Spend Matters welcomes this guest post from Jara Zicha, of Mintec.
This time last year, almond markets were slowly climbing up to price levels never seen before. California, the main almond producer, was in a state of prolonged drought, with 2015 being the driest year on record. Weather during the winter months of 2014/15 did little to replenish empty water reservoirs, and as a result almond production was forecast to fall for a second consecutive year, from more than 2 billion pounds in 2013/14 to 1.8 billion pounds in 2015/16.
One year on and almond prices have just started to recover from the lows reached earlier in April. Prices plummeted 55% between July 2015 and April 2016 to their lowest level since February 2012.
So, what has caused such a rapid decline in prices?
Firstly, we have to look back at how the 2015/16 crop ended. Initially projected by officials at 1.8 billion pounds (some unofficial estimates pegged the crop even lower at 1.7 billion pounds) production is now expected to have reached 1.9 billion pounds, slightly up year-on-year. Interestingly, the increase in production has been realized despite the severe drought seen last year. The answer here might lie in improved irrigation management or sturdy resilience of almond trees.
Secondly, the demand started to crumble under the heavy weight of historically high prices. Demand for almonds is often expressed in form of shipments as reported by Almond Board of California. Lower shipments in the second half of the last year were an indication of falling demand.
Lastly and most importantly, California has received much needed rain brought about by El Niño. There were reports of adequate snow cover and heavy rain showers during the winter months and early spring, which filled the depleted water reservoirs. Significantly for almond production, rains stopped during the flowering in February, allowing almost perfect bloom for the upcoming new season crop.
Following the successful bloom indicating strong crop for 2016/17, currently estimated at 2 billion pounds by the USDA, prices touched bottom in April. Prices have risen more recently as some demand has returned into the market.
It is likely that production will eventually exceed the current forecast. We have seen it for the 2015/16 crop and we’ve seen it often in the past. After all, almond orchards in California have received much needed rain, reservoirs have been largely replenished and bloom has been perfect. As such, we can almost certainly say that almond prices will remain low for the time being.