What's Going On with the Almond Market?
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The pandemic was tough on the almond industry. From a pure price perspective, almond growers are getting ~$1.70/lb for their product today, below the $2.50/lb seen in recent years and down from the all-time high of $4.00 in 2015.
But that’s hardly the whole story. Global almond demand is as high as ever, and the industry is seeing larger shifts that involve ongoing pandemic recovery, groundwater management efforts in California, and a market that is and historically has always been cyclical.
We talked to Alex Kitson, an Investment Associate on our permanent crop team and co-author of our newly released Almond Market Update, about what’s going on in the almond industry and what would be helpful for investors to know.
What challenges is the almond industry experiencing right now?
So, there are several things happening at once.
First, there’s a backup in exports. California produces ~80% of the world’s supply of almonds, and ~70% of this has historically been exported. During the pandemic, U.S. demand for Asian made goods skyrocketed, which meant freight ships made more bringing in imports than carrying away exports. That left a lot of almond inventory sitting around in California. Coupled with a strong crop in 2020, that’s temporarily pushed prices down over the past two years.
Secondly, these reduced prices are coming at a time when growers are experiencing increasing production costs. For example, fertilizer prices are high, partially as a result of the conflict in Ukraine.
Thirdly, and most importantly, water challenges in California are growing. With persistent drought and reduced groundwater availability—along with regulatory interventions to try to address those conditions—farmers are struggling to supply their orchards.
All of these factors together are resulting in acreage being removed from almond production.
How are water scarcity issues playing out in California?
The Sustainable Groundwater Management Act, commonly known simply as SGMA, was passed in 2014 to bring California water use in line with sustainable levels on a long term basis. It established a system of water districts, agencies, and detailed management plans to try to bring groundwater basins into sustainability by 2040.
Much of California’s almond acreage lies in overdrafted basins or outside of established water districts. Our analysis reveals that if, and as, water management agencies begin to implement the use limits outlined in management plans, vast areas of almond production in water-insecure regions will most likely be forced to adapt, either by paying higher prices for additional water or eliminating almond-growing acreage.
On the other hand, more water-secure areas are likely to see increases in almond acreage.
What is AcreTrader’s long term outlook on the almond market?
We believe U.S. almond production growth has plateaued due to
- the implementation of groundwater regulations mentioned above,
- the migration of almond acreage from water-stressed areas to areas with greater water security, and
- the natural removal of older orchards, particularly in water-stressed areas.
Among other tailwinds for the almond industry, positive consumption trends continue globally at a clip of around 6% annually according to USDA data, and California remains the supplier of about 80% of the world’s almonds. In other words, California’s almond industry isn’t going anywhere.
Thus, we hypothesize that orchards in water-secure areas stand to have greater appreciation over time.
What do investors in AcreTrader almond orchards need to know?
One, generally speaking, almond markets are cyclical. New supply often runs at a lag to pricing, driving a pattern of cyclical peaks and troughs, largely due to the fact that new almond plantings take approximately 6 years to reach production.
Two, location is everything when it comes to California almond orchards. Specifically, is it located in a water-secure area?
Three, AcreTrader’s due diligence processes around water availability are downright obsessive, particularly with almond orchards, particularly in California. When evaluating potential offerings for the platform, we:
- Read the applicable water management plan carefully to ensure the “Sustainable Yield” (how much can be pumped without overdraft) is sufficient—when supplemented by surface water—to grow almonds.
- Look for properties with reliable dual-source water and/or sustainable aquifers.
- Examine property-specific nuances such as riparian surface water rights tied to the property, ability to bank water for later years, and irrigation system efficiency, among other factors.
- Base our financial models on documented, long-term historical trends without making assumptions around changes in supply or pricing beyond what historical trends indicate.
For a more comprehensive look at these factors and others affecting today’s almond market, download the full Almond Market Update from AcreTrader’s permanent crop investment team.
The above content is not intended to be a comparison between products, but is intended for general, educational and informational purposes only. Any performance noted is historical and there is no guarantee any trends will continue. All investing involves risks, including the complete loss of principal. Diversification does not guarantee a profit or protect against loss in a declining market. It is important for each investor to review their investment objectives, risk tolerance, tax liability and liquidity needs before investing. Investment vehicles have differences in fee structure, risk factors and objectives. Investments are considered speculative, involve a high degree of risk and therefore are not suitable for all investors.
The information above is not intended as investment advice. Data referenced herein is sourced from USDA, Freightos, Almond Board of California, St. Louis FRED, Public Policy Institute of California, California Department of Water Resources, LandIQ, California Natural Resources Agency, Electronic Water Rights Information Management System, Wastewater Research, NASDAQ, and California ASFMRA, with additional calculations and analysis performed by AcreTrader. Past performance is no guarantee of future results. For additional risk disclosures regarding farmland investing and the risks of investing on AcreTrader, please see individual farm offering pages as well as our terms and conditions. Clicking some links in this article will take you to websites independent of and unaffiliated with AcreTrader. The information and services provided on these independent sites are not reviewed, guaranteed, or endorsed by AcreTrader or its affiliates. Please keep in mind that these independent sites' terms and conditions, privacy and security policies, or other legal information may be different.
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