PRESIDENT’S CORNER
“...restoring confidence is equally
important and represents the greatest
challenge today.”
Doug Youngdahl
A
s the 2008 harvest began, sales of 2008 crop were occurring
at price levels that were higher than those a year earlier for the
2007 crop. The almond industry was undaunted by the challenge
of effectively marketing a third record crop in a row for a number of
justifiable reasons:
v2007 crop year shipments had surged to a record
1.26 billion pounds;
vDuring each and every month of the 2007 crop year,
shipments had reached new record levels;
vDomestic per capita consumption had risen to over 1.3 pounds,
up 7% over the prior year;
vThe U.S. Dollar was weaker versus most foreign currencies;
vAided in part by a favorable exchange rate, export shipments soared more than 24% above the prior year;
vCompared to other tree nuts, almond prices were at exceptionally attractive levels representing great value;
vMarket prices were on track to support a profitable year for growers.
Overall, the industry was well positioned
for another successful year.
Then the calendar was turned to September with the unwelcomed
news of a global economic crisis not witnessed since the Great
Depression. The subprime mortgage market collapse precipitated
a domino effect that unveiled a flawed financial system and a full
blown financial crisis emerged.
Fueling the rapid growth of subprime loans had been the “creative
genius” of some on Wall Street. These gurus packaged mortgage
loans into complex securities that somehow gained attractive credit
ratings. The securities were then easily sold into the global financial
market. When it became apparent that the securities were flawed,
a number of global financial institutions holding these securities
were pushed to the brink of insolvency. Confidence among financial
institutions evaporated.
1 January | February 2009
The federal government responded rescuing Citigroup and then
the insurance giant AIG. Lehman Brothers failed. Over $700 billion
was allocated by Congress to add liquidity in a stalling economy
while the Federal Reserve pumped out more than $1 trillion in new
credit.
In any credit crisis, capital, liquidity and confidence are the three
pillars supporting the financial system and the performance of each
banking entity. While strengthening liquidity and capital are key
elements, restoring confidence is equally important and represents
the greatest challenge today.
Unfortunately, we have come to recognize that the California
almond industry is not insulated from the global financial crisis
challenging the world. The erosion of confidence in the financial
markets has been observed by all of us within the food industry,
mostly at arms length. Needless to say, we are much better off being
in the food industry than in the auto industry.
From our vantage point, we have witnessed industrial customers
react to the unforeseen global financial news by becoming more
cautious in their purchasing. Many customers have sought to reduce
inventories just in case their sales of almond products decline. In
addition, most lending institutions have set tighter and more rigid
credit standards with customers. These conditions have led to
a slowdown in the short-term growth of our industry sales and
shipments.
Let’s look at the numbers. The California almond industry entered
the 2008 crop year with a carry-in working inventory totaling 231
million pounds. The NASS 2008 crop forecast is 1.5 billion pounds.
Overall, net saleable supply is expected to be 1.68 billion pounds.
Given consumption trends, shipments from the 2008 crop are
forecast to increase by a modest 8% to 1.36 billion pounds. Given
these estimates, ending industry working inventory on August 1,
2009 becomes 320 million pounds. While the level is higher than
recent years, it remains reasonably low as a percent of forecasted
shipments.
Through the first five months of the 2008 crop year (August
through December), California almond shipments have been flat
versus last year, falling short of the 8% increase forecast for the year.
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. During the past 90 days, prices have
steadily eroded to levels not seen since the beginning of the decade.
Almond Facts
In spite of the current erosion of confidence that has negatively
impacted the market and slowed shipments, there is no evidence
to support that global consumer consumption has slowed. On the
contrary, supply pipelines and working inventories are being drawn
down allowing end users to continue to consume almonds at record
levels. Over time, attractive prices will encourage even greater
consumption and the market will ultimately follow demand. The
2008 crop season has many months remaining before the “average
grower return” becomes clear. In addition, eyes will soon turn to the
upcoming 2009 crop bloom.
As the 2009 bloom begins, many of the record producing orchards
from the last three years are not expected to be as productive in
2009, even with desirable bloom conditions. Besides weather
concerns, water availability will become another constraint as
California enters the third drought year in a row. Approximately
215,000 acres of almond orchards depend upon water flowing out
of the Delta that may be significantly curtailed during the growing
season.
Bearing acres for the 2009 crop are estimated to increase by
approximately 40-45,000 acres bringing the total above 700,000
acres. While this growth potential will offset some of the bloom
and water concerns above, almond tree resiliency after three
record crops, bloom weather and water availability for irrigation are
expected to be the major issues that will restrict 2009 crop supply.
While we are all anxious to see the global financial markets
recover, it remains incumbent on the almond industry to continue
to work together to promote global expansion and translate new
demand into profitable returns for all growers. Despite slowing
growth in other industries amid uncertainty and turmoil, it is not
unrealistic to envision a successful outcome for our amazing almond
industry in the months and years ahead.
Almond Facts
January | February 2009 2