November 2018 Almond Market Update

Strong shipments. Strong sales. Crop receipts slowing. Market firm.

Brisk demand for prompt business has had packer capacity heavily booked over the past couple months and it comes as no surprise after a strong October number that November shipments have followed suit. California shippers reported shipments of 237.6 million lbs in November, up 4% versus shipments of 228.5 million lbs a year ago. In context, the 237.6 million lb figure is the 3rd largest shipment month ever and is quite remarkable considering that the Thanksgiving holiday cuts into production time.

Amongst anticipated performances there were a few bullish surprises in the country by country figures.
China and Vietnam shipments together totaled 53.1 million lbs, up 46% versus 36.5 million last November. After a slow start to the season amidst tariff concerns, China/Vietnam season to date shipments are now slightly ahead of last season (120.9 million versus 118.6 million). We do note a string of high profile importer arrests in southern China in November that came too late to put a crimp in November Chinese shipments, but will likely significantly slow December forward activity.
Middle East activity is finally picking up, with strong shipments to the UAE (up 47%) and Turkey continuing to pull decently despite additional duties. Total shipments to the Middle East region were up 8% for November at 19.9 million lbs. Bellwether domestic shipments, as expected, were up 5% at 64.2 million lbs.

Lackluster shipments to Western Europe, off 6% at 45.9 million lbs, although expected should keep exuberance in check.
Indian shipments were off a sharp 38% at 18.7 million lbs in November, with season to date shipments now lagging by 8%. Several good reasons for Indian weakness can be cited, but primarily Indian buyers have been cautiously watching Chinese activity this year and have not jumped in wholeheartedly. Ironically weak November shipment numbers will be bullish for the local Indian market.

Season-to date shipments are now at 808 million lbs, down 3.2% versus shipments of 834 million lbs last season. This is a marked improvement from the first two months of the season when a late crop throttled shipments to 10% behind last year’s levels.

Commitments at 589 million lbs are practically unchanged from last month, as new sales of 240 million lbs essentially replaced shipped pounds. Although a little down from October sales of 276 million lbs, this the biggest November on record and reflects a very active market. The industry sold position consequently increases by about 10% to about 60% of the anticipated crop. Although this is less sold than last year at the same time (67%), the jump in the sold position brings the industry more in line with a typically sold position for this stage of the season and reduces the concern for future selling pressure.

The “anticipated crop” becomes increasingly important. For the above sold position we are putting the crop at 2400 million lbs (50 million lbs lower than the NASS Objective estimate). Although it is still too early to accurately make the call, the end November receipt number of 1987 million lbs is a little disconcerting with only 433 million lbs added for the month. Last year at the end of November receipts stood at 1993 million lbs, with 464 million lbs added in November. We know the industry hulling capacity at about 720 million (the October number), so the slow down either means that the crop is not there or that hullers are leaving more in the stockpiles than usual. Perhaps a little of both is true.

Reflecting all the above concerns for the crop, production capacity and brisk demand prices have firmed significantly since our comment a month ago. The bottom of the end of the market (standards and smaller Californias) has received the most upward pressure, adding about 35 cents during the month (standards moving from $2.35 to a current $2.70 per lb). With top end of the market (Nonpareil) adding only about 10 to 15 cents per lb (Nonpareil Extra 23/25 now at about $3.15 to $3.20 per lb), the spread between the various varieties, grades and sizes has become “scrunched”.

Looking forward, Chinese arrests are a cause for concern and we can expect some reselling and slowdown in Chinese imports over the next month or two. Nevertheless, the bulk of Chinese New Year shipping has now been completed, so a slowdown from here will not have a severe impact. Additionally, California shipper expectations have been modest as Chinese demand will likely look to duty free Australian supply after March. At the same time the prospects for Indian market are good. They are believed to be uncovered and we expect an increase in Indian buying activity over the next month or two.

For now the bulls are in control. Packer capacity is believed to be booked for December and now stretching into January. This portends well for December and January shipments despite the strong shipments in these months a year ago. Sellers have adjusted well to the hand-to-mouth approach we have seen in the market this season and we cannot expect the pattern to change over the next month or two.

The crop number will be better understood in January as December receipts are reported. The November receipt number, however, should give any buyer that was waiting for a 2450 million lb crop to materialize cause for concern. Another tight transition to the next crop might be on the cards if the final crop is significantly lower. We can expect sellers to increase their offer levels over the next few weeks as they test buyer resolve.

Regards,

Jonathan Meyer
CEO
Treehouse California Almonds, LLC.