| The nation’s tree nut industry – which has enjoyed rising prices even in the face of increasing yields, defying the basic economic tenet of supply and demand – may be in for a bumpy ride, according to a new research report.
As growers continue to plant new orchards, global demand is expected to weaken, leading to a report from CoBank. The good news is that growers’ margins should remain positive through 2017, but operating profitably after that will become increasingly challenging.
Fueled by soaring nut prices over the past 15 years, growers worked to fill a seemingly insatiable demand for U.S. nuts, resulting in thousands of acres of newly planted trees that will soon begin bearing nuts. It is estimated that by 2020 as much as an additional 1.2 to 1.3 billion pounds of walnuts, almonds, and pistachios could enter the market — up 35 to 38% from the 2015 crop.
“The key question is whether the market can accommodate this projected increase in supply,” said Christine Lensing, senior economist with CoBank’s Knowledge Exchange Division. “Prices may need to ratchet lower to adjust to the growth in supply, resulting in margin compression for U.S. nut growers.”
Over the past few months, nut prices have decreased by nearly 50% from the record highs seen in 2013 for walnuts and pistachios and from the 2015 levels of almonds in response to waning demand in developing and traditional markets. Some have argued that the rebalancing of prices was inevitable, if not long overdue, as nuts were starting to price themselves out of the market.
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The nut industry faces other challenges as well, including a stronger U.S. dollar, water supply issues, increased global production, and slowdowns in growth in China and other emerging economies which have been key engines of growth for the industry over the last decade.
Lensing notes that lower profits for the nut industry could result in a shake-out of growers and as well as the pulling of older, less productive and less profitable orchards in California and elsewhere.
“Grower profitability will suffer in the short term,” said Lensing. “However, we are cautiously optimistic about the U.S. nut industry’s longer-term outlook. The recent price corrections should re-invigorate domestic and global demand, and long-term consumption trends remain bright.”
A video synopsis of the tree nut industry report, “Is the U.S. Tree Nut Industry Nearing the End of Its Golden Run?” is available at CoBank’s YouTube page. |
May 20, 2016 
