Walnut Market Update

Saturday, October 16, 2010
The walnut harvest is now well underway throughout the state. Initial receipts indicate that this will be another record crop but it remains to be seen if the final objective estimate of 510,000 tons will be reached. Using data from the southern counties, the trends for the major varieties are currently as follows:
Ashley down 7.8%
Chandler up 6.0%
Hartley up 31.0%
Payne up 1.7%
Serr up 51.4%
Tulare down 18.7%
Vina up 9.2%
Other up 9.2%
For Chandler and Tulare, the number of orchards that have completed harvest is quite small and those numbers may fluctuate greatly in the coming weeks. Still, given these adjustments to last season’s production and adding an extra 5,000 tons to account for new tonnage, we are looking at 480,000 tons plus whatever adjustment needed for Howard variety, of which I have no data. It is still early and we may make the 510,000 crop estimate but at the moment, data from the south seems to indicate that we may fall slightly short of that number.
Kernel color is fabulous this season and meat yields have climbed back up from last season’s poor kernel yields. If one were to assume 2 percentage points more on edible yields across the board, the additional kernels would be the equivalent of roughly an additional 21,000 tons. Size on Chandler walnuts is down considerably with early deliveries averaging 49.1% jumbo – well short of the 54% indicated on the objective estimate. Typically, the younger trees tend to harvest later with higher percentages of jumbo and so while it is hopeful the jumbo percentage inches up over the harvest the reality is that we have a very poor jumbo percentage this season on Chandler. Early deliveries of Hartley (60.6% jumbo) and Tulare (80.0%) varieties show reduced jumbo percentages as well although the Tulare size seems to be a manageable issue.
Harvest started 10 days late in the south and that trend seems to have been constant throughout the state. The lateness of the new crop coupled with the relatively low carry-in has reduced the opportunity for sales in September to set a very low number for the first month of reported shipments.
September shipments were off 33.5% from last season’s record setting number. I expect October’s shipment number to also be off from last October’s due to the following reasons:
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1. The lateness of the crop is going to set the initial shipment date for each major inshell variety back substantially.
2. The Chandler variety lateness will also affect kernel shipments although to a lesser degree as customers who prefer Chandler walnuts are able to substitute for earlier varieties due primarily to the very good color on many early deliveries
3. The anticipated small size of inshell and especially Chandler will slow down the rate at which loads of inshell can be processed and packed, reducing the overall throughput at the processors.
4. Cargo ships are mostly booked up at this point and if there were any extra loads that could be made and offered at the last minute, many of them might have to be rolled into November.
Reason #3 above is one of the more important issues to look at. Back in 2005, the industry had a record crop of 355,000 tons. This season’s estimate of 510,000 tons is a 44% increase in industry production in just 5 years. There has not been a corresponding increase in packer capacity over that same time period. Granted, there have been some new processors over that time period and some existing processors have upgraded their plants, but not to the tune of 155,000 tons of additional product. Much of the capacity increase has been in packing inshell nuts and running inshell lines more hours per day and a longer inshell season.
Kernel availability has been affected by this bottleneck and offers for kernels for prompt shipping are very difficult to come by. This shortage can be solved by one of two ways – queuing or raising prices for early shipments. Queuing is preferred by people who tend to be first in line and upsets those who are not given priority and frustration can already be seen from brokers and customers who are always shopping their volume out. The option to make a few extra dollars can be tempting by offering a load or two at a premium, but care must be taken to avoid pushing the market up for the short term and setting up a falling market that ends up cutting overall consumption.
Export demand into China, both Hong Kong and mainland China, has been very strong. Turkey, the second largest market for inshell walnuts, continues to show strength in their markets and old crop inshell is gone and Ramadan consumption has left the country without excessive inventories. Korea, the only major export destination that had large forward inventories seems to have worked through their long supplies and demand for new crop kernels is starting to increase. Inventories in Europe are low, but shipments of traditional inshell varieties into Europe will run into difficulties as those are traditionally a Christmas item and the shipping window for those is now compressed. Japan’s demand appears to be consistent with last season and for the moment the favorable exchange rate vs. weak US Dollar is countering resistance to the high prices.
Prices have firmed approximately $0.15 on inshell cracking varieties, $0.10 on Hartley inshell since opening prices and kernels have jumped $0.25-0.30/lb. Historically, market prices have been sustainable at levels even higher than the current spot levels, but should prices continue to increase there would be a chance of movement slowing in certain sectors, primarily domestic consumption or other countries where the higher prices are not being offset by a falling dollar relative to their local currency.
Mike Poindexter
Poindexter Nut Company