Almond Profitability Shelled in 2022

Almond shipments in the 2021-2022 marketing year finished 10 percent below the prior year. Most of the contraction was due to poor exports, which were 11 percent below year-ago levels. Exports in the first two months of the 2022-2023 marketing year are the lowest since the 2019-2020 marketing year.

Almond exports have been hindered by supply chain issues, as almond shippers had difficulty finding timely transportation and access to ports. Moreover, exchange rates have significantly increased further driving the cost of U.S. almonds for importing countries. As a result of poor exports, uncommitted almond inventory in August was above 253 million pounds, a record high, and carry-in inventory was above 836 million pounds, also a record high. As a result, almond prices have remained subdued for the remainder of the old crop as well as the current new crop prices.

Although supply chain pressures continue, there is some hopeful news for the industry. Strong collaboration between the almond and transportation industries and government agencies have reportedly offered some relief to the tight supply chain.  These industry and government efforts will be vital in moving both the old and new crop almonds amid continued supply chain pressures.

Total production of the new crop of almonds is expected to be lower than normal. The USDA’s Objective Measurement of almond production is about 11 percent below year-ago levels.

Many in the industry expect final production to come in lower than the Objective Measurement, as continued drought stress has hampered the crop. For example, the weighted Drought Severity and Coverage Index (DSCI) to each county’s share of almond production is the fourth highest (or deepest drought) in July, an important month for almond yield determination, since 2010. Typically, high drought stress in July has resulted in smaller yields. Some marginal orchards in limited water and productivity areas may also have been removed, also impacting final production.

A smaller almond harvest should help reduce total future inventory of almonds. However, I expect prices for almonds in the short run to remain subdued given the large uncommitted inventory and uncertainty around transportation costs and supply chains. As the market gains clarity on current crop production and transportation costs, there could be some upward potential.

Near-term profitability considerations

Subdued yields and prices will negatively impact gross receipts for the current crop. Additionally, production costs for almond producers significantly increased in 2022.

Using the cost breakout from UC Davis and production costs from the USDA, current production costs are significantly higher for most almond-producing regions. This significant run in the cost of production comes during a period when gross receipts are least able to cover the cost increase, making it likely that near-term profitability for many almond producers will be severely limited.

Almonds, like most commodities, are prone to express a cyclical movement of profitability that producers must manage through. Land values for almond orchards in good water have generally appreciated. For example, the average almond orchard value in the Turlock Irrigation District has increased about 15 percent over the last 5 years. The strength in almond orchard land values indicates that the current tightness in liquidity have not resulted in solvency issues. Additionally, the appreciation of orchard values could provide additional equity to help producers manage through tight profit margins.