Almond Oversupply Risk Tied to Shifts in Weather, Acreage

Producers brace for wildcard impact of water regulations

The almond industry has enjoyed over 20 years of robust growth and generally favorable economic returns. Yet, over the past five years weather-related challenges such as frosts and droughts have kept yields relatively flat. The result is tight almond supplies coming out of 2018-19; the industry is currently sitting with the tightest stocks-to-use ratio in 12 years. The tight supply and strong demand are driving almond prices up and near-term almond acreage plantings are expected to increase as a result.

Growth in almond acreage creates the potential for a future oversupply if the industry experiences an extended period of good weather in the years ahead, according to a new report from CoBank’s Knowledge Exchange division. The report evaluated scenarios in which almond planting rates continue at elevated levels seen in recent years and, alternatively, if planting rates fall to as low as 20,000 acres per year.

“The elevated planting rates of the past five years will be felt over the next several years,” said Crystal Carpenter, senior economist, specialty crops, CoBank. “However, if the supply situation is resolved and favorable yields follow, we can expect planting rates to fall to more historic averages in coming years.”

The risk of an oversupply of almonds over the next five to 10 years depends heavily on what happens with yields. California’s average almond yields grew 150% between 1980 and 2013, but have hovered around 2,100 pounds per acre since then.

Two wildcards affecting U.S. almond yields are weather and California’s Sustainable Groundwater Management Act. Southern California is more reliant on ground water, so it’s reasonable to expect growth of almond acreage to concentrate in northern California.

“Per-acre yields in northern California are 28% less than in southern California, meaning that overall yields would flatten,” said Carpenter. “In this scenario, the industry may be undersupplied and unable to meet almond’s expected strong demand growth. Prices would increase to incentivize greater acreage growth and curb demand.”

However, a return of normal weather patterns could mean a return to the growth of pre-2014 trend yields and create an oversupply. In this scenario, prices would drop to stimulate additional export demand, namely from China and India. Although with the high demand potential in these countries, prices would not have to drop very far to achieve the needed growth.

Watch a video synopsis and read the report, “Almond Outlook: Risk of Oversupply?” at cobank.com.

About CoBank

CoBank is a $136 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 70,000 farmers, ranchers and other rural borrowers in 23 states around the country.

CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.