. Metal pipe prices rose 67% from pre-pandemic levels peaking in May 2022. All in all, the two categories mentioned above coupled with labor, fuel, and many other items, the cost of installing a new field has increased rapidly.
The last three years have starkly contrasted the relative price stability we saw with almonds. The average price per pound was $1.66 over 2020, 2021, and 2022. This was a 32% decrease over the 2019 price. When accounting for inflation, pricing in 2022 would rival the price lows of the late 90s. There was optimism that extreme weather activity in California in 2023 would impact on the total production for the crop year 2023. The USDA last subjective forecast anticipated a year-over-year decline of 3% over last year’s crop. With this projection, we saw an uptick in the price per pound with the reduction in supply. With the most recent objective report released July 12th, the USDA now projects a 1% increase in meat pounds compared to last year. Based upon the survey, they anticipate fewer nuts per tree due to the poor bloom set but that the average size per nut will be much bigger. Overall, the report disappointed most as the increased supply will put further pressure on pricing.
The crop year 2022, spanning August 2021 to July 2022, saw a decline of 9.1% in net shipments both domestically and internationally. For the export market, the regions with the most significant declines were Central/South Asia with 4.2% and Europe with 13.3% year-over-year. During this timeframe, the dollar gained record levels of strength against the euro putting significant pressure on goods exported to Europe. This dollar-euro pressure continued into the crop year 2023 with Europe down 9.7% in comparison to the challenging year of 2022. For Central/South Asia this crop year, they are down 8.4% today mainly stemming from a 9.6% decline in consumption from India.
As mentioned above, many things were stacked up against crop season 2022. There are also considerable headwinds against what we can anticipate for the end of crop season 2023 but there are some things that can potentially swing the future into a more favorable environment.
Dollar is Weakening
In comparison to last year, the dollar has lost considerable value. The DXY index peaking at 114 in September of 2022 is now sitting at 103 at the time of this writing and bodes well for price competitiveness of almonds in the export market. Although the dollar remains strong versus pre-pandemic levels, core inflation remains higher in the European Union relative to the United States which should put pressure on the ECB to raise interest rates. If so, this would imply an increased demand for the Euro and a more for favorable ratio versus the dollar. The steep demand loss for almonds in the European market we saw while the dollar strengthened should hopefully return.
Tariffs Removed with India
In June 2019, India implemented retaliatory tariffs on importing almonds, walnuts, and other items in response to the United States increased tariffs on steel and aluminum products. India increased the import duty 20% for U.S. imports of almonds but did not increase them for other importers such as Australia. This allowed other markets to take market share from the U.S.
On June 22nd, 2023, U.S. Trade Representative Katherine Tai announced with the cooperation of the Republic of India and the World Trade Organization, they have resolved the outstanding tariff issues pertaining to almonds. This will now help the almond exports be more competitive with a country that constitutes approximately 18% of the export market. In June 2023, almonds exports to India were less than half of the prior year. Let’s hope that this was in anticipation of these changes are there will be a surge in demand.
Close to 200,000 acres of almonds are getting close to their end-of-life cycle or about 20% of the current acreage. It is hard to predict how this acreage will evolve over the next few seasons but either the move to non-bearing almonds or other crops should tighten the supply greater than the acreage coming online over the next few years. This should be good news for prices.