Monday, April 16, 2007

Almond Market

Letter from Ned Ryan

Dear Friends:

There is a lot of news to discuss but not a lot of trading in the almond market. Shipments for March were 71 million lbs,-- 10 million under the record. Domestic shipments did set a new record but exports were off 14 million from last year. This came as a surprise to most of us who expected near record level shipments to finish out each month of the year. Prices had been lower in recent trading and continued to decline with this news—a total of .10 to .15/lb over the past month. During that time, European importers had been underselling California suppliers, which created the first liquidity in the European market all season and explains the reduced exports in March. The big question now is how strong demand will be for new sales in the next months and how much more the second hand re-sellers have to sell without coming to California suppliers for new orders. Current prices are in a state of flux, but are last reported in this range:

2006 crop: 2007 crop Oct & later
Nonpareil Supreme 23/25 AOL $2.85 per lb. FOB California 2.30
Carmel SSR 23/25 AOL 2.45 2.00
Butte SSR 27/30 AOL 2.35 1.90 – 1.95
Cal Std unsized 5% 2.25 1.80 – 1.85
Nonpareil inshell 70% 1.95
Carmel inshell 60%
Peerless inshell 35%
Blanched Sliced 3.00 2.70

Market comment today would not be complete without referring to the crop estimate made today by our friends at Terra Nova Trading. They move a lot of volume and their comments have a lot of influence. After touring the entire growing region of the state, they have estimated 1.37 billion lbs—a 20% increase over the record 2006 crop and representing an average of 2200 lbs/ac from 620,000 acres.

While I think this is possible, I don’t think we will reach this level of production statewide. The big factor behind this and other bigger than earlier estimates is the growing optimism about the crop size as we look at the nuts developing on the trees in early April. Acreage will be up—maybe up to 630,000 acres in production; there can be 60 to 80,000 3rd leaf acres (classified as non-bearing) that can produce 500 lbs/ac for 30 to 40 mil extra; production potential of the acreage base is greater than 5 years ago as new orchards are capable of more lbs per acre than older acres replaced—all of these factors suggest more like a 2000 lbs/acre average to give us over 1.2 billion but less than 1.3 billion. As our friends at Terra Nova will tell you, crop estimating is a tricky business. Last year they underestimated it by over 100 million. This year they may be overestimating by over 100 million, but their 2 year average will be right on. Place your bets…

To those who worry about the potential for falling prices, I would remind them about so many past crops that have come in at more than 100 million lbs over the crop estimates and still have experienced rising prices from opening levels because of strong demand and record shipments stimulated by early lower prices. Our market can absorb a 1.2 or a 1.3 or a 1.4 billion lbs crop. For one thing, we really need at least a 200 to 300 million lbs carry out for smoother transitions than the 100 to 120 million of recent crops.

Big changes coming in processing and testing of California Almonds this year: First, the USDA finally approved the pasteurization rule that requires all almonds shipped to North American buyers to be pasteurized by the handler or the buyer beginning 1 Sept 2007. This can be accomplished by Blanching, Oil Roasting, PPO Fumigation or Moist Heat (Steam) treatment. There appears to be enough capacity to accomplish this but it will add a cost of .05 to .07/lb to raw almonds that need to be treated. Buyers wishing to have their pasteurization process validated should contact the Almond Board immediately. Handlers need to make plans for custom processing if they don’t have their own process. There are more and more custom options available.

Second, the EU will require 100% testing of incoming almonds for Aflatoxin beginning 1 Sept 2007. Shippers participating in the VASP (Voluntary Aflatoxin Sampling Plan) designed by the Almond Board will be subjected to a 5% sampling rate for incoming containers. Currently fewer than 5% are tested overall, so there is great concern about how the EU will accomplish their plan without creating a huge bottleneck of arriving containers. I recommend that all handlers sign up and use VASP as soon as possible and advise your EU buyers that you are doing so. Contact the Almond Board for details. Both of these procedures will be taken in stride by our innovative processors and in the end will make our industry stronger and able to offer a safer consumer product.

Please send your comments and questions.

Best regards,
Ned T. Ryan

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