Thursday, September 06, 2007




Looking for Gold in Them Thar Trees
Investors Rush Into Almonds,But Will They Stick AroundAs Prices Slip, Costs Rise?
By MALIA WOLLANSeptember 6, 2007; Page B1
Greg Hostetler is a real-estate developer who builds subdivisions in California's Central Valley. But the past few years, he's gone nuts.
To be precise, Mr. Hostetler has been building a sideline in almonds, spending $60 million to buy and plant 4,500 acres of trees since 2000. This year, he plans to shell out at least another $5 million to plant an additional 1,000 acres.
"The almond market is looking a lot better than the housing market right now," he says.
Mr. Hostetler isn't the only newcomer jumping into California's almond game, where orchards now stretch down the Central Valley from Red Bluff in the north to Bakersfield in the south. In the past few years, doctors, lawyers, pension-fund managers and pro football Hall-of-Famers, among others, have all snapped up farmland in the state to plant almonds as world-wide demand for the nut has grown by 11% between 2001 and 2006. And despite some concerns on the horizon, many of the newer growers remain optimistic.
"Everyone knows that almonds are a great investment," says Monterey, Calif., restaurateur Dominic Mercurio, who has teamed with football commentator John Madden to purchase nearly 400 acres of almond orchards, spending more than $3 million since they bought their first 25 acres in the late 1990s. Mr. Mercurio says he and the former Oakland Raiders coach intend to buy at least another 600 acres in the next few years.
While some investors have been lured to almonds because of agricultural tax breaks, the recent rush has mainly been spurred by a boom in demand, partly fueled by high-protein diets such as Atkins and South Beach. The industry has also assiduously marketed the cousin of the peach and the plum, touting it as filling, high in antioxidants that fight colon cancer and good for the heart. The upshot: Between 2001 and 2006, the industry says, annual consumption of almonds in the U.S. grew by more than a quarter, exceeding a pound per person.
That's good news for California's agricultural sector since more than 80% of the world's almonds are grown in the state, flourishing in the Central Valley's fertile soil and a climate similar to the Mediterranean where almond trees have thrived for centuries. The nut is the state's biggest agricultural export -- ahead of wine, strawberries and cotton -- worth more than $2.7 billion a year. Overall, California has 730,000 acres of almonds now, up from 389,000 acres in 1980, according to the U.S. Department of Agriculture. The department forecasts a record 1.33-billion-pound almond crop for 2007, up 19% from 2006.
But many of the people jumping into almonds are doing so even as prices for the nut have been sliding. In 2005, farmers received $2.80 to $4 per pound of almonds. Now, about a third of the way through the almond harvest, farmers are getting $1.50 to $1.80 per pound. In a classic agricultural cycle, high crop prices resulted in a rush to plant trees, leading to a market glut of nuts. Meanwhile, almond production costs have also risen -- especially for the bees that pollinate the flowers and the diesel oil that fuels the machines that shake the nuts from the trees, sweep them from the ground and truck them to market. Recent salmonella worries have also led to new rules for pasteurizing almonds with either heat or chemicals, adding additional expenses for growers and processors.
"A lot of people are jumping on the tree-nut bandwagon," says Mike Iliff, senior appraiser for Fresno Madera Farm Credit, an agricultural lender. "They'll plant and grow and keep doing it until they drop the price down and satiate the market. You can always depend on agriculture to stab itself in the foot."
All of this has roused the ire of some longtime almond farmers, who say the newcomers are driving up land values and driving down nut prices. Second-generation farmer Stuart Woolf, who farms in Fresno and Madera County, says the ranch adjoining his 10,000 acres is up for sale at "an inflated price." The per-acre price for almond orchards in 2006 in Madera County was $8,500 to $15,000, up from $3,500 to $8,500 in 2000, according to the American Society of Farm Managers and Rural Appraisers.
Though Mr. Woolf would like to own the neighboring property himself, he says "some doctor who knows nothing about farming is likely going to buy it." That makes him worry that almonds have become more about land speculation than agriculture. He calls people like him who know the farming business and want to invest for the long haul, "patient money." These days, he says, he sees a lot of "impatient money" in almonds.
Hartley Spycher planted his first almond trees in 1960, now has 500 acres of the nuts in Turlock, Calif., and is planting 80 additional acres this year. He is less concerned about land than he is about water, worrying that as more people punch wells into the ground to irrigate their orchards, water will become scarce. Still, he says it's a free market. "If I was 18 years old, I'd be more worried," says the 70 year old.
Almonds first landed in California with Franciscan monks in the mid-1770s aboard Spanish ships bound for missions along the coast. Serious cultivation didn't begin until the 1870s, when pioneers planted hardier varieties deep in the state's interior, particularly in the Central Valley.
Since 1950, the nut has had its own marketing arm called the California Almond Board; almond farmers fund the group through a mandatory fee. In the mid-1990's, the board launched international marketing efforts to increase international sales, funded scientific research and succeeded in getting the Food and Drug Administration to certify almonds as "heart healthy." At the 2006 Oscars and other celebrity events, the board even arranged to have the nuts tucked into VIP goodie bags.
That rising profile of almonds helped attract the newcomers, including Silicon Valley developer and lawyer John Vidovich. Mr. Vidovich, who started getting into almonds in 1998, has since become one of the state's larger growers with 15,000 acres of the nuts. "The world needs more almonds," he says. "Almonds help sell other products like cereal and chocolate."
Mr. Hostetler, the Central Valley real-estate developer who is now planting more almond orchards, says his $60 million investment in the nut so far is "a little better than break even," but he'll know more after this year's harvest ends next month.
Mr. Hostetler, who still spends three-quarters of his time in the property business, says he isn't worried about the huge quantity of almonds slated to fall from the trees this season, or the thousands of acres being planted with new trees this year. When he drives his pickup truck out between the dusty rows of trees, he says he sees nothing but bounty and profit on the horizon.
"Almonds are like Las Vegas," says Mr. Hostetler, who eats almonds everyday and keeps a stash in his office. "It keeps growing, people keep thinking it's gotten too big, but still there aren't enough rooms."
Write to Malia Wollan at malia.wollan@wsj.com
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