The pistachio bloom is behind them now in California, and water shortages and navel orange worm pressures lay ahead. Expectations for the 2014 crop are lower now than before the bloom. Above normal rainfall in February, March, and April has not eased the regulatory drought in California agriculture. Shipments continue to lag behind last year, with minimal sales activity on old crop and some interest in booking 2014 crop, mostly from Europe.
The pistachio bloom was unusual; most have never seen such a disparity in bloom between the male and female trees. The females were the precocious ones, blooming well over a week ahead of the males. In addition, the bloom was very protracted. In numerous orchards the bloom on the north side of the trees was well ahead of the bloom on the south side of the trees!
If you’d like to read more about the bloom, here are two excellent articles from UC Farm Advisors Bob Beede (emeritus) and Craig Kallsen:
(piece on chilling starts on 3rd page)
Typical of the industry, they really don’t know the impact of the bloom. That being said, most only see potential for the unusual bloom to reduce the size of the crop. The disparity in bloom timing between male and female trees may impact the crop; the variation in bloom will impact the crop size. 2006 was the last time they saw poor chilling and variable maturity similar to this year. The 2006 crop was disappointing, and less than what was estimated by the industry. In looking back, it was mostly due to high blanking (bloom issue) and lower recovery of pistachios from the orchard.
Generally, pistachios are a one time harvest. If the maturity on the tree is such that 20% of the nuts are immature, 60% are mature, and 20% are overripe, the recovery will be different (and much less) than a situation where 5% of the nuts are immature, 90% are mature a, and 5% are overripe. Looking at the tree from May to August, one can’t see these maturity differences, but they are there, and account for a large part of the uncertainty about the crop each year. In recent years, many growers have gone to multiple harvests, and this helps some, but does not eliminate increased losses when there is great maturity variation.
Water availability is still the number one issue in the California pistachio industry, and for California agriculture in general. Well above average rainfall in February, March, and April has not appreciably reduced the drought. Water allocations are still at zero to 5%, and tens of thousands of permanent crop acres (almonds and pistachios primarily) have limited or no surface water. Due to pistachio’s salt tolerance, we continue to believe water shortages will not impact the 2014 crop in a significant way.
Shipments continue to lag, especially domestic inshell shipments. The one bright spot is the kernel business. It was expected for kernel volume to increase this year, as there was more shelling stock (closed, stained, etc.) in the 2013 crop than the 2012 crop. What wasn’t expected were the 20% to 30% price increases in addition to the 20 % volume increase. Pricing of current inshell and kernels are in the $5/lb range for inshell, and $10/lb range for kernels. There has been some inquiries on the 2014 crop, but most of this interest is at prices significantly lower than current crop pricing. Given the uncertainty about the 2014 crop due to bloom and water issues, many don’t expect much activity.
The estimated numbers being bounced around for the 2014 crop prior to bloom was 600 to 650 million pounds. Post bloom appears to be a range as 500 to 600 million pounds. Less crop AND greater uncertainty about the crop size is the overall feeling for the 2014 crop.
The 2013 harvest is complete, and through the end of September, the US crop receipts were slightly more than 460 million pounds. Given that 95% to 97% of the crop had been received by the end of September, we expect the final total to be about 475 million to 480 million pounds. Quality was slightly better than the 2012 crop; insect damage was slightly less than 2012, closed shell was bit higher, and nut size smaller than 2012.
The reduction in crop between the 2012 and 2013 crops was open inshell. Closed shell and shelling stock tonnage is close to the same as last year, but less than both the 2010 and 2011 crops. The reduction in crop size, along with a smaller than expected Iranian crop and expected small Turkish crop has reduced the available supply of pistachios for the world market in 2013/14. The result has been escalating prices, packers withdrawing from the market, and general confusion over the past 6 weeks.
The question in both buyers and seller’s minds is where the market will go from here. Many in the industry at this point believe that most of the available USA 2013 crop has been contracted or committed by industry packers, which could put upward pressure on prices. At the same time, most wonder about consumer acceptance of higher prices. Should there be a large decrease in consumer buying; a lot of the pistachios thought to be committed could become available later in the marketing year.
For most the pistachio harvest is now just about complete. What's left of the remainder of the crop will be mostly lower quality from trees being shaken for the 2nd time. The first harvest crop was mostly good quality with low NOW concerns.
For most, based upon our receipts to date, the does appear to be less than pre-harvest estimates, and significantly smaller than the 2012 crop. Whats surprising is that with all the new acreage in production, this was never thought a possibility by anyone in the industry a month ago.
The primary reason appears to be the lack of production from older trees. Most orchards 20+ years and older had average to poor yields, and much smaller crops than 2011. There are exceptions, but this is a trend weve observed, and have heard from a number of growers. Most missed forecasts on some older orchards by more than 50%.
The good news is the quality, given all the hot weather and high NOW pressure during the harvest season, has held up. Our stain and NOW levels are lower than 2012. Sizing is peculiar this year. Many orchards have mostly very large sized nuts, and a few groves have very small sizes. Overall, sizing is smaller than the past two years, but larger than we expected. We expect there to be an adequate supply of 18/20s, but expect the premium for 18/20s to hold at current levels, if not increase.
Pricing is a great unknown, but at the high price levels being indicated, consumer package sizes will be smaller, retail prices will be higher, and the effect on crop movement is not known.
Because the 2013 crop is considerably less than expected, one can guess that expectations for the 2014 crop are considerably greater than they were a month ago. That is the nature of an alternate bearing crop. As a result, no one in the supply chain will want to have excess inventory going into the 2014 crop. We could easily see prices fall later in the year, but it depends upon the consumer, and his or her acceptance of higher prices.
As of September 16th, 2013 pistachio harvest receiving is about 60 75% complete. Quality has been good, nut size in some places is turning out to be larger than expected, but the crop size is still uncertain, but trending toward a smaller than expected crop. There is requests to contract business, but many sellers have been reluctant to book further business until Paramount, the largest California processor, comes out with pricing for the 2013 crop.
As reported in early months, the greatest concern going into the harvest season was insect damage from navel orange worm (NOW). NOW damage is objectionable to consumers, and is highly correlated with the presence of aflatoxin in pistachios. 2007 and 2012 were years of significant NOW damage. Thus far, 2013 is trending above 2007, but below 2012 levels. The next week will determine if NOW is a nuisance or a market moving quality issue.
Other than the potential for NOW damage, the quality of the 2013 crop has been very good. The 2013 harvest season is the earliest in several years, and one of the warmest in memory. Typically they see a higher level of shell staining when harvest weather is hot, but that has not been the case this year.
There are contradictory messages as the industry tries to evaluate the size of the crop. A number of the early harvested fields fell below yield expectation, but in the last week this trend seems to have reversed. The first crop receipts (through September 30) report will be published about October 10th, and will represent most of the 2013 crop.
Last update we advised about pistachio prices being higher than the same period last year. In the intervening period prices have continued to move up, and up, and up. The 2013 crop continues to mature for an early start to harvest, and water availability continues to be affecting concern for growers.
Current pricing for US extra #1 inshell pistachios have moved up from roughly $4.00 at the beginning of July to the
$4.30 to $4.50 level at present. These are extraordinary price levels, and it is most peoples opinion in California, they are not real prices. Prices have been driven up by Chinese demand, and there are few, if any, sellers.
As we have reported in the past, there are not accurate estimates of the crop. The pre season pricing synthesizes buyer and seller opinions of the crop size, carryover from the previous year, and outlook for demand. As pistachios are grown in numerous locales, pricing incorporates opinions of not only the California crop, but Iranian crop prospects as well. There are a lot of other factors besides price that affect demand, but price is very important.
Pistachios continue to mature, and it appears harvest will start in about 14 to 18 days, with the bulk of the harvest activity beginning around 1-Sep. There continues to be a wide variation of opinion about the size of the 2013 California crop. Opinions recently are tending to be smaller than a month ago but the reality is that it is close enough to harvest to wait on real data and that is what many in California are now doing.
It is being reported that they are seeing a large amount of early split nuts in the Golden Hills variety. If Kerman, the primary California variety, shows a similar pattern, it could likely mean NOW (navel orange worm) will be a problem.
Water in California continues to be the only important issue to many farmers. Despite good prices for pistachios and almonds, many growers are forced to choose between exorbitant water prices or inadequate water supplies. In some cases, water cannot be obtained at any price. In the short run, this will have little effect on crops, but over a longer time period, it will only have a negative impact on crops.
As we have now come to learn about the development of a Pistachio Crop, it is very difficult to get a true handle on what will be until harvest begins.
The only thing that can be said about the 2013 California pistachio crop with certainty is that it is early. For the most part, those in California have never seen kernel filling to the extent that they have this early. It typically starts about July 1st. Due to the earliness of the crop and some new varieties coming into production, most would not be surprised to see some pistachios harvested as early as August 20th.
Beyond the earliness, not much is conclusively known about the 2013 crop. Most estimates still put the crop at 550 to 600 million pounds. There is a belief nut sizes will be smaller due to the warm spring weather. Opinion is split as to whether or not the crop will be high in closed shell. Early maturing crops with smaller nut sizes tend to have less closed shell nuts, but there is concern for many growers about having enough water during the critical nut filling stage from late June through August. Pistachio trees with insufficient irrigation during this period typically have higher closed shell percentages than fully watered trees.
Growers still have great concern about Navel Orangeworm (NOW) this year. Due to very high overwintering populations from the 2012 crop year, potential exists for significant damage in the 2013 crop. Also, of note, the potential for higher than normal staining exists in the 2013 crop. This is because that its been observed over the years that most growers tend to be a bit late in starting harvest during years of early maturing crops. This leads to higher stain levels for two reasons. First, more nuts are past maturity when harvested, leading to more hull break down and resultant staining in the field. Second, harvest temperatures are much warmer in August and early September. Higher harvest temperatures cause post harvest hull breakdown and staining to occur very rapidly.
In summary, although what appears to be a large crop in California, the concern over quality, higher stain, smaller nut size, and the potential for higher than normal NOW damage is out there.
Early indications are pricing for US extra #1, size 21/25 open inshell will officially open higher than last year. The sentiment behind a higher opening price is the expectation of a California crop similar to 2012, manageable carryin from the 2012 crop, and a smaller Iranian crop in 2013. Most expect premiums for larger sized and higher quality inshell pistachios to be greater than in the past, at least until the quality of the crop is known.
Earlier last month most Pistachio Industry estimates were around 500 million pounds. Upon further observation, the crop potential looks like it will be greater than 500 million pounds. Additionally, it looks like the crop will be harvested earlier than average, will likely have smaller sized nuts, and has the potential for greater than average insect damage.
As to yield expectation, the lack of objective crop estimates is well known. The pistachio industry has tried for decades to develop a model based on quantifiable data (nut counts, nut size, fill percentage, etc.) and gave up because the error rate of the estimates relative to the actual crop was too high. Since that time, most estimates have been based upon visual observation and feel. As such, they should only be viewed as opinions of the crop relative to the estimators opinion of an average or expected crop.
Even with the feeling that this years crop has the potential to be large, the complicating factor in turning an opinion of a very good crop into a number is the difficulty that the industry deals with. Over the past 20 years of California pistachio production, the alternate bearing cycle has changed 4 times. In 1993,1998, and 2010, the crop size exceeded the prior on crop, or put another way, there were back to back on years. In 2006, the crop was smaller than the prior years off crop. The industry does not yet know or understand the parameters that cause pistachios to produce back-to-back large crops, or back-to-back small crops. They do know the potential for back-to-back crops exists.
This year it is expected to be an off crop but a good crop. Add to the mix a huge number of young orchards being harvested for the first or second time, a severe drought affecting growers abilities to fully irrigate their orchards, and it adds up to an They don't know, but they think its big estimate, it become the best answer until the harvest begins.
What they do know about the crop is based upon the growing season to date. Until very recently, California's pistachio growing region had been much warmer than average. Pistachios bloomed on time, and are ahead of historical maturity. They expect the 2013 harvest to begin as early as the end of August. Warm spring weather increases the probability, but not the certainty, of smaller nut sizes and increased insect damage.
In summary, we've got a potentially large, but unknown size crop, with the requirement that it will take extra care to get it harvested to meet the quality demands of the market. That a large crop is on the trees is very good news as the industry appears to need large crops to maintain and grow demand.
Currently there are few buyers and sellers in the market. Prices quoted are all over the board. Some packers are quoting higher prices due to minimal unsold inventory. At the same time, there is very little demand from US retailers or export customers, as most have covered their needs for the remainder of the crop year.
Of particular note is the past two years record crops have continued to move at strong prices, with most of the crop committed to 3 months of harvest at record prices. Hopefully an early maturing and harvested crop should reduce disruptions between the crop years, and ensure a smooth transition from the 2012 to 2013 marketing years.
The It has certainly been an interesting period in the pistachio industry. Growers are happy due to 7 straight years of profitable returns due to strong demand for pistachios. Final grower prices for the 2012 crop are expected to be the highest in history. The question is will demand for pistachios continue to grow as it has for the past few years, and will it keep up with the expected increase in supply?
Domestic consumption of pistachios was flat for the decade from 1998 to 2008, and then it increased substantially from 2009 to 2011, and has flattened out this year. Second, the emergence of China over the past 6 years has been truly significant. The industry expects more pistachios to be shipped to China during this marketing year than will go to their domestic market. Chinese exports now account for 60% of all US pistachio exports!
The question is will Chinese demand continue to grow 20 to 30 million pounds per year? Given that California production increases will average 40 million to 60 million pounds per year over the rest of the decade, it will take continued growth in the Chinese market, plus a return to growth in the domestic market, plus growth in other established markets (Europe, Mexico, Canada), AND the emergence of new markets (India, Brazil, South Korea). It is a tall order, but the industry feels that given the past history of successful marketing, and the current marketing resources being applied against future demand, they remain optimistic.
Bloom is approaching, and the conversation about the size of the 2013 crop has started. There are estimates floating around in the 460 million to 550 million pound range. Given the 2011 crop was nearly 450 million pounds, and there will be 40,000 acres harvested in 2013 that werent harvested in 2011, one might think it is reasonable to assume a 500 million pound crop. Regardless of future demand, the industry needs a crop of this size (or larger) to meet current demand, and maintain momentum toward the large crops in coming years.
Prices for pistachios in todays market are hard to determine. There is little demand at current prices, and little quantity available for sale. Because of the thin market, prices are all over the board.
The 2012A few things are becoming clear in the development of the Pistachio market. First, the 2011/12 year was a huge year in terms of domestic and export shipments. Second, very little of the 93 million pounds of carryover inventory to the current year was marketable inshell. This has reduced the total 2012/13 marketing year total inshell supply. Third, Chinas demand for pistachios continues to roar ahead.
For the 2011/12 marketing year over the prior year combined, shipments were up 23%. In pounds, this represents an increase of 84 million pounds. Of note, shipments this past September were well below September of the prior year, and the opposite is true for October, when shipments set an all time record. This can be interpreted that most packers were short on product during September, and had to play catch up in October. Carryover open inshell inventory was 37 million pounds, and only 24 million pounds were shipped in September. Most of the 24 million pounds probably came from the 2012 crop, and most feel that much of the carryover inventory was not usable as inshell. Some of it may be blended into the new crop, but a good portion will probably end up as shelling stock.
In looking at Chinas role, they have become the elephant in the room. China last year accounted for 44% of all US pistachio exports. Exports to China grew 51% last year, and now account for 27% of ALL pistachio shipments. Two years ago China was the 2nd largest market, 45% smaller than Western Europe combined. Now shipments to China are 50% greater than to Western Europe. Chinese demand has fueled the current market, and accounts for most of the price increase this year. One might wonder what happens if the demand in China is disrupted in some fashion. The industry has been fortunate to have China emerge, but now they are very reliant on their continuing demand.
The 2012 US pistachio harvest is complete. It started at pre-season estimates of 600 million pounds and pricing for US extra #1 open Raw inshell prices in the $3.60 to $3.70 per pound range. It’s ended up with a 550 million pound crop and prices moving sharply higher. How high at this point is anyone’s guess, as we’ve heard $4.40 to $4.60 in recent days. Along the way, crop estimates dipped as low as 500 million pounds.
What we have been told about the crop is sizing was large, though smaller than the last 2 crops. Insect damage in some areas was much higher than the past 3 years, but not at levels as high as expected, and the closed shell percentage was low.
The 2011/12 marketing year saw big growth in shipments, up 20% over the 2010/11 marketing year. It appears that the recent run up in prices is intended to slow the rate of shipment growth to 10% to 15%, thus allowing a larger carryout to the 2013/14 marketing year.
It might be a smart strategy for suppliers to balance inventory and maintain steady growth, The difficulty in the process is that as an industry they don’t know the effect of a large price increase at this point in time, and they don’t know if the 2013 crop will be smaller than this year. Note that as a group, they didn’t even know the size of the 2012 crop halfway through harvest so its very hard to know the impact of all the young orchards coming into production, so 2013 production is a large question mark.
The 2012 Pistachio harvest is about 3/4 complete as of Friday. Most opinions about the crop size were in the 600 million pound range last week, and some smaller this past week. Paramount sent an email on September 20th to growers indicating their belief the crop was 600 million pounds, plus or minus. Others in the industry also had declared the crop at 600 million pounds. In the past few days some now are thinking the crop is 550 million pounds or less.
The quality of the crop is variable by region and grower. Navel Orangeworm (NOW) damage is the most
serious quality issue facing the California pistachio industry, and Nichols feared the 2012 crop damage from
NOW could be significant this year. Early deliveries increased their concern, However, from the middle of the season, it appears to be holding steady, and is not as widespread as past years. Nichols attributes the improvement in 2012 entirely to California pistachio growers, as they have managed the pest by harvesting earlier, and where necessary, treating for the pest.
Here are few quality bullet points about the new crop:
Closed nuts are low in this crop, as opposed to the 2011 crop
Dark stain and other shelling stock categories are high this year
The percentage of the crop available to sell as open inshell nuts is higher than average this year
Insect damage is the highest since 2007, but considerably less than the 2007 crop
We are rapidly approaching the end of the 2011/12 Pistachio marketing year and preparing for the 2012 harvest. Inventories of open inshell remain tight and growers and processors are expecting a large and early 2012 crop.
The year about to be completed has been a successful one for the California pistachio industry. Export and domestic shipments will break previous volume records at nearly record price levels. What was once the largest supply in the industry’s history (after the 2011 crop was harvested) is now less than 50 million pounds, or roughly 6 weeks supply. Subtract from that 6 week supply the open inshell that is less than Extra #1 quality, and it is likely there will be 3 to 4 weeks of US extra #1 supply on hand at September 1st, barely enough to keep retailers supplied as they transition to the 2012 crop. It is not surprising that price levels on the remaining 2012 crop have risen sharply.
It is expected that the 2012 pistachio harvest will begin the week of September 3rd, but not really get going until the middle of the following week. The only concern at this point is a large number of early split nuts that popped open in the past week. High numbers of early splits are generally associated with low closed shell %’s and higher navel orange worm damage (NOW). The most recent year of high NOW damage was in 2007, and there were high numbers of early splits leading into that crop.
New crop offers are out in the marketplace, and are generally in the $3.80 to $3.90 range for US extra #1 size 21/25 naturally opened inshell. 18/20’s are expected to be more scarce this year, and are about $0.20 higher. Kernel prices have not moved, and still appear to remain in the $6.50 range depending upon quality and foreign material.
The Pistachio market was quiet last month, and remains so for current crop. Prices of current crop have increased substantially over the past several months, and interest has now shifted to early shipment of the 2012 crop. The growing season has been mild, and the crop is progressing well. It is anticipated harvest will be later than average, but not as late as the 2011 crop.
Some interest in new crop contracts has begun. That being said there does not appear to be a lot of offers being made although pricing is firm for first shipments of New Crop. Minimum grower prices are announced in Late July. One thing is certain; price expectations for the 2012 crop are considerably higher at both the grower and processor level than they were just a few months ago.
Rather than the expectation of record crop and burdensome carryover that we had from the 2011 crop, discussions are about having sufficient supply to bridge the gap between the end of the 2011 marketing year and the first available crop from the 2012 marketing year, which for now, is keeping prices strong.
Last The inshell pistachio market has again switched directions in the past month. From a sluggish and weak market a month ago to now a firming market and what appears to be continued good demand at present. Increased shipments to both the domestic and export markets have given strength to the inshell market.
Kernel shipments imparticular continue at an impressive pace. Total kernel shipments thru February were up 48% over last year. Demand growth is very strong in the domestic market, as pistachio kernels continue to grow in popularity as both a snack and ingredient item.
On the surface, it seems to be a quiet time in the pistachio industry. Under the surface, however, there is a lot of activity. A number of processors are adding harvest-processing capacity in anticipation of a large 2012 crop. Growers have been nervous about harvest bottlenecks for the past 2 years, and the added capacity should alleviate some or all of their concern. The added capacity will generally improve the quality as well; more capacity means a shorter harvest and less waiting at the hulling facility, both of which enhance quality. In addition to the expanding of plants and planting of orchards, the California processing plants are running at capacity. All of this bodes well for strong shipment numbers over the next several months.
On the farming side, this spring will be another strong planting season, with more than 10,000 new acres planted. Over the past 8 years, California growers have planted more than 110,000 acres, roughly doubling the acres devoted to pistachio. Pistachio bloom will be considerably earlier this year than the past 2 years, but this is no guarantee of an early crop. At this point in time, prospects for a strong and fast bloom appear good. We’ll have something to report on the 2012 crop next month.
If February is any indication of things to come, the carry out could be less than the most optimistic (15% growth in shipments over the prior year) scenario presented. With the expectation now of a smaller US carryover, along with a relatively small Iranian crop and almost no Iranian carryout, some in the industry believe that price expectations for new crop are rising. It might be interesting to speculate upon new crop pricing a bit more but we think it might be best to wait till we get closer to harvest, when we have a better handle on the 2012 crop expectations and 2011 crop ending inventory.
Last month we looked at shipments to export markets, which until December had been driving record shipment numbers. December, 2011 exports were well behind year earlier numbers. Exports of open inshell pistachios rebounded in January, and are now slightly ahead of last year. Domestic open inshell shipments remain at record levels after a strong shipping month in January.
Prospects for the 2012 crop are strong. Chilling hours throughout the California production area are greater than required for good dormancy. Given the large acreage of young orchards (which generally require more chilling than older trees) prospects for a record 2012 crop are good. Rainfall has been much lower than normal this winter, but most reservoirs are near or above average levels after two very wet years, thus water availability should not be a limiting factor to the 2012 crop.
With the prospect of a large 2012 crop, carryout from the 2011/12 marketing year becomes an important issue. Open inshell shipments are up 11% this marketing year versus the 2010/11 marketing year; it is reasonable to expect a similar increase for the balance of the year. Thus it is likely the open inshell carryout will be 65 to 70 million pounds. Historically, this is a large carryout, but less than was carried into the 2011 crop (79 million pounds).
Supply is only part of the equation; demand will determine if a large carryover and record crop is an adequate supply or over supply. Suppliers ability to promote, competing nut prices, exchange rates, and sluggish European buying all factor into demand, as well as price adjustments over the remainder of this marketing year and into the 2012/13 marketing year.
Inshell pistachio shipments in January were a mixed bag. Domestic shipments continued on their strong pace and are up 34% year to date. Export shipments, on the other hand, slipped in December; year to date inshell shipments are now slightly below last year. Shipments to Asia in December were down 74% from the prior year, due mostly to reduced shipments to China and Hong Kong. The 2012 Chinese New Year, The Year of the Dragon, is on January 23rd, and is the earliest Chinese New Year in recent times. Chinese and Hong Kong importers brought in large volumes during October and November to prepare for gifting during Chinese New Year, so it is not a complete surprise that shipments were down. Shipments of inshell pistachios to the EU market were down 25% in December, and are now down 27% for the marketing year, with no sign of improvement. Historically high pistachio prices, a weak Euro (down 5% from January a year ago), and the European recession have combined to reduce demand in that market.
Harvest of the 2011 California pistachio crop was completed this month. While the final crop will not be published until December, Nichols feels with certainty that the final crop will be very close to the 447.8 million pounds received through the end of November. Open inshell was about 5% higher and closed shell about 5% less in the 2011 crop versus the 2010 crop. Insect damage was low, but slightly higher than the very clean 2010 crop. Stain levels in the 2011 crop were significantly higher than the 2010 crop, due to alternating hot spells and rain during harvest.
The crop size is a bit larger than most processors expected, but within the range of expectations. It certainly was not the surprise last year's exceptionally large crop provided. The 2011 crop was 16% less than the 2010 crop and the total supply for the 2011/12 marketing year is 4% greater (due to larger carry-in), but at the end of October, the total supply is 4% less than same period last year due to strong shipments over the first 2 months of the current marketing year.
Pistachio inventory is composed of open inshell pistachio nuts, closed nuts, and shelling stock. The closed nuts can be shelled for kernels, sold as closed (primarily to China), or mechanically opened into artificially opened inshell. The open inshell supply at this point in time is 19.6 million pounds less than last year, and the combination of closed and shelling stock is similar to last year. Carry-in open inshell to this crop was 79 million pounds, and a desirable level at the end of this year is about 50 million pounds. It will take only modest increases over last year's shipments from this point forward to reach 50 million pounds of carryout. The question is whether or not shipments from this point forward will exceed last year, be equal to last year, or less than last year.
In answer to that question, there are some facts in favor of increasing shipments, and some in favor of decreasing shipments. It is interesting that an important demand issue, the European debt crisis, has very little to do with the pistachio industry. It has a great deal to do with pistachio demand in Europe due to strength or weakness of the Euro relative to the USD. For the first two months of the marketing year, shipments to Western Europe are down 33% from 18.5 million pounds to 12.2 million pounds. It is expected that Western Europe demand will be less than last year, but doubt shipments for the entire year will be down by a third.
On the other hand, US pistachio shipments to Asia, primarily China and Hong Kong, are up 145% from 12.1 million pounds last year to 29.6 million pounds this year. The increased shipments to Asia gives credence to reports of a small Iranian crop, and while they dont expect a 145% increase for the balance of the year, they do expect shipments to China/HK to be strong, and greater than last year. Other export markets expected to show substantial increases are South Korea, due to the recently signed free trade agreement, and Mexico, where the 20% duty on US pistachios was eliminated. Other strong export markets include Canada and Australia due to strong currencies relative to the USD.
Domestic demand has been consistent, and some expect increases over last year due to slightly lower prices, strong industry promotion, high prices of competing nuts, and the pistachio health message gaining traction. In total, Nichols expects shipments from this point forward to be above last year, with carryout to next year close to desirable levels.
Harvest of the 2011 California pistachio crop is now in full swing, with about 1/2 of the crop having been harvested. Packers, Nichols included, still do not have a good feel for the size of the crop. Opinions as to the crop size vary considerably between packers, ranging from 400 million pounds to 450 million pounds. Nichols is of the opinion the crop is slightly larger than their fellow packers for the following reasons:
In general, this is not a real pretty crop. Closed shell, while lower than last year, is still higher than previous crops. Pistachios on the tree have matured quickly due to above average temperatures; the effect has been increasing stain levels. Insect damage is variable, but significantly higher than the 2010 crop. As of yet their fear of a bad insect year has not materialized, but a large portion of the crop is still in the field.
While Nichols believes the crop to be larger than other packers, they expect the crop to be heavy in shelling stock and closed shell, with a lower than expected percentage of marketable inshell (similar to 2010) due to increased stain and other defects.
Since our report last week, the year-end inventory and shipment report was released by the Administrative Committee for Pistachios (ACP). Shipments over the final months of the marketing year were strong, and the open inshell carry-in to the 2011 crop is less than expected.
Thus, despite the expectation of a larger total crop, the salable open inshell should be very close to last year's supply. What remains to be seen are the effects of ever increasing Chinese demand, the recent strength of the US dollar, and an expected smaller Iranian crop. The first receipts report for the 2011 crop will be released on October 15th, and we'll know more then.
Harvest of the 2011 California pistachio crop began earlier this week, and is ramping up quickly. Some early observations:
With a number of growers starting up over the next few days, we'll have begin to get a better feel for the size of the crop and if the crop quantity is meeting expectations. We will send out more information next week after harvest is well underway.
ShipmeIt is an interesting time of the year in the pistachio industry. Growers speculate endlessly about yields and the beginning of harvest. Packers speculate endlessly about yields and pricing. Retail and wholesale buyers ask packers about pricing, crop size, and quality, and receive endless speculation. It is a difficult situation when buyers want reliable crop size information, and it isnt there to provide.
Last year at this time, the crop size was variously estimated at 325 million to 375 million pounds, when in fact it was 530 million pounds. This year, the crop size is estimated at 400 to 450 million pounds, but everyone is certain it is smaller than last year. If it sounds like a paradox, it is. The result is that most business has been put on hold until a better read of the 2011 crop can be made.
As has been widely reported, the harvest will be late again this year. We expect some growers to start as early as September 6th to 10th, with most starting the week of September 12th. The peak should be the week of September 19th or 26th. Nichols is seeing a number of mature nuts on the trees this week. Nut size is large and similar to last year.
The disturbing feature they have seen going into the 2011 harvest is the number of prematurely split nuts. Prematurely split nuts are a good indicator of higher insect infestation during the middle and latter part of harvest. Last year there were very few prematurely split nuts, and low insect damage. This year, not only are there more prematurely split nuts, there are full sized nuts splitting prematurely as opposed to the typical situation of smaller misshapen nuts being prematurely split.
What does it all mean for the market? We think the current trades are based upon an expectation of a 400 to 450 million pound crop this fall. Should the crop go larger, most don't expect the market to hold as it did last year. No one in the industry wants a lot of carryover going into what is expected to be a record 2012 crop. On the other hand, should the crop come in short and/or be of lesser quality than previous years, some expect prices to move up, probably to levels above last year. Of course demand needs to be considered as well as crops of from the rest of the world.
Shipments during June were bullish for the market; up 63% from a year ago. They were strong in both the domestic (up 65%) and export (up 62%) markets. Most of the export increase was to Russia, India, China, and Hong Kong. These are typically price sensitive markets; so Nichols is assuming most of this business was done at lower price levels than USA or European business. Not surprising shipments are up from last year, as supplies last year were very tight for the last quarter of the year. Likewise, not surprising is the big increases to Russia, China, and India. There was an expected large carryover, and these markets have a capacity to absorb large volumes, provided pricing is attractive.
On the production side of the ledger, the 2011 crop is looking like 2010. Nut sizes are large due to an exceptionally cool spring. They expect a good supply of 18/20s and 21/25s, and small quantities of 26/30s and smaller. The crop is late in maturing, similar to 2010, and again it is due to the cool spring. Kernels began to fill about 10 days ago, and the percentage fill is high. Nichols does not expect the blanking issues of 2 years ago, which caused that crop to be smaller than expected.
It is nearly impossible to determine quality or crop size at this point in time, but one of the variables earlier in the year was production from 5 year and 6-year-old trees. This is important because there are an estimated 40,000 acres of these aged orchards, or nearly 25% of total bearing acres! We noted earlier in the year that these young trees had set an excellent crop, but we wouldnt know if they would contribute to the overall crop until kernels began to fill. Quite often young trees set a good-looking crop, but they produce mostly blank shells and very few pistachios. That is not the situation this year, as young trees have both set a good crop, and the nuts are mostly filling (not blank). In summary, the crop potential is getting larger due to big nut sizes and good fill rate of both older and younger orchards. Two years of adequate rain and irrigation water have not hurt either. Be cautioned as Nichols expectation of the crop is increasing, but until harvest begins, we really dont know how big it will be.
Pricing over the past month has strengthened, as most packers are sold out, and Paramount has control of remaining supplies at origin. Most of the product being traded is from users whove overbooked, but the market is very thin.
After a cold, wet, and windy almond bloom, California moved into a cool, windy and mostly dry pistachio bloom. Bloom weather was mostly favorable, and the overlap between female and male trees was excellent.
The most interesting development during bloom was the crop load on young trees. Many 5 & 6-year old trees had a great number of blooms, far greater than one usually sees at that age. Young trees are notorious for looking good at bloom, but having very light crops due to the lack of male pollen. With the favorable bloom weather, good pollen overlap, and large number of young trees (there are 40,000 acres of 5 year and 6 year old trees, and another 11,000 acres of 7 year old trees) this could be a year when production from young orchards is very significant.
Nichols Pistachio was, and still is to some degree, of the opinion that estimates of 400 million to 450 million pounds were on the optimistic side. After seeing the bloom and development thus far, they are becoming believers that a 400 million pound crop is possible. It is still very early, and as we all know, and have seen many times in the past, pistachio crops can be very deceiving in appearance. Note what was said in the May, 2010 market report as evidence:
"espite being slow in developing, the 2010 crop appears to be a better than average off crop. Young trees have heavy crops, but as is the case every year, appearances can be deceiving. The 2009 crop was shorter than expected due to high levels of blanking caused by poor pollination. The overlap between male and female trees this year was good, but untimely rains may have limited pollen, especially on young trees. Will there be a repeat of the blanking issues in 2009?
At this point in time, most packers believe the 2010 crop will be around 350 million pounds, plus or minus 50 million pounds.
The industry appears to be still on pace to carry out approximately 180 million pounds to the 2011 marketing year. It is becoming more difficult to estimate carryout due to changes in how inventory is calculated by the Administrative Committee for Pistachios (ACP). In the last inventory report, March 31, 2011, the ACP report arbitrarily wrote off 22 million pounds of open inshell, 47 million pounds of closed shell, and 8 million pounds of shelling stock. At the same time AO inventory was increased by 7 million pounds and kernel inventory was increased by 13 million pounds. None of these changes actually took place, so in the industry they are now faced with inaccurate crop estimates and a fair amount of uncertainty as to current inventory levels.
The market remains quiet in terms of new business. Domestic shipments have been steady and expected to remain steady for the remainder of the year. Exports in March were quite weak compared to last year. Year to date shipments are off 12% as compared to the record shipments of last year.
There remains a wide range in offering prices and availability between packers. We continue to be available to you for your questions and supply needs on Pistachios from Nichols
After much confusion over the size and reporting
of this years crop, the California pistachio industry finds themselves in
The 2010 crop is a record, at least 25% larger than the record 2007 crop. At the same time, prices are at historically high levels. When you dig into the numbers, the picture gets murkier. True, the 2010 crop is huge, however, looking at the October month end inventory shows open inshell levels are high, but 2% less than same period in 2007. Closed shell inventory, on the other hand, is more than double the maximum previous level in 2007.
The large crop size and accompanying inventory levels mean little in and of themselves. World supply is only up marginally, and it is expected that California will have a smaller crop in 2011. The unknown factor is consumer response to higher retail prices. This is further complicated by changes in exchange rates and retail price increases around the world being phased in over a several month period.
Consumer response thus far is unknown, but one can look at historical shipment and price data for clues to upcoming demand. When reviewing the average monthly open inshell shipments for the September-December time period and the full year (September-August) during each of the past 4 years against one can see shipments during the early season have increased rapidly from 17 million pounds in 2006 per month to 35 million pounds per month in 2009. The full season numbers show smaller increases, but were limited by shrinking inventories and late season price increases during the past 2 years. In addition, there was a price increase similar in magnitude to this year just 2 years ago.
At present, the inshell market remains stable. Prices fell a bit as the size of the crop became known, but have since firmed. Kernel prices are holding steady, as demand is keeping up with the ability of processors to convert shelling stock and closed shell into kernels.
Prices are beginning to take shape for the 2010
California pistachio crop. Current offers are up from opening offers of two
weeks ago. Volume is light, but picking up steam the 2010 harvest approaches.
Pistachio kernels remain in short supply. Pricing for kernels are expected to remain firm until late October, and settle when 2010 new crop kernels become available.
The 2010 crop remains an enigma. It's an off crop year, but most estimates put the crop size equal to or greater than the on 2009 crop. The crop bloomed late, and was followed by the coolest spring and summer in more than 10 years. Nut size appears to be large, but shells are thick, and there is concern the combination of large nut size and thick shells may cause higher than normal levels of closed shell. Typically, off years have lower levels of closed shell, and larger nut size. The question remains, is this an off year?
Last week Nichols saw the first fully mature nuts. Based upon that and conversations with growers, they expect limited harvesting to begin during the week of 6-September. Harvest should be fully underway during the week of 13-September. There appears to be little difference in maturity between the different production areas, so they expect the harvest to be compressed. Harvest usually begins 1-September to 5-September. The latest they have begun receiving pistachios in the past 15 years was in 2006, when they began on 14-September. 2010 is a late year, but it is not going to be the latest year on record.
Estimates of the crop range from 330 million pounds to 390 million pounds. Anything between 330 million and 390 million pounds is much greater than past off crops. The reasons behind higher expectations is due to:
1. Increased bearing acreage
2. Good crops on younger trees, few of which had good crops in 2009.
3. High nut fill percentage. In 2009 nut fill was much less than expected.
4. Large nut size but this can be deceiving.
5. Most orchards look much better now than earlier in the growing season.
Nichols estimate of the crop last month was 330 million pounds. Although the crop looks better to them than a month ago, 330 million pounds is still their best estimate.
We will continue to keep you advise once harvest begins, and we have an update on crop sizes and markets.
Following a cooler and wetter than average
spring, summertime temperatures in the pistachio producing regions of California
have returned to normal. Nut filling typically begins in early July. Nichols saw
nut fill begin between 10-July and 15-July this year, and while it was at the
latter end of the normal fill period, it was not as late as some had predicted.
2010 is an 'off' crop for California, and there is little pressure on hullers and growers to start harvest early. In recent years, the harvesting capacity in California has grown faster than the ability of processors to hull and dry the crop. As a result, harvest of 'on' crops start earlier in the maturity cycle than 'off' crop years so as to not overwhelm processors during the peak of the harvest season. Many growers shake early harvested orchards twice during 'on' crop years, but are reluctant to do so during 'off' crop years due to low yields. This year, growers will begin harvest late to allow the greatest amount of nuts to mature, and hullers will not be overwhelmed by a late start due to the smaller crop size. Later than average crop maturity and growers waiting longer to harvest will result in one of the later harvested crops in recent memory. Nichols doesn't expect the harvest to be in full swing until about the 17th to 20th of September.
According to Nichols, nut fill appears to be higher than typical this year, and is much better than last year. With this in mind, most estimates of the crop are slightly higher now than before nut filling began. On the negative side, later harvested crops are at much greater risk to elevated levels of Navel Orangeworm (NOW). Nichols estimate of the crop is 330 million pounds, but others in the industry believe the potential is greater. The fact is that no one knows the crop size until the crop is harvested.
NOW damage is the greatest quality risk to the effective marketing of California pistachios. Consumer tolerance for NOW infested nuts is very low, and NOW is prime vector of aflatoxin, which affects the industry's ability to export to key markets. Nichols doesn't yet know the risk of the 2010 crop to NOW infestation, but there is some good news, and some bad news about potential infestation levels.
The good news is that most California processors now pay significant premiums for deliveries with low levels of NOW. As a result, growers now have an economic reason to control NOW through sanitation, early harvest, and judicious pesticide applications.
The bad news is the potential for a late harvest. As outlined above, Nichols expects harvest to start late this year. Late harvested crops always have the potential for higher NOW damage. It will be interesting to observe how growers react to conflicting economic signals of the desire for late harvest to avoid re-shaking trees, and the incentive of premiums for low NOW. As the premiums for low NOW damage have only been in place for most packers since last year, its unknown how growers will respond.
Minimum grower prices for the 2010 crop have been announced, and at approximately $2.45 per inshell pound net to the grower, translate to wholesale prices for US extra #1, size 21/25 unroasted open inshell pistachios in the $3.70 to $3.80 range. These price levels are considerably higher than 2009 crop opening prices (close to $1.00 higher) Combined with larger crops in Iran and Turkey, it is not known if the opening price will correctly ration the shorter 2010 crop supply.
We do know pistachios will be in short supply during September and most of October. With minimal carry-in to the 2010 crop, and an expected late harvest, demand for early shipments from the 2010 will be strong.
As the crop matures toward harvest, well keep you updated!
In Pistachios, attention amongst suppliers and buyers has moved from current crop to the upcoming 2010 crop. Buyers are beginning to show interest/concern towards new crop pricing. Speculation is in the $3.50 to $4.00 range for raw US extra #1, size 21/25 open inshell pistachios. Some suppliers will most likely offer 21/26, 22/26, or another size instead of the benchmark 21/25 size.
Nichols does not expect pricing to firm, and offers to come forward until minimum grower prices are established in mid or late July. This year is looking to be a difficult year to determine the correct opening price for the industry, as there are many unknowns, and very little carryout to buffer unexpected shortages. Here's a short list of factors that will influence pricing, both before and after the 2010 crops are harvested.
2010 Crop Condition
Iran and California are the largest producers and exporters of pistachios. Iranian production is speculated upon, but the actual crop size is not ever known. The best estimates of crop sizes are determined months after harvest based upon export volume. Current news out of Iran is that Iran has a good, but not a great crop this year. Expectations are lower due to lack of chilling in prime production areas. It will be larger than 2009 crop, and much larger than the frost ravaged 2008 crop. Current estimates are 180,000 to 200,000 metric tons, or 400 to 440 million pounds.
The California crop was expected to be a better than average "off" crop. Due to a very cool spring, and well above average rainfall in April and May, many producers believe the crop potential has been reduced. Many nuts aborted due to the cool, wet weather. There are concerns pollination was affected by rains during bloom as well. Earlier speculation of the crop size at 300 to 400 million pounds has been replaced by estimates in the 300 to 350 million pound range. In addition to expected reductions in the total crop, the wet and cold spring has delayed maturity, and most growers believe harvest will be later than an average year. This will put more stress on the already expected low carry-in to the 2010 crop, and have a significant effect on early season shipments.
Through May, China has imported 55 million pounds of pistachios from California. Historically they like to buy cheap and run up prices, but if industry prices hold, one is unsure of what and how much they will purchase this year from California.
Shipments of California pistachios to the domestic market are up 42% from the prior year. If wholesale prices this fall are 20% to 30% higher than last year, effecting retail and promotion pricing it will certainly have an effect on consumer purchases but to what extent is unknown.
From August, 2009 to December, 2009, the euro, on average, purchased 1.46 US dollars. Currently, the euro will purchase 1.23 US dollars, and exchange rates are volatile. We know the euro will be weaker against the dollar this fall as compared to last year, but don't know how much weaker.
It's been quite an
interesting ride in the pistachio industry during the 2009-10 marketing year.
The industry started the year with similar October inventory levels to prior
years (with the exception of 2007, which was much higher), but due to very
strong shipments, the April month end inventory is the lowest in many years.
This translated to the rapidly increasing prices we saw over the past 6 months.
Pistachio shipments finally began to slow in April. Open inshell shipments averaged 32.5 million pounds for the first 7 months of the marketing year. In April, 19.6 million pounds were shipped. With only 79 million pounds of open inshell inventory remaining at the end of April, shipments will have to slow further over the remaining 4 months of the marketing year if supply is expected to last.
Pricing will most likely hold firm or increase over the remainder of the crop year. Most packers are sold out, nearly sold out, or oversold. Open inshell inventories held by packers at the end of the 2009-10 crop year will be close to zero. In fact, if it were not for some position re-sells, pistachios purchase opportunities would be limited.
Exacerbating the problem of minimal carryout inventory has been what appears to be the slow development of the 2010 crop. Weather in California has been unusually cool and wet during April and May, and the 2010 crop is behind normal development for this date. As a result, harvest may well start later in September than usual, and new crop shipments will be delayed. Its suspected that there will be a significant premium for September /October shipments from the 2010 crop.
Despite being slow in developing, the 2010 crop appears to be a better than average off crop. Young trees have heavy crops, but as is the case every year, appearances can be deceiving. The 2009 crop was shorter than expected due to high levels of blanking caused by poor pollination. The overlap between male and female trees this year was good, but untimely rains may have limited pollen, especially on young trees.
At this point in time, most packers believe the 2010 crop will be around 350 million pounds, plus or minus 50 million pounds. Obviously, a 300 million pound crop will command higher pricing than a 400 million pound crop, especially this year when the carry out from the 2009 will be miniscule.
The The rapid increase in
prices over the past 2 months indicates packers at origin are fully committed.
The prices are extraordinary, but very little volume is changing hands at these
The message remains the same. Very strong demand in Asia, particularly China, and in the USA has absorbed the entire 2009/10 supply. Shipments remained strong in January, though not at the record levels set in December. Shipments to China are triple last year. To put this in perspective, shipments to China are nearly equal to exports of all of Western Europe. Shipments to the domestic market, still the largest market for California pistachios, are up 38% versus last year.
Remaining inventories will only support shipments at 18-20 million pounds of open inshell per month, versus 35.5 million pounds per month for the first 5 months of the marketing year. The good news is that export shipments are expected to drop off substantially over the remainder of the crop year, particularly to China. Retailers in China sell enormous volumes during Chinese New Year, which requires a large export volume to China early in the crop year.
Due to the supply shortage expected this summer, interest in the size of the 2010 crop in California and Iran will be high. General expectations for the California crop are 300 million pounds to 400 million pounds.
The last off crop in California was 2008, with total production at 278 million pounds. Californias bearing acreage in 2010 will be at 137,000 acres versus 118,000 acres in 2008, an increase of 16%. The additional acreage into production is young, and will not produce a full crop, but given the wet and cold winter, has the potential to add 25 million pounds to the total. Newly producing trees in 2008 are now two years older, and should produce 10 million pounds more than 2008. If older orchards produce the same as 2008, this gives up the potential for about 310 million pounds. Nichols believes 400 million pounds is optimistic, as trees fully producing in 2008 will have to produce 30% more in 2010 than 2008 to reach 400 million pounds. 300 million to 350 million pounds produced in 2010 is a more conservative estimate, but in their opinion, more like the range. Now heres the disclaimer: the track record of the industry at estimating crops is not good, as pistachios are unpredictable.
It is known that growers will take good care of their trees in 2010. Pistachios have been profitable to growers for the past several years, and as a result, growers are willing to spend what is necessary to maximize their crops. Available water supplies are still an issue, although marginally better than 2009 in the major producing areas, and considerably better in others.
The monthly shipment numbers
are in and Pistachio shipments in November continued their very strong trend,
both in domestic and export markets. Price increases are following the strong
shipment numbers. Export enquiries for new sales are decreasing as most
customers have covered their short-term needs.
Domestic shipments are up 17% over the levels of a year ago. It appears that strong promotional efforts have increased retailer promotions for the 4th quarter. Price levels in the domestic market still trail export pricing. Kernel prices in particular have been extremely strong, and continue to rise. There were limited carry-in stocks of kernels and shelling stock (closed shell, undersize, dark stained nuts) to this season, and as a result, limited availability of kernels. Adding to the shortage has been the requirement by most processors to have raw pistachio kernels pasteurized prior to shipment, which adds to processing times. The most difficulty continues to be the lack of availability.
Export shipments have been very strong. Shipments to China and Hong Kong are up 41% vs. last year, while shipments to the rest of the world are down slightly. The increase in Chinese shipments is not surprising. As China attempts to increase its domestic consumer market, it is buying larger quantities of a variety of foodstuffs. Most notable in comparison to pistachios is the large increase in almond shipments to China this year. Almond shipments to China are up 65 % this marketing year vs. last year, on a par with the increased pistachio shipments.
As always, let us know of any specific questions that you may have. We wish for continued prosperity to our customers in the New Year, and for a joyous holiday season.
Pistachio prices are
continuing their upward march since before the 2009 harvest began. Increasing
Shipments with a smaller supply than expected, and it all adds up to a hot
market for California pistachios. Domestic and export open inshell shipments for
the 2009 crop year are up 5.7% over last year’s numbers.
Prices for US extra #1 Raw open inshell are now quoted at $3.50-$3.60 per pound. US extra #1 kernels are quoted at $6.40-$6.50, with at least one packer quoting $7.00 per pound. We don’t believe much has been sold at these levels, but there is active demand at slightly lower levels.
At 354 million pounds, the 2009 California crop was certainly less than expected. Following record crops in 2005 and 2007, with more bearing acres in 2009, it was expected the 2009 crop would exceed the 415 million pounds harvested in 2007. Add to this a smaller than expected Iranian crop, and very small Turkish crop, and the world supply in 2009 is much smaller than anticipated prior to harvest.
Shipment numbers have been strong. Export inshell shipments are down 2.7% for the first two months of the year versus last year’s record numbers, but up 55.6% versus 2007 shipments. Most expect exports to continue at a rapid pace. Domestic shipments are up 27.8% over 2008, and movement in November and December should remain at elevated levels.
It is expected that we will end the year with some carryout, shipments must slow down considerably from their current pace. Some of the slow down is seasonal.. As of the end of October, California packers are holding 100 million less pounds of inshell inventory than this time 2 years ago, while open inshell shipments have gone out 30% faster than the same period 2 years ago.
Most growers are optimistic about the 2010 crop, given that young trees and a number of older orchards had less than record crops in 2009. The rainy season has just begun in California, and thus far, there has been little rain. As we move through the current marketing year with supply tightening, expectations of the 2010 crop will play an increasing role in moving prices up, down, or sideways.
After what continued to be overall positive news in regards to the 2009 crop, it now appears to be smaller than expected by most packers, and certainly less than 400 million pounds that Nichols expected. Through October 10, when the crop was 99%+ harvested, 347 million pounds were (as reported) received by California packers. Thus, the final crop is not expected to be more than 350 million pounds. Even before the announcement, inshell prices were moving up and as a result prices for inshell and kernel pistachios are now close to the same level as this time last year.
There are numerous conflicting forces at work:
Thus far this crop year, these forces are winning, as prices have marched upward for the past two months. Will they continue to rise, or are we at or near the top? Here are some forces pushing back:
While the supply of inshell pistachios appears to be adequate to meet demand over the next 12 months, it is less clear for kernels. Kernel carry-in to the 2009/10 marketing year was minimal, as were carry-in levels of shelling stock and closed shell. With relatively high open inshell prices, and very little artificially open (AO) in-shell carried in from last year, more closed shell is expected to be converted to AO’s this year than last year, reducing the quantity of closed shell to be shelled for kernels. Both of these factors, and the good quality of the 2009 crop will combine to reduce the quantity of pistachio kernels available over the next 12 months. Result, a firm kernel market.
Demand for California pistachios at present remains strong, and continues to come from existing and new markets. This is a market to watch.
As Pistachio Processors near the end of receiving the 2009 crop, there are a number of things that are now known about the crop:
1. Many growers are reporting yields less than expected. Nichols growers crops are almost identical to 2007. Kern County, where 70% of pistachios are produced, seems to be off more than other production areas. The size of the crop is not known yet, but we are hearing that other packers are putting the final crop at 350 to 375 million pounds. Nichols expects the final number to be 400 million pounds. Many growers will shake their orchards twice, which will extend the harvest, but add to the final total.
2. Quality is excellent. Nut size is small, but larger than the 2007 crop. 21/25 size Pistachos are expected to be the predominant size, not 21/26 or 21/27. The percentage of 18/20 is low, less than 5%, but greater than 2007. Insect damage, closely associated with aflatoxin contamination, is the lowest seen in years. Closed shell is similar to the 2007 crop. Staining was very low until 17-September, and has climbed steadily since. The climb in stain is more rapid than usual due to rain on 14-September, followed by very hot weather. It is expected that the remainder of the crop will have high stain levels.
3. The first quantitative crop size data will be available on 15-October, and will represent receipts to packers through 30-September. Receipts through September typically represent 85% of total crop receipts. Nichols expects 2009 to be in line with this percentage.
Pistachios continue to defy gravity, economic conditions, and supply conditions.
The market has strengthened considerably, despite good crops in Iran and
California. Export demand is particularly strong, coming from all corners of the
globe, but particularly in China and the EU.
The market has strengthened due in part to a smaller than expected California crop and continuing weakness in the US dollar. One thing to remember: expect a large “off” crop in 2010. Many young orchards produced less in 2009 than 2008, and are poised to produce large crops next year. Nichols expects the 2-year supply (2009 and 2010) to exceed the past two years, as has been the pattern for the California pistachio industry.
August 2009 - Update
Pistachios Blanking Update as Reported by Nichols Farms 8/28/09
Because of recent discussions about high levels of blanking reported by growers, Nichols sampled 27 fields this week for blank percentage. 100 nut clusters were pulled from trees in each field, then hulled in a sample peeler. 200 nuts from each sample were shelled to determine a percentage of blank and filled nuts.
Nichols found an average of 73% of nuts in the sample were filled. The remainders were blanks (25%) and partially filled nuts (2%). The lowest level of filled nuts was 22%, and the highest level was 96%.
So what does 73% filled nuts mean? From 1994 until 2003, the California pistachio industry conducted a crop estimate survey, and 1994 to 2002, the percent of filled nuts was part of the survey. The filled nut percentage during these 9 years averaged 73.6%, with a high of 80.6% in 1994, and a low of 65.7% in 1996. Thus, Nichols found the number of filled nuts (and by extrapolation, the number of blanks) in their survey to be consistent with 9 years of data collected by the industry.
It is Nichols opinion from this that many fields do have high levels of blanks, but the average may be fairly close to historical averages, and not indicative of a smaller than expected crop.
Please note that these are the opinions of Nichols Pistachio based upon samples they collected from a small number of California’s pistachio orchards. The survey conducted was by no means as thorough as crop estimate surveys mentioned above. There may well be one or more production areas in the state that have much higher than average blanking, as their survey did not cover all production areas. That being said, Nichols is still expecting a crop in the range of 400 million to 450 million pounds.
As we approach harvest of the 2009 pistachio crop, rumors about the size and
quality of the upcoming crop, as well as buying interest are on the upswing. In
recent weeks, rumors of excessive blanking (empty shells), and a general
discontent with the 2009 crop have surfaced. Nichols is hearing this message
from a number of growers and customers (it’s their opinion that its part of this
year’s sales pitch).
Blanking is higher than typical this year, especially on young trees. It is unknown what effect this will have on the crop, if any. Blank nuts use very little of the trees resources, so it is possible for many orchards to carry a full crop and extra blanks. Nichols is currently field sampling a number of pistachio orchards for blank percentage, and we will update the customer base as to what Nichols finds by Friday, August 28th with the results of that survey.
Aside from the blanking issue, quality at this date looks good with the potential for low insect damage. This is felt for a couple of reasons. The crop is late this year, perhaps a week behind the 2008 crop, and two weeks behind the 2007 crop. Later crops tend to (not always) have less navel orange worm damage. This is the principal pest in pistachio. Secondly, they are not seeing many early split nuts. These early split nuts typically provide a host for Naval orange worm to rapidly multiply, and are the principal reason behind the high levels of damage in 2007.
Nut size is expected to be small, but not as small as 2007. Staining will be an issue, as it is with most large crops. The later harvest date favors a bit less staining. The cooler the weather during harvest, the lower the staining. Late September is considerably cooler than early September in California’s Central Valley. One final note is about closed shell. Given there are lower levels of early split nuts the closed shell nut percentage is expected to be close to or above traditional averages by Nichols.
Note that pistachios quite often vary from previous trends, as you make your buying decisions simply take this as opinions, not facts.
Demand for current and new crop pistachios has been very strong at the moment. A number of domestic users and most foreign markets are short of supplies to bridge the gap between now and when new crop becomes readily available. Inventories at processors in both the US and Iran are at historically low levels. Combined with an expected later than average harvest, it adds up to very strong demand during at least October and November as the pipeline is refilled. It is expected that shipments in October and November will set new records.
Because of strong demand for early shipments and concern about the size of the California crop, new crop prices have firmed over the past 2 weeks. Demand from Europe, the domestic market, and China have set the tone for early sales. Additional movement in prices is expected only after harvest begins, but only if the crop is much larger or smaller than anticipated.
The pistachio market remains mostly quiet at present, with limited buying of
both old crop and new crop. Growers are quite busy irrigating, controlling
pests, and readying for the upcoming harvest.
From what Nichols sees in the field, the crop maturity for this date is average to a little behind average. The potential for a good quality crop still exists, but it is a long road from potential to reality. Should the crop be harvested later than optimum, or insect pressure be high like in 2007, quality will suffer.
Shipments in June continued to rebound from salmonella recall depressed numbers in April and May. The expected carryout from the current marketing season is the lowest in the past 4 years. At least 30 million pounds of good quality carryover is needed to keep shipments going until new crop is available. An unknown portion of the carryout is typically low quality product, so 50 million pounds of carryout is close to optimum.
New crop (2009) sales are sparse. Nichols does not expect a lot of new crop to be sold until minimum grower prices for the 2009 crop have been established. Thus far, none of the packers have finalized the 2008 crop grower price, or announced minimum prices for the upcoming 2009 harvest. Generally, old crop prices have been finalized in August, and new crop minimum prices announced in July. As with other things in the pistachio industry, every year is different.
On a side note, Nichols 2009 crop estimating contest closed last week. 39 growers and nut purchasers entered, with an average yield estimate for the 2009 of 430,926,758 pounds. The high estimate was 520 million pounds, and the low estimate was 385 million pounds. In general, growers think the crop is larger than nut buyers.
It’s a quiet time in the pistachio industry. The 2009 crop is maturing, but we
won’t know much until the new crop harvest begins. Sales and shipments are
seasonally slow at this time year; domestic shipments even less than usual due
to high prices and the recent salmonella event still giving consumers pause.
Domestic shipments this past April were down more than 50% from a year earlier. In May, domestic shipments picked up a bit, but still trail year earlier numbers by more than 30%. A portion of this decrease is due to significantly higher prices in 2009, but the salmonella hangover is real, and poses a serious threat to grower returns with a record crop in the field.
Export shipments, after being well below year earlier numbers in April, rebounded nicely in May. The reduction during April was due less to salmonella concerns than to shipment disruptions caused by new pre-shipment testing protocols than reduction in demand.
Prices initially rose immediately after the recall, as those affected scrambled to find alternate sources. Since then, product has begun to ship again, and prices have stabilized. The market remains very thin, with little buying interest, and not much available supply.
New crop pricing for export or domestic markets has not yet been established. Most packers are waiting for 2009 crop grower pricing to be established before making serious commitments. The 2009 crop continues to progress nicely. Most sentiments, and Nichols agrees, that the crop has the potential to be very large. Shell size, not necessarily an indicator of nut size, is larger than the last big crop in 2007. More importantly, the very small, round nuts prevalent in the 2007 crop are mostly absent this year. This is important, as these small, round nuts were a primary cause of excessive insect damage in the 2007 crop. They split much earlier than full sized nuts, and provided an excellent habitat for insects to rapidly increase their numbers and attack full size nuts maturing later. With them absent this year, it lessens the chances insect damage similar to 2007 occurring.
Nichols focus for the remainder of the summer will be implementing processing and testing procedures to ensure to their customers and consumers that pistachios are not only delicious and nutritious, but safe for themselves and their families. Nichols has committed $1mm to capital projects, hired the best consultants in the business, and brought new people on board to ensure their pistachios are processed and packed by the best trained people in the most state of the art facility.
Spring has sprung, and the pistachio crop in California appears to be big while
water remains scarce. Here’s a quick snapshot of current expectations from
1. Industry estimates of the 2009 California crop range from 400 to 450 million pounds. We think the crop is at the upper end of the range, perhaps even higher. For Iran, estimates are 160,000 to 220,000 metric tons (352to 485 million pounds).
2. New crop prices are being discussed, as customers look to book a portion of their needs for the upcoming year. Some packers in the industry believe the 2009 crop opening price should be $3.10 to $3.20 for EU quality raw 21/25 or 23/27 open inshell, with domestic prices $0.15 to $0.20 less. Why such a premium for EU? The last large crop (2007) had high levels of insect damage, which resulted in greater than usual aflatoxin levels. Rejection risk is greater in such a situation, creating the premium.
3. Most packers believe the risks of high insect damage from the 2009 crop are as great, or greater, than 2007.
4. Water shortages should not limit the size of the 2009 crop, but may have a minor to significant effect on quality of the harvested crop.
Nichols feels the water situation is different than last year. Water prices were exceptionally high in 2008 because allocations were reduced after farmers had planted crops. This year it is opposite; water allocations were initially close to zero, and growers drastically reduced plantings. Since then, allocations have increased, and water prices on the resale market are lower than last year. The take home message is there is (expensive) water available for pistachios. Growers will water pistachios because they are making money growing pistachios.
As to quality, don’t expect a repeat of 2007. California pistachio growers understand the need to deliver high quality, and have increased inputs to minimize insect damage. Nichols continues to offer quality premiums for growers and it is believed another large processor has followed Nichols lead. In 2007, many growers had high levels of insect damage and/or closed shell pistachios due to improper attempts at deficit irrigation or accidentally shorting the crop of water. The 2009 crop will be watched more closely, irrigated more precisely, and harvested earlier than 2007. Quality may not be exceptional, it is expected that it will be significantly better than 2007.
As to pricing, while there will be minimal carry-in to the new crop, the large 2009 crop, worldwide recession, and salmonella-fear reduced demand in the domestic market all scream pricing restraint. Strong promotion programs and reasonable pricing are needed to reclaim domestic customers and increase export sales. It is Nichols believe that the prices mentioned above will overly constrain usage, and lead to greater than needed carry-out to following crops.
Over the next several months the focus will be on crop development in California and Iran, and the effect of salmonella on our domestic consumers. These two factors will have a great bearing on pricing of new crop as we move toward harvest.
Salmonella has been the story in the pistachio industry for the past month. The
short-term implications of the salmonella issue are tightening supplies and
increasing prices at the wholesale level. Enough product appears to have been
returned that wholesalers and retailers found it difficult to replace recalled
goods, leading to a bump in prices. At the consumer level, it's a different
story. Retail sales have been flat to down 35% since the FDA made the
announcement of the recall and recommended consumers not eat pistachios.
The longer term implications of the salmonella issue are restoring consumer confidence, improving demand, and significant changes to processing design and operating procedures to minimize risk of microbiological contamination. Changing equipment and procedures will be expensive, but will be accomplished in short order by the packers. Restoring consumer confidence may take longer; it is unknown as to how long this recall will remain in consumer's minds. Given there were no illnesses associated with recalls, media coverage rapidly declined.
Growers understand the importance of this issue, and want to promote pistachios now more than ever. Since the recall was announced, growers and processors have joined together to build a program for continued promotion of pistachios in the domestic and export markets. Various amounts have been discussed; there are opinions for programs funded at $4 million to $40 million. Nichol's favors a higher number, but understands the importance of every grower and processor participating, and this may necessitate a lower contribution level. At any level, it is believed it will be money well invested toward building market demand for increasing crops over the next 10 years.
As to crop development, bloom has passed, and nuts are sizing. Conditions were good, with mostly dry weather and moderate temperatures. Bloom uniformity was less than expected given high winter chill. The only factor at this point limiting the crop is continuing shortages of water. Since the last market report, state water users allocations have increased from 15% to 30%, and federal water users from 0% to 10%. While the situation is still very tight, Nichols doesn't expect significant reduction to the total crop. An estimate of 400 million to 450 million pounds is not unreasonable. We could see, however, significant reduction in quality due to short water supplies, particularly given it is a large crop with a high demand late in the water season.
Current prices reflect tightening supplies. We've heard the Iranian crop is for all purposes, sold out. Inshell supplies from California are close to the same position. Prices jumped abruptly in the past month. We haven't seen any sales of kernels to export markets recently, but typically EU quality kernels are $0.25 to $0.50 higher than domestic quality kernels. Pistachio kernel pieces and splits have not changed much, and the spread between whole kernels and pieces is the largest we have ever seen, depending on spec and quality.
and environmental restrictions on transferring water have become a significant
market force in the California Pistachio industry. Prices on current crop rose
at least $0.05 per pound for open inshell pistachios recently, when both the
California Department of Water Resources (State Water Project, or SWP) and the
US Bureau of Reclamation (Federal Water Project, or FWP) announced tentative
water allocations for projects serving the southwestern portion of the San
Joaquin Valley, home to approximately 2/3 of California's bearing pistachio
In short, SWP users will receive 15% of contracted amounts, and FWP users will receive 0% of contracted amounts. Prudent growers in both projects have carried over water from prior years, and a number have other water sources, but the situation is grim. Only once before (1991) have SWP users had a smaller allocation. For FWP users, it is the lowest in project history. In 1991, there were few acres of permanent crops in either project, and the crisis was dealt with by fallowing ground planted to annual crops. Today, a significant portion of both projects are planted to permanent crops. Given environmental restrictions on transporting water currently in place, additional rainfall will have little impact on increasing water supply to growers in these projects.
Its to early for Nichols to know the impact of water shortages, as of yet, on the size of the 2009 crop. Large, or "on" year crops have a greater water requirement to maximize nut splitting and overall quality. Crop quality is very difficult to predict, but the combination of a large potential crop and far less than necessary irrigation water does not bode well. At this point, we are told most growers and packers expect some reduction in total yield, and potentially much lower quality.
As mentioned above, the market strengthened, in part because of supply concerns for the upcoming crop, but also due to increased interest over the past six weeks. After three strong shipment months (September-November, 2008), shipments fell off. Nichols is not surprised, as contracting during last November and December for 2009 deliveries was reported to be slow. Both open inshell and kernel prices fell during this period. Since early January, sales for immediate and future delivery have picked up substantially (primarily exports), and most expect shipments to hold at current levels, or increase slightly. Given the February 1, 2009 inventory of 217 million pounds, the most the industry can ship over the remaining 7 months is 25-27 million pounds per month. Prices are expected to hold firm at least until more is know about the 2009 crop, and may strengthen if the current demand continues.
pistachio market has been hard to define recently, with numerous contradictory
signals. Shipments have been at record levels for the first four months of the
marketing year, but new sales are weak. Inventory is at its lowest year-end
level in 4 years, yet prices have declined since the beginning of January.
Nichols reports that industry shipments during September to December 2008 were the highest on record. For the first four months of the marketing year, California shipped an average of 32.4 million pounds per month. Remaining inventory is reported at 238 million pounds. Assuming minimal carryout to the 2009-10-crop year of 35 million pounds, shipments for the remainder of the year need to average 25 million pounds per month, a decrease of 22% from the past 4 months.
External factors have played a significant role recently. Global recession has constrained demand, and tumultuous financial markets have limited the ability of customers to purchase needed supplies. Add to the mix a stronger dollar, and we see why the pistachio market has weakened recently. Compared to other California nuts, the decline has been minimal.
Another contributing factor to the current decline has been the eagerness of California processors to get the crop sold. Prices have been attractive, and the general expectation is prices will decline once the large 2009 crop is received. Once the 2008 crop was received, inventory and commitments counted, packers moved quickly to book remaining inventory.
At present, most of the 2008 has been sold, most likely over 90%. Buying interest for the remaining supplies is weak, and most quotes are for prompt delivery.
In the past week, interest has picked up a bit. Iranian prices have risen $0.15 to $0.20, as their already limited supply has dwindled.
Nichols expects prices to stabilize at their current levels, unless shipments drop dramatically in January and February. With a 3rd year of drought expected in California, the status of the 2009 crop remains uncertain. Federal and state water project deliveries to California’s Westside will be somewhere between 0% and 15% of contracted amounts. 60% to 70% of California’s pistachio orchards will be affected by these cutbacks. Growers will have to purchase water to keep almond and pistachio trees alive, but some (many?) will not be able procure enough water to produce a full pistachio crop.
End November 2008
Each of our daily conversations seem to be pondering the same thing, what is the impact of the recent financial meltdown and worldwide recession on the nut and fruit industry and specifically as it relates to this market update, the Pistachio industry? One effect has been a strengthening US dollar against almost all world currencies. Added to the economic woes is the small worldwide supply and highest prices in recent history. What does this mean for consumption and prices over the next 9 months until 2009 crop is available? We do know with certainty the 2009 crops in the US and Iran will be larger, and prices lower. What we don’t know is when prices will decline from present high levels to opening prices for the 2009 crop, or where opening prices for the 2009 crop will be.
Through October, industry shipments continued at a strong pace, especially exports. Nichols Farms has seen a slowdown in shipments during November for both export and domestic shipments, but don’t know how much of the decline is recession induced, and how much of the decline is the result of high wholesale and retail prices. The largest export market for US pistachios, Europe, has seen its currency weaken appreciably in the past 3 months, as the euro has gone from a peak of $1.59/euro in August to the present level of $1.25/euro. The US dollar has gained 40% against the Mexican peso and 30% against the Canadian dollar over the same time period. Compared to a year ago, raw California pistachios in Europe are almost 60% higher in price due to higher prices and the stronger US dollar.
New sales are few and far between. At the same time, a very high percentage of the California crop has been sold or committed. Thus, they are at almost a standstill. Buyers are cautious about contracting future needs due to historically high prices, weak economies, and for foreign customers, weaker currencies. California marketers are reluctant to sell, as most of their volume is already committed. Based on thin volume, it appears the market is off slightly from its highs.
Pistachio kernel usage has slowed from recent months, as users adapt to higher prices. Most other tree nuts (walnuts, almonds, hazels, cashews) have fallen significantly in the past few months, due to larger than expected crops, the stronger US dollar, and economic recession. This has left pistachio kernels as the high priced option, and substitution or reduction of pistachio kernel use has resulted. Prices have not decreased at present, and usage has only declined slightly, but it is expected that kernel prices will soften a bit over the next few months to compete with other tree nuts.
The factors preventing pistachios from declining further are uncertainties about the 2009 crop. California continues to be gripped by drought, with water supplies to most pistachio acreage inadequate or questionable for the 2009 crop. In Iran, frost issues will remain until late spring of next year, and there are some in the industry who expect an impact on the 2009 crop from last April’s freeze.
Thus, the market remains quiet, and prices will remain murky until it is determined that demand is equal, exceeds, or is less than the limited remaining supply of California pistachios. For this month, the news from Nichols has only questions, not answers.
End October 2008
The 2008 California pistachio harvest is complete. The total crop harvested will be approximately 280 million pounds; combined with the carryover, the total supply will be 400 million pounds. This is the second highest total ever, however, most of the carry in from the 2007 crop is of low quality, and much of it is not salable as in shell pistachios.
Quality of the 2008 crop is excellent, with large sized nuts, and low levels of stain and other defects. It is low in closed shell and shelling stock. Serious damage (primarily from insects) is the lowest in the past 10 years, in contrast to the 2007 crop which had high levels of serious damage.
Pricing remains firm, as the world supply of pistachios is down significantly, due to the exceptionally short Iranian crop. A significant portion of the California inshell pistachio supply has been sold or committed. We expect most packers to be fully committed in early 2009. Pistachio kernels are selling well over $6.00, dependent upon quality and tolerance for foreign material (shell). For the most part, domestic kernels are at the lower end of the price range, with EU shipments at the upper end, due mostly to the EU’s stringent aflatoxin requirement.
This is a difficult year for buying or selling pistachios. On one hand there is the potential for shortages due to a much smaller supply. On the other hand is the expectation of large 2009 crops in California and Iran, and the corresponding desire to carry minimal inventory into the 2009 crop year, when prices will be significantly lower than current levels.
We have been advising customers to closely evaluate their needs from now until September, 2009, and book most of their pistachios before the end of 2008. It is a difficult task to determine needed quantities, as price increases from last year will undoubtedly reduce movement. Added to the price increases is a worldwide recession, which may positively or negatively impact pistachio consumption. It is extremely important for buyers to accurately estimate needed supply, as those underestimating
needs may not be able to procure needed supplies, and those overestimating needs will carry expensive inventory into a lower priced market.
As of October 10, 2008, the reported crop receipts to date totaled 276,280,573 pounds on an inshell assessed weight basis.
The crop included:
Open Inshell 229,648,010 pounds 104,168.3 metric tons
Closed Shell 36,130,400 16,388.8
Shelling Stock 10,502,163 4,763.8
Total 276,280,573 pounds 125,320.9 metric tons
Open inshell constituted 83.1% of the total while closed shell and shelling stock were 13.1 and 3.8% of the total respectively. This is the seventh highest open inshell percentage since statistics were first collected in1980. The 3.8% shelling stock is the lowest percentage since the separate reporting of closed shell and shelling stock began in 1998.
Some processors were receiving pistachios as of October 10th and, consequently, additional 2008 crop is expected. However, 90% of the crop to date was harvested in September and only 10% in October and consequently, the post October 10th crop is not expected to be large.
Final crop receipt reports are due December 15, 2008 and crop size will be finalized shortly after that date.
We could see a split market between the EU
and rest of the world during the 2008/09 marketing year. This will happen if the
California crop is smaller than expected, of lower quality than expected, or
both. Let’s look at situation in the EU and the rest of the world from both
supply and demand over the next 18 months.
The total supply of pistachios suitable for the EU may be smaller than previous years. This could occur for two reasons: The carryover from California, while large, is not suitable for the EU due to the EU’s very low tolerance for aflatoxin, and the 2008 crops from both California and Iran will be smaller than 2007. We won’t know until mid September, once a substantial portion of the crop has been harvested, as to the quality of the crop from either origin.
At the same time as the supply for the EU may be less than desired, we expect demand from the EU to be strong relative to demand in the US market. In terms of euros, prices this fall will be at similar levels to previous years. In addition, most major European retailers have fixed prices through the end of December, so retail prices will not reflect higher wholesale prices until January, 2009.
For non EU markets, most notably the US market, the supply of pistachios is much greater. The carryover of open inshell will be the largest in California’s history, and much of it is suitable for these markets. In the US market, increased wholesale prices rapidly translate into higher consumer prices and a slowdown in consumption. When prices increased nearly $1 from September, 2004 to September, 2005, shipments to the US market slumped 19%. Added to increased retail prices are reductions in disposable income for many consumers due to rapidly increasing gasoline and food prices.
Thus, we have a situation of one market (EU) with a potentially tight supply and relatively low consumer prices versus another market (USA) with ample supplies and weakening demand. How wide the price spread between the EU and US markets becomes is largely dependent upon the quality of the 2008 California harvest.
Paramount Farms announced its minimum price guarantee for the 2008 crop this week at $2.03 to $2.10 for open inshell, and $2.65 for kernels. Based upon this information, we expect EU inshell prices to open at about $3.25 per pound, and domestic prices around $3.00. These are our estimates, and we believe very little business has been conducted thus far. Nichols is still not yet ready to offer new crop. The spread will widen or shrink this fall, dependent upon the quality of the crop.
For the most part, the 2007crop continues to progress well. There are still major concerns about water supplies in a large part of the production region, but most of the impact of diminished supplies will be felt next year. Another dry winter will have major impact on the size and quality of the 2009 crop. Kernel filling began in the past few days, so we expect harvest to begin on time, and later than the very early 2007 crop.
As we have made you aware, things have
changed quickly in the pistachio business. From a situation of declining crop,
slowing demand, and price deterioration for 24+ months, it has been a dramatic
and shocking turnaround. Since the beginning of the 2007-08 marketing year, we
have seen the dollar continue to weaken, export demand explode in traditional
and non-traditional markets, domestic shipments at a record pace, prices firm
for several months, and then explode after the damaging freeze in Iran 2 months
ago. We have gone from the largest supply in history to potential shortages in 7
The 2008 crop, while still an off crop, is developing well. It is expected that the crop will exceed 250 million pounds, and could easily reach 300 million pounds. The greatest threat to crop size and quality this year is water shortages being experienced by many California producers. The question of the month is where to price new crop? We can’t remember a year with more contradictory signals to interpret as this year. The upward and downward forces are summarized in the table below.
Nichols believes the greatest mistake the
Pistachio industry could make would be to repeat the 2005 experience, when
prices opened over $3/pound, an increase of 50% from the prior year. Demand
slumped, greater than necessary inventory was held, and as growers made a small
fortune, processors lost money. To remain healthy over the long run, all
segments of the industry must show a positive return. This is particularly
important given the expected increase in crop size. $200 to $400 million
investment in processing facilities will be necessary over the next 10 years to
handle pistachios already planted!
Current EU quality US extra #1 100% naturally open raw inshell, size 21/25, FAS Ca is about $3.15 per pound.. Very little product is moving at these levels; most shipments are from lower priced contracts set earlier in the season. Kernels are in short supply for both domestic and export markets. Prices range depending upon quality.
The pistachio market remains active with
many inquiries and little available product, particularly for the EU. This is
surprising only 5 months removed from the largest crop and largest supply in the
history of the California pistachio industry. Nichols expects open inshell
shrink from this crop to be high, given the poor quality of crop receipts during
the second half of the harvest season. Further to this point, shrink will be
realized over a long period of time, and won’t fully be reflected by industry
statistics until the end of the 2008/09 marketing year. Shipments are strong for
this time of year, and only limited by processing capacity. This is typical for
Nichols as well whose lead-times have increased due to longer production times.
Defects from the poor quality 2007 crop remain a problem, with insect damage being the greatest issue. Hand sorting costs have more than doubled from a year ago. Despite capacity additions, additional hand sorters, and lengthened work hours, it has been difficult to meet the increased demand for pistachios this year due to very slow sorting rates. As a result shipments have been delayed, and business has been disrupted by those delays in shipments.
The pistachio industry in California continues to rapidly expand. Approximately 19,000 acres will be planted this year, bringing the non-bearing acreage to almost 80,000 acres. It will take the equivalent of 16 new plants, equal in capacity to Nichols Farms’ facility, to process this acreage within the next 10 years!
A question we hear quite often is “What will be the impact of all this additional acreage?” It is a tricky question to answer. We can reasonably estimate the pistachio supply 10 years from now, but how and where will the additional crop be marketed? Over the next three issues of their monthly newsletter, Nichols will look at growth possibilities and expectations in the following areas: exports, pistachio kernels, and domestic open inshell.
In the meantime, we will continue to keep you advised of all developments.
Shipments and prices are up for California
pistachios. It appears that export shipments for the first four months of the
marketing year have been very strong. Domestic shipments are almost back to
levels shipped during the beginning of the 2004 marketing year.
Prices have risen about $0.30 per pound since the beginning of harvest last September. EU cleared shipments are at the top of the range, due to stricter quality requirements. Most unsold, in shell pistachios are now held by one company. As such, it is difficult to make an accurate determination as to where pricing will go over the remainder of the crop year. It is felt that currently there are enough in shell pistachios to meet end users needs over the next 18 months. Price increases and/or decreases will come about due to the concentration of remaining supplies.
Availability of water remains the number one concern for most California pistachio growers. As of mid January, the rainy season is about 50% complete, with rainfall totals in most of California slightly below normal. Nichols does not expect water availability to substantially curtail the 2008 crop, but should water supplies prevent growers from applying optimal water requirements this year, the 2009 crop and beyond may be affected.
Winter chilling accumulation, critical for uniform bloom and maturity, appears to be adequate in most production areas, and should not have an impact on 2008 production. The 2008 crop is expected to be substantially smaller than the 2007 crop. Most early estimates are 200 million pounds to 250 million pounds.
Pistachio Prices began the year at close to $2.50 per pound for US extra #1, size 21/25, raw 100% naturally opened pistachios. As most involved in the industry expected, prices fell for the remainder of the crop year due to sluggish sales and burdensome inventory levels. The Transition to the very large 2007 crop led to further price declines. Since harvest, the market has strengthened on improving sales, the lack of EU available goods, and lack of processing capacity. Most did not see this coming, and no doubt many in the industry are surprised at the recent market strength.
Below is a comparison of inventory levels through November for the past 4 years. The values shown are for open inshell. As can be seen, the year will end with a substantially larger inventory than any previous year. A large portion of this inventory will not be usable for extra #1 due to higher defect levels in the 2007 crop.
Shipments on the other hand have improved in 2007, and the current rate of shipment is equal to the 2004-05 crop year. The increased rate of shipments and additional processing required to process the lower quality 2007 crop are the principal reasons prices have risen in the 4th quarter of 2007. Most expect prices to moderate in 2008 as seasonal demand slows.
The 2007 harvest is complete;
at 410,095,836 pounds received, it is the largest crop ever produced in
California. The crop is large, nut size is small, and quality varies
significantly between producers and production areas within California. Some
production regions and growers within those regions suffered extremely high
insect damage, while others were at normal levels. Unseasonable rains caused
high levels of staining from some orchards. Closed shell percentage varies all
over the board, with some growers averaging less than 2%, and others greater
than 30%. On the positive side, nuts from this crop are roasting beautifully,
and the flavor is outstanding! It will certainly appears that this will be a
crop to discuss for some time.
The final crop size is 18% percent greater than the previous record crop produced in 2004. In the below chart, we can see the quality of the 2007 crop compared to the past three years. For the first time in a number of years, forecasts of the crop size (such as Pistachios at 400 million pounds) were right on the money! 80% of the crop should be usable as naturally open in-shell, with the balance being sold as closed shell and artificially open (AO's) in-shell, or shelled for kernels.
|Total Open In-shell||75%||68%||84%||80%|
|Total Shelling Stock||6%||8%||8%||7%|
Movement and interest has been strong for inshell, kernels, and closed shell.
Inventory levels held by customers are minimal, as domestic and export users
consumed stocks while waiting for the lower priced new crop to arrive. Existing
users are planning more promotions, and new users, particularly on the export
side, are looking to buy California pistachios because of the reduced price,
weakness of the US dollar, and quality and reliability of California shippers.
Pricing has strengthened a bit in the last month to six weeks. Because of the small nut sizes, 18/20's are almost nonexistent. Most have not quoted 18/20's for several weeks, but the premium over 21/26 is at least $0.25 if one can get quotes.
On the surface, a strengthening market seems contrary to the large crop and large supply. Reduced prices from last year and low inventory levels of buyers have combined to create a large demand for shipments in October and November. Most would believe this strong demand has pushed prices up marginally, as production schedules are filling up for the next two months. Another factor is the final crop was very close to estimates from the industry, and less than numbers speculated upon by those attempting to push prices down prior to harvest.
While prices are stable, and shipments are strong at the present, we still must look out 6 months to see if renewed interest by retailers, and improved consumer demand achieve the desired effect. The Pistachio industry needs to increase shipments this year 20% to 30% over last year to work through burdensome carryovers and increasing production.
We'll keep you posted as to how their doing as the story unfolds.
The 2007 California pistachio
harvest is officially in full swing! They were about a week later than expected
in hitting capacity. Other than the later start date, the expectations for the
2007 crop are being realized. The crop is large, nut size is small, and some
orchards are already showing significant staining, despite the early calendar
With the crop about 40% harvested, Nichols can begin to draw some conclusions about the crop. Nut size is small from all harvest regions, and they expect it to remain small throughout the remainder of harvest. The premium for 18/20’s will widen substantially from $0.10 to $0.15 quoted last month. (Nichols Farms has temporarily withdrawn from 18/20’s until they get more sizing information). They do expect to have marketable quantities of 26/30’s this year, for the first time since 2004.
Yields are about as expected for older orchards, and better than expected for young orchards. While they can’t extrapolate yields on individual fields to the overall crop size, older orchards on average are about the same as 2004: some yields are a bit higher, and some are a bit lower. Given an additional 15,000 to 20,000 bearing acres since 2004, it is reasonable to expect the crop to be close to the 400 million pounds expected by the industry.
The closed shell percentage is all over the board. It is low in young orchards, and variable in older orchards, mostly dependent on crop load. We are told they have seen closed shell as low as 1%, and as high as 35%, with an average of 19% thus far. This compares with 11% from the 2006 crop, and 19% to 21% for the 2003, 2004, and 2005 crops. Thus, while closed varies widely from orchard to orchard, it is right at historical averages.
Staining has begun to show up in some areas. It was unusually hot and humid in Central California from Late August through September 3rd, which together with spotty rains on August 26th and 30th, contributed to increased staining in some older orchards. Staining will surely increase from here on out, but it remains to be seen if it becomes a significant problem.
Finally, it is being reported that they are seeing higher insect damage levels than expected for the beginning of the season. Nichols has been encouraging growers to confer with their pest control consultants about the probability of increased insect damage, and the necessity to treat insect pests should their harvest be delayed past September 10th.
The market has been relatively quiet for the past month. Most users are attempting to work down existing stocks in anticipation of lower priced new crop. We expect most buyers to wait a bit longer to see where prices shake out before making significant commitments. Buyers don’t see a shortage of pistachios over the next 12 months, and neither do we.
The next report will come out toward the end of September, as harvest approaches completion.
Pistachios This is the calm
before the storm in the California pistachio industry. The crop is maturing; we
won’t know much more about the size of the crop until harvest begins. Grower
minimum prices have been established by most packers. Buyers and sellers are
just beginning to conduct business, but most are waiting until the market
settles before contracting serious volumes.
The crop continues to progress well under nearly perfect growing conditions. We should have a good idea as to the beginning of harvest within the next two weeks, once hulls begin to separate, signaling the impending harvest. They have just begun to see hull separating from the shell so for sure, harvest will indeed be on the early side this year! Expect that they will be in full swing by the beginning of September. Sizing appears average to slightly below average, and much smaller than the 2005 or 2006 crops. We don’t expect sizing to be as small as the 2004 crop, when 18/20’s were almost nonexistent. We expect insect damage to be low due to the size of the crop, unless growers are delayed in harvest.
Staining is likely to be considerably higher than the previous two crops due the earlier harvest under warmer conditions, delays in processing due to the large crop, even maturity throughout the state, and possible delays in the start of harvest due to prune harvest overlapping with pistachio harvest. Because of the early harvest, it will be quite warm during most of the harvest season. Pistachio hulls break down (decay) much faster under warm conditions. The result of hull breakdown is increased staining. This problem may be exacerbated should the crop be as large as predicted, leading to delays in processing at the huller. Harvest delays are possible due to a lack of available harvesting equipment. While the pistachio crop is early, the prune crop is about normal in maturity, and some of the equipment will not have completed prune harvest when the pistachio crop is ready to start. Finally, it appears the crop will mature in all production areas at about the same time. Generally, the south end of the production matures first, and then progresses north, but we don’t see a variation in maturity this year. Rarely have we seen such uniform maturity within the tree, the orchard, and the state.
We won’t know about the percentage of closed shell until harvest begins. Generally, large crops have higher closed shell, but there have been numerous exceptions to this trend. All in all, a good quality, very large crop is expected. It will test the abilities of harvesters and hullers to get it processed in a timely fashion.
Pistachios are moving
briskly! This is welcome news to processors in an industry beset with falling
prices and building inventory. Nichols believes the shipment numbers to be
mostly accurate, as they’ve begun to see movement to Russia, Romania, and other
non-traditional US markets. A shortage of Iranian pistachios has definitely
firmed the market, and has contributed to the largest May export shipments ever!
Included in the export numbers is a spike in shipments to Belgium and Germany;
these shipments may include forward warehousing by California packers, but are
not truly sales.
Domestic movement was strong in May. At current price levels, its believed retailers are ramping up promotion and lowering retail prices. The fact that so many food items: meat, milk, peanuts, cereal, etc. have increased in price has not hurt either.
For the second consecutive month, prices have held for raw, 100% naturally opened US extra #1 inshell pistachios, size 21/25. There is a small premium for 18/20’s, approximately $0.05. US extra #1, 80% whole kernel prices have had varying price ranges depending upon quality, although we have heard of some kernels priced at low levels and it is suspected that the quality of kernels offered at this level is not the best.
The 2007 crops in both California and Iran continue to mature, and both are expected to be large. Weather conditions for crop development in California have been ideal for the past month. Nichols observed kernels beginning to fill on June 18th. This is quite early, and indicates harvest will be on time, or earlier than average.
One concern for many growers is water. Due to the drought this past winter, and pumping restrictions imposed by environmental concerns, growers in a significant portion of the state face moderate to severe water shortages. Many doubt this will have an impact on the quantity of the 2007 crop, but it could have an impact on the quality (smaller sizes or increased closed shell). Some growers are so short on water supply that they are signing 3-year processing contracts without any price guarantee in exchange for one year’s supply of water!
For the first time in a long
time, California pistachios are generally on par with, or cheaper than Iranian
pistachios. This has led to increased inquiries from non-traditional
destinations for California pistachios: Eastern Europe, Russia, the Balkans, and
China. As Iran doesn’t begin shipping new crop until October following harvest,
most users will need to cover their needs through November out of the current
crop. Nichols expects the price inversion relative to Iranian pistachios to last
until new crop begins shipping, as inventory levels are much tighter in Iran
than in California. It is likely that this situation will lead to increased
exports from California over the next 4 to 5 months. Prices of US X#1 100%
naturally open raw inshell pistachios have responded by stabilizing at the
levels equal to last month, and for the first time this marketing year prices
have held steady for more than a month.
During most of last year, market reports focused a significant amount to the development and estimated crop size of the 2006 crop. This was appropriate given fears of a small, poor quality crop. It is certainly not the situation this year. Pistachio growers uniformly believe the 2007 crop to be large, with most estimates in the 400 million pound range. Combined with a substantial carryover from the 2006 crop, supply for the upcoming season will not be a concern unless something very unusual happens between now and harvest. In fact, there are concerns by some growers of having enough hulling, drying, and storage capacity to harvest the 2007 crop in a timely fashion. Last year, Nichols predicted processors would be reluctant to invest in additional capacity due to very high minimum prices, but did not expect it too become reality this soon!
Iran also expects a large crop, on the order of 230,000 to 270,000 metric tons (500 to 600 million pounds). Turkey will have a shorter crop than 2006. Carryin from the 2006 crop in both countries should be minimal. It is clear that the world supply of pistachios will be substantial for the 2007/08 marketing year.
Given that supply should not be an issue, it makes sense to focus on shipments and inventory levels the 2006/07 marketing year winds down, and transition to new crop begins. Historically, the California Pistachio Commission has collected these statistics from California processors on a monthly basis, aggregated them, and distributed the results to any interested party. In the next month or two, the Administrative Committee for Pistachios (ACP) will assume the role of collecting, aggregating, and distributing inventory and shipment statistics.
Nichols believes the statistics are somewhat useful, but could be better. Specifically, they feel they, as processors supplying the statistics need to be audited. Why? There is little uniformity in how the processors report the numbers. Here’s an example. In the past 4 months, processors have reported inventory adjustments (unexplained shrink) of almost 14 million pounds of open inshell inventory. Why is this unusual? It’s almost 25% of what was shipped during the same period! Typically, during processing and roasting, 2% to 5% shrink occurs, due mostly to moisture loss during roasting and breakage in processing. Now Nichols does not believe anyone is intentionally reporting increased shrink to reduce inventory levels, but without an auditing system no one can be certain. In the absence of an audit procedure, only shipment data should be reported, not potentially inaccurate inventory data. An auditing process will educate processors, thus ensuring consistent and accurate inventory and shipment reports. It should not be used to try to count every pistachio in each handlers inventory; this is nearly impossible task.
It is imperative that buyers and sellers trust the data collected and reported; the absence of trust renders the reports useless.
There isn’t a lot to write
about the pistachio market these days. Product shipments are continuing to pick
up modestly compared with a year ago, and prices are continuing to slide. The
weather of recent weeks has not been conducive to crop development, but the 2007
crop still appears to be very large.
Very little has happened in crop development over the past two weeks. Cold and rainy weather persisted during most of the period, following exceptional bloom period weather. The rain will definitely cause disease pressure to increase, and raise operational costs, but at this point, Nichols sees very little impact on production. Nuts are sizing on the tree, and shortly we will be able to see the full potential of this year’s crop.
Two things for certain are the 2007 crop is much larger, and much earlier than the 2006 crop. Below are photos from the same orchard taken on April 20, 2006 and April 24, 2007. A picture is worth a thousand words!
Movement continues to pick up over previous year shipments, but lags well behind the 2004-05-crop year. Retail prices in many parts of the USA remain at high levels, an impediment to increasing movement. Retail checks conducted by Nichols Farms in the past 30 days showed an average retail price greater than $5.00 per pound. It continues to be expected that retail and wholesale prices will drop significantly from current levels this fall upon receipt of the large 2007 crop. Clearly, this is needed to reverse three years of declining domestic sales as shown in the accompanying graph.
Demand at present is light. Raw US extra #1 pricing is down about $0.05 in the last month, continuing a trend starting in the fall of 2005. We expect pricing to bottom within the next 3-4 months, as we move into the new crop-marketing year.
At this time of year, we
generally begin to look at prospects for the upcoming California pistachio crop,
and its impact on supply and pricing. It is known that the upcoming crop will be
large, and we’ll have a large carryover from the 2006/07 marketing year. If the
crop is larger than expected in 2007, that will most likely meant that it will
be smaller in 2008. Thus, the 2007 crop size is actually not as critical as in
With that being said, the industry continues to expect a large crop in 2007. Bloom is early and uniform, starting the last week of March, compared to late April during 2006. Because the bloom is early, the harvest should be much earlier than last year, and closer to the typical start in early September. The bloom looks uniform, which increases the potential size of the crop. Weather has been ideal, and the forecast for the next 10 days is good. As a result pricing continues to erode due to the overhang of supply.
Movement continues to be ahead of last year’s sluggish pace, but not expanding as fast as they would like to see. At the halfway point of the 2006/07 marketing year, total shipments are 3% ahead of last year, but 30% off the record pace of the 2004/05 marketing year.
One question that continues to be heard is: “what will the minimum price be for the 2007 crop?” We understand this question, as growers want to budget for the upcoming year. Establishing price levels this year will be a tricky process for processors to growers. Clearly, the high prices of the last two years have been good for growers. They have been very hard on processors, as most have been squeezed between high guarantees to growers and diminishing consumer demand (due to high prices). They’ve been hard on retailers who’ve lost profit and sales volume, and on consumers, who have to pay 30% to 50% more for pistachios than two years ago. The minimum price for the upcoming season must be high enough to prevent prices from collapsing downward, but not so high as to curtail demand, as has been the case the past two years.
Nichols will be analyzing the potential of the 2007 and 2008 crops, as well as demand and carryover over the next several months before announcing their minimum 2007 crop price. Nichols is confident that the price levels for 2007 crop will be profitable for growers, but will allow market prices to return to levels where movement will exceed the 2004/05 marketing year.
As we approach the mid point of the 2006/07 marketing year, some trends have been established. First, we can see shipment numbers rebounding from the low levels of last year. The industry is up 3% year to date versus 2005/06, but since the end of October, they’re up 19% over last year. With five months of shipment data, we can begin to estimate the industry position entering the 2007/08 marketing year. Second, we have seen a slow decay in prices, not only this crop year, but for the past year and a half. Since our last report, the market appears to be off another $0.05 per pound.
As reported last month, increasing shipments are a good sign for the pistachio industry. In the graph below it can be seen that three components of the estimated final crop year open in-shell usage add up to total disappearance. They are:
Each of these components add up to the fourth column for each year – total disappearance. To get to the final number, they’re estimating 5 million pounds of shrink for the balance of the year, and shipments equal to the 2004/05 crop year. Total disappearance is estimated at 190 million pounds, a 10% increase from year earlier levels. Please remember these are estimates, and are based on 5 months shipping data.
One thing we expect to see when prices turn around is a big increase in movement. Nichols has maintained for some time that the CPC numbers exaggerate changes in inventory, as they do not measure wholesalers, retailers, or roasters inventory, only primary processors. For 18 months all these segments of the chain have held minimal inventory due to continuing price declines. When prices stabilize or increase, Nichols believes we’ll see a temporary jump in shipments due to inventory shifting from primary processor to others down the chain.
We expect the 2007/08 marketing year to be good for everyone involved in growing, processing, and marketing pistachios. The crop will be large, with grower prices at profitable levels, though not artificially inflated as during the past two years. Quality should be good, thanks to the high quality carry-in from the 2006 crop, and the supply will be plentiful. We expect movement to be the highest in history, as we build on momentum currently in place. Processing should return to profitability after two very poor years. All in all, for Pistachios, we like to think the picture looks bright!
The pistachio industry ended 2006 with the highest shipment total in 26 months.
Not since October 2004 have shipments of open inshell pistachios exceeded last
month. This is good news for the industry, as it continues the trend of
increasing shipments begun this past October. December shipments are well ahead
of year earlier numbers, and slightly ahead of December, 2004 shipments, but for
the crop year, they are still well behind both 2004 and 2005.
Increasing shipments are a very good sign for the industry, as they have a lot of pistachios to move. During many of the past 10 years, supply was inadequate at the price level sold, and they ran out of supply prior to new crop being available. However, in the past two years, the situation reversed. The past two years they’ve had a greater than necessary supply at the given price levels. Inventories have increased despite 2005 and 2006 being less than record crops.
Prices have been flat or declined for the past 18 months. Raw 21/25 US x#1 100% naturally opened inshell is now in the $2.45 to $2.50 range, although we hear of (unconfirmed) prices a little below these levels. Both buyers and sellers should be asking the question: How much longer will the decline continue, and how much further will prices fall? While no one has the answer to that question, the trend of increased movement is a good indicator we could be getting close to one.
On the supply side, last month we wrote they were behind in chilling. What a difference a month makes! Most recently they have had 19 consecutive days of below freezing minimum temperatures, and chilling hour accumulations in all of California’s pistachio producing regions are at or approaching adequate levels. This is a far cry from last year, when they were wearing shorts all month in January! Adequate chilling in all production areas adds to the potential of the upcoming crop, but does not assure anything.
With the Blooming months ahead of us, we will continue to keep you advised of new developments.
End December 2006
The pistachio market is quiet at the moment. Buyers remain on the sidelines or
buying short term, as inshell supplies are adequate. Prices seem to have
resisted downward movement because of grower price obligations by processors.
Every $0.01 decline comes out of their collective hide.
The other fact is prices have reduced movement to the point where the same processors are nervous about how large the carryout will be to the 2007 crop year. It is expected that 2007 will be an “on” year, and speculation about crop size varies widely, but most estimates are 300 million pounds or greater. Nervousness about movement and carryover levels has contributed to slow downward movement in prices during the past year.
The good news in the industry is that shipments are starting to rebound. As expected, the very weak September shipments compared with year earlier numbers were a reflection of buyers finishing low priced contracts signed during 2004, and shipped in September, 2005. The same situation did not exist this past September, and with expectations of declining prices, very little volume was shipped. October, 2006 shipments were even with the same period in 2005, and November shipments are well ahead of year earlier levels. In addition, stocks held by retailers, wholesalers, and roasters have to be significantly lower than either of the past two years. It is expected that these lower inventory levels translate into increased industry shipments over the remainder of the 2006 crop year.
As to the 2007 crop, size is unknown, but some:
First, they are off to a bad start in terms of winter chilling. It has been warm through most of November and December, with very little valley fog that they rely upon on to accumulate chilling hours. Second, the 2006 harvest was exceptionally late, denying pistachio trees time to accumulate energy for the 2007 crop before dormancy. It is Nichols opinion that strong crops are preceded the previous fall by an early harvest, then warm, dry weather in September and October. This pattern allows maximum energy accumulation in the tree prior to dormancy, and allows the following crop to get off to an excellent start with high yield potential. They didn’t have these conditions this past fall due to the late harvest.
It is very early, but these observations do portend the 2007 crop will not be a huge “on” crop. More to say on 2007 crop prospects as we approach bloom next spring.
The final results for the 2006 crop are in at 237 million pounds, including 200
million pounds of open inshell. The quality characteristics of the 2006 crop are
much different from previous crops. While the 2006 total crop is down 16.0% from
a year ago, open inshell receipts are off only 6.7%, while closed shell receipts
are down a whopping 61.3% from 2005. These numbers are also evident in looking
at the total supply over the past 3 crop years: in all three years the total
supply has been the same, but this year we have almost 30 million pounds of
additional open inshell and 30 million pounds less of closed shell.
The effects of the 2006 crop quantity, quality, and total supply can be applied as follows:
First, open inshell prices will remain lethargic for the remainder of the year. There is adequate supply, and little chance of price increases over the next 10 months. At the same time, it is not expected that prices will decline from current levels until late in the marketing year, when the industry begins the transition to 2007 crop pricing.
Second, it is expected that kernel prices for the EU and Japanese markets will remain firm for the balance of the year. Kernels destined to these markets must meet exceedingly strict aflatoxin residue standards. The best way to ensure compliance with strict aflatoxin residue standards is to produce kernels from sinker closed shell, which may be in short supply before the crop year ends. Sinker closed shell typically has very low levels of aflatoxin. Note when it comes to Sinker Closed Shell product, it is difficult to predict as no statistics are kept on sources of kernels in inventory, or the breakdown in receipts and inventory of floater closed shell versus sinker closed shell. The same situation for kernels in the domestic market is not expected, as there should be an adequate supply of kernels from other sources to meet demand for the upcoming year.
US x#1 raw open inshell prices have declined about $0.10 in the past 3 weeks, as the total inshell supply became known. Further decline is not expected because prices are now compressing against guaranteed grower prices. Kernel prices remain firm.
Shipments during October 2006 were equal to October 2005. While this is encouraging in light of poor September shipments, it is short of what is needed for the remainder of the year. Nichols expects shipments for the balance of the 2006 crop year to exceed year earlier levels. By how much is a very good question!
Receipts for the 2006 crop through October 15, 2006 totaled 211 million pounds. The final crop should be close to 230 million pounds. This is larger than expected going into harvest, but not greatly over expectations. 85% of the crop is open in shell; the five-year average from 2001 to 2005 was 77%. Total supply for the 2006-07-crop year will be 359 million pounds. A summary of total supply from this crop and the prior two crop years, as well as disappearance (shipments plus processing losses) for the prior two crop years is shown below:
The one amazing thing about the 2006 crop was not the size of the crop, but the quality. Its been said by both growers and processors who have been in this business since it started in California say this is the highest quality crop they have seen. Stain is exceptionally low, closed shell is very low, and insect damage is negligible. Nichols Farms pays a $0.05 per in shell pound bonus to their growers with less than 0.5% insect damage in their open in shell deliveries. This year 46 out of 46 growers received the bonus, and the weighted average insect damage was 0.04%! It’s not known why or how it happened, but Nichols is encouraging their growers to farm the same way every year.
The focus will now go to crop movement. Movement is expected to rebound a bit from the down year in 2005, with total disappearance around 250 to 260 million pounds; greater than the 2005 crop, but less than 2004. Why? First of all, the shock of last year’s opening price increase has dissipated. Second, prices are down a bit from last year, adding to retailer margins, and providing additional incentive to promote the product. Domestic retailers are again promoting pistachios, which drives movement.
Carryout to 2007 will be 100 to 110 million pounds, down 20 to 30 million pounds from this year. The 2007 crop should be 300 to 320 million pounds, not a record breaker, so total supply next year could increase 60 to 100 million pounds over average levels for the past 3 years. However, there is much to occur before we get to next year! Further, it is to the industry’s advantage to carryover a significant amount each year for the simple reason that crop size can vary substantially and unpredictably. What works against holding substantial carryover inventory are declining prices, as packers are reluctant to hold crop at a substantial cost when it will be less valuable a year from now.
Most buyers are contracting over shorter periods, as there is little fear of shortages. After 13 months of gradually declining prices, this is not surprising. Most on the selling side hope and expect prices to stay near current levels until next fall, while most buyers are expecting further declines. Kernel demand has picked up, as buyers have become aware that there is little shelling stock in the current crop, and the availability of premium kernels from sinker closed shell pistachios will be somewhat curtailed.
Pistachio harvest has passed the
peak and will begin to wind down this coming week. One thing they never expected
was the exceptional quality of this crop. All year it was warned that the
variable maturity of the 2006 crop might lead to quality problems and reduced
yield. It was always expected that there would be higher levels of closed shell
pistachios due to a larger than usual portion of the crop being immature at
harvest, as well as increased staining and insect damage.
None of it happened. While we don’t know the exact quantity of the crop, we do know the quality of the crop appears to be excellent. Insect damage and closed shell are less than recent crops, and much lower than expected. We had previously reported on more than one occasion that nut size appeared small, but in fact nut size is larger than average. The only negative aspect of this crop is many open inshell nuts are too open. The nuts are open so wide there is very little shell holding some nuts together. They are fragile, and it is expected that they will have significant processing losses due to breakage.
The size of the state crop remains open to some debate. Receipts through the end of September totaled 86.8 million pounds. During this time period, Nichols Farms received 47.5% of its estimated total crop. Nichols believes their receipts were ahead of most processors, thus their estimate is that 40% to 45% of the state crop was harvested through September 30th. If only 40% of the crop was harvested as of September 30th, then the total will be 216 million pounds, but if 45% was harvested, then the crop will be 195 million pounds. Until the next receipts report is released on October 20th, there will be a number of opinions about the crop size. On balance, both opinion and early receipts reinforce the thought that this crop may be slightly larger than pre-harvest estimates.
Regardless of crop size, there will be more inshell pistachios available due to a higher percentage of the crop being open inshell. September receipts were 84.6% open inshell versus the prior five years at 76.5%. As mentioned previously, closed shell is much lower than previous years at 7.3% of September receipts versus the prior five years at 18.2%. Shelling stock makes up the balance of the crop at 8.1% of September receipts versus 5.3% in the prior five years. The higher levels of shelling stock are the only indication of the poorer quality crop that was anticipated.
Shipments during the past several months, with the exception of last month, have improved, as buyers and consumers adjusted to price increases initiated last fall. September shipments were under year earlier levels, particularly in the domestic market. We attribute much of this decline to accelerated shipments last year, as buyers rushed to complete old contracts at lower prices. This pricing disparity did not occur in 2006, so there was little incentive to accelerate shipment. We expect movement in the final quarter of 2006 to meet or exceed year earlier levels.
In summary, the quality of the 2006 crop should be well received by consumers, and there looks to be adequate supply to meet increased demand.
Pistachio harvest has finally begun in California. As of September 17, 2006, and Nichols believes that at this point the harvest is 1 to 2% completed in the state, while they have received about 3% of expected final volume.
The comments below regarding the 2006 crop must be taken with a grain of salt, as it is very early in the harvest season! A week from now, it may look very different! With that said, and after completing harvest on two fields, Nichols does have some opinions about the crop worth sharing:
First, it appears the nut size will be slightly smaller than average. Nut size will be considerably smaller than 2005, and larger than 2004. The average ounce count in 2005 was 21.5 nuts per ounce; in 2004 it was 24.9, and for the small sample we have this year it is 23.8 nuts per ounce.
Second, quality thus far is excellent. This is not a revelation; quality is usually excellent early in the harvest season. However, staining was higher than usual in 2005 from the beginning of harvest, and thus far, there is virtually no stain, as has been the case in most years other than 2005. Non-splits are very low, which is a bit unusual at the beginning of harvest. This correlates well with what we’ve seen in the field.
Third, Nichols expectation of variable maturity within the orchard is true thus far. They are seeing a large volume of nuts remaining in the tree after shaking; they are mostly immature nuts. Immature nuts are attached very tight to the stem, and usually don’t come out of the tree upon shaking. A quality and quantity analysis in the first harvested field showed about 25% of the edible crop, and 40% of the total weight remained in the tree after shaking. About 50% by weight of the nuts remaining in the tree after harvest were edible splits, while 35% by weight were blank (empty shell) nuts. If the 2006 crop comes up short of expectations, it will be due to the variability in maturity reducing harvestable yields.
Fourth, the crop is very late. We had them go back into their records to see the earliest and latest dates of harvest for the past 15 years, and the 2006 crop is definitely the latest by about a week. The later date of harvest may help in some ways, and hurt in others. Cooler temperatures will help: harvesting will run smoother, and the trees will shake better. Late harvest will hurt quality from the standpoint of potentially greater insect damage, and greater risk of rain during the harvest season.
Fifth, and finally, yield is a bit less than expected. Please do not draw conclusions from this, rather use it as a point of information. Most of the other observations should hold true throughout the harvesting period, but yield is highly variable. We will have a much better idea on yields in another 10 days. It could be due to 25% of the crop remaining in the tree, or to the high quantity of blank nuts. After we receive product from other production areas, we’ll have a much better idea as to the size of this crop, and will report back at a later time.
Nichols does not expect 25% of the edible crop to remain in orchards throughout the state and throughout harvest. This number will drop as the harvest progresses. Added to this though, are losses of the crop to insect damage, decay, and bird damage as we progress through harvest. As most growers want to wait until the majority of the crop matures before harvesting, these losses may be substantial this year, particularly losses to insect damage because mature open pistachios will sit on the trees much longer than usual before being harvested.
In summary, the opinion of the 2006 has not changed much, except that now it is expected that non-splits will be low. The early part of the crop will be of excellent quality, and nut size is adequate to meet most buyers’ demands.
The 2006 crop continues to
develop slowly, with the beginning of harvest not yet in sight. Nichols believes
the 2006 harvest will begin around September 10 to September 15, but don’t
expect things to pick up until after September 20th. In 2004, their first loads
came in on August 19th. It certainly seems to be late year for pistachios.
Shipments during July continued to show the same pattern as previous months: slow domestic movement, and improving export movement. Domestic shipments, in fact, were the lowest since February 2002. Exports, on the other hand, were higher than 2005 levels for the 3rd consecutive month. Domestic movement is down 21% from last year, and 27% from two years ago. In fact, the industry shipped more pistachios to the domestic market through eleven months in each of the prior five crop years, from 2000 through 2004, than it has this past year.
As we get closer to harvest, both sellers and buyers are becoming more nervous about prospects for the 2006 crop, which appears to have strengthened prices. Prices have not increased because of improved movement. For at least the past 15 years, roasted/salted prices have been $0.10 higher than raw prices, but the spread has widened to $0.15 per pound, mostly because the value of the product has increased 50% over the past couple of years. Typically, there is about 3.5% weight loss (mostly water) from roasting. As prices the cost of this shrink has increased 50%, from 6.3 cents per pound to 9.5 cents per pound. Other factors include increased packaging material costs for roasted pistachios relative to raw, more expensive roasting equipment, increasing maintenance costs, fuel costs, and labor costs.
This crop continues to puzzle most growers and processors. To the casual observer, the crop doesn’t look too bad. Upon closer inspection, there is a high percentage of empty, or blank, nuts. Anywhere from 30% to 50%of the nuts on a tree, depending upon location and tree age, are devoid of kernels. The west side of the San Joaquin Valley and young trees are higher in blanks, while mature trees on the east side of the San Joaquin Valley look better. The difference is mostly lack of winter chill, as young trees require more chilling, and the west side of the San Joaquin Valley historically has less chilling.
Most in the industry continue to think the crop is 170 to 190 million pounds, but as an Industry they don’t have a great track record of estimating either small or large crops. Other than the blanking issue, there are several other issues that could affect the final harvested crop. First, due to the crop being so late and small in size, there will be increased insect pressure at harvest. Second, the crop is variable in maturity, which may lead growers to delay harvest until most nuts are mature. This delay may lead to increased losses due to excessive staining, decay, and additional insect damage. However, with all the negatives to the 2006, it still appears to us to be significantly better than 2003. Excepting for one week of very hot temperatures in July, the growing season has been good. With an open fall, and experienced growers making correct decisions on harvest date and controlling pests, this could be a decent crop.
One thing is certain about the 2006 crop-marketing year: it will be the largest carry-in ever! With one month remaining in the 2005 crop marketing year, total inventory stands at just under 173 million CPC pounds, or 61% of total receipts from the 2005 crop. Nichols expects open in shell carry-in to the 2006 crop to be approximately 90 million pounds, and total carry-in to be approximately 140 million pounds, CPC basis.
The last time the industry held such large inventories at year-end was prior to the disastrous 2003 crop. The carry-in that year was critical in maintaining momentum to move the big crop in 2004. Many in the industry are wondering if history will repeat itself this year. The difference between today and the situation in 2003 is twofold: first, prices are 50% higher now than in August, 2003, and second, they have a much larger supply due to greater carry-in and the 2006 crop being considerably larger than the 2003 crop. While Nichols sees some parallels to 2003, they doubt there will be any shortage of pistachios during 2006 as there was in 2003.
The Pistachio crop continues
to develop, but we don’t know much more about the 2006 crop than reported
previously. The pistachio crop looks larger now than this past May, but there
are many questions left unanswered until harvest begins. Was the crop pollinated
during the lousy bloom and post bloom weather? Will nuts fill, or will blanking
be high this year? Will the crop mature for a timely harvest? Will the crop
mature uniformly? Nut fill began at the end of June this year, right on time.
Nichols believes this is another indication of non-uniform development, as we
know much of the crop bloomed very late, and as of late July many nuts have not
filled. The lack of uniformity this year makes estimating the 2006 crop
difficult, and prone to error.
Adding to the unknowns about the upcoming crop has been the recent bout of extremely hot weather. In late July there were 7+ days of 110 F (43.5 C) temperatures throughout the pistachio production area. This is the hottest stretch of weather that can be remembered. Pistachios handle hot weather better than most other crops, but we can’t imagine this hot spell has helped the crop, and probably delayed maturity of the 2006 pistachio crop.
Shipments in May and June were equal to last year, and considerably ahead of prior years. For the first time all year, export open inshell shipments in both May and June exceeded year earlier shipments. Domestic shipments, though, continued lackluster. Year to date open inshell shipments in the domestic market for the first 10 months of the marketing year are at 72.5 million pounds, versus prior year shipments at 91.5 million pounds. It is interesting to note the decline in domestic shipments over the past 3 years. Shipments year to date during the 2005/06 crop year are down 21% from a year ago, 28% from two years ago, and 13% from three years ago. Rapid price increases over the past year are responsible for the downturn in domestic demand shipments.
Pricing has stabilized, as the market is active, as customers are booking a portion of their needs for the upcoming year. Concern about the size and quality of the 2006 crop is driving the market at present.
At Nichols annual grower meeting on July 12th, they announced their final grower pricing for the 2005 crop, and minimum grower prices for the 2006 crop. They were pleased to announce their highest ever return on the 2005 crop at $2.28 per pound for open inshell pistachios, and $2.20 per pound for edible kernels from shelling stock. The 2006 minimum price for open inshell was announced at $1.80 per pound (including quality premiums), and $1.75 for kernels from shelling stock. This is the 3rd consecutive year of open inshell pricing at $1.60 per pound or higher. As an FYI, they have purposely set the minimum price below their expected 2006 final return, as they believe the current system of setting very high initial grower prices to be detrimental over the long term to growers, processors, retailers, and consumers. Nichols believes that the industry can help shape demand via promotion and advertising, but we must be responsive to marketplace signals such as increasing inventories and sluggish demand. Setting very high initial prices removes the ability of our processing industry to respond to these signals.
If the industry continues to set very high initial prices, there will be a tremendous disincentive for processors to expand their operations, or for new entrants into the processing business. In fact, we’ve seen an exodus from the processing business over the past several years. Why? The potential profits are not worth the required market risk. Ten years from now there will be an additional 80,000 acres of producing pistachios, and lack of processing capacity may become a substantial problem.
Now, with that being said, Nichols does not argue that the high minimum prices have been of tremendous benefit to pistachio growers over the past 5 years. It has resulted in higher wholesale prices of pistachios, which translated into higher grower prices and record profits for producers. Reasonable minimum grower prices stabilize the market by setting a floor on wholesale prices, and allow producers to budget minimum cash flows. The true winners under the present system are integrated grower-processor operators who can afford to lose on processing operations because pistachio growing is profitable. The losers under the present system are non-integrated growers and processors, as well as consumers who have seen prices increase substantially. Growers are winning in the short run, but the economics will change unless tremendous investment in the processing industry occurs continuously over the next 10 years. Processors are losing in the short run, but may be winners over the longer term if pistachio supply exceeds processing capacity. You need only look at the wine industry to see what happens to grower prices in years when crops exceed the capacity of wineries to process and store the harvest.
Nichols Farms has taken the middle ground by providing a minimum price level well in excess of production costs, but not so high to prevent us from responding to market conditions. Should their assumptions about the 2006 crop size and movement at current price levels be inaccurate either high or low (as they most probably will be), they will have the ability to adjust wholesale pricing upward or downward a moderate amount. Together with promotion and advertising programs, this will allow them to move greater volumes of pistachios at profitable levels.
Last month we began to look
at potential of the 2006 crop. We now have a little better definition of the
crop potential for 2006, but this crop is difficult to estimate because it is so
late in developing. In addition to what appears to be shrinking potential for
the 2006 crop, demand has picked up. Shipments in April were slow, but May has
been a very busy month, as domestic shipments are rising with increasing retail
promotions, and export shipments are well ahead of prior months.
First, let’s take another look at the NEW crop potential. The situation in Kern County and much of the Westside (Fresno, Kings Counties) is still confusing. There are more nuts on the trees than was thought possible a month ago, but this is not the entire story. Many nut clusters are composed of very small nuts, many of the nut clusters are exhibiting symptoms of heat stress from the mid 90’s to 100 degree temperatures during mid May, leaf footed bugs are causing sporadic damage, and finally, maturity from nut cluster to nut cluster varies substantially on the tree. Madera County and the rest of the state are in better shape, but the crop in these areas does not appear to have the potential of the 2004 crop due to late bloom and pest problems. As a result Nichols has revised their crop estimate from last month downward approximately 10% to a possible 2006 crop size of 195 million pounds.
An analysis of the breakdown of their estimate by production region is worth taking note. During 2003 and 2004 all production regions were in step; either all large crops or all small crops. 2005 was different story, as Kern and Kings/Tulare/Fresno counties had large crops while the rest of the state experienced a short crop. Nichols expects this situation to reverse this year, with Madera having an “on” year, and most of the rest of the state an “off” year. With at least a portion of the state having an “on” year, plus an increase in bearing acreage of 20%, they thankfully don’t expect a repeat of the disastrously small 2003 crop. Please remember these are estimates only; this crop has the potential to vary substantially higher or lower than the numbers shown. What is clear, though, is this crop is well short of expectations prior to bloom.
The other important comment to share is about the potential quality of the 2006 crop. It is early to judge quality, but what is seen thus far is not encouraging. Maturity varies widely on the tree, and from tree to tree, an indicator of poor quality at harvest. Nut size appears to be very small. More will be known about nut size in a month after shells harden, but high May temperatures mentioned earlier may have prematurely ended shell expansion, and limited the maximum nut size for much of the crop. Yield estimates are generally made for the entire crop: open inshell, closed shell, and shelling stock. The average open inshell percentage of the total crop for the past 10 crop years is slightly less than 78%, with a maximum of 81%, and minimum of 73%. It would not surprise Nichols to see the open inshell percentage as low as 70% this year. Fortunately, carryover from the 2005 crop will be good quality.
Open inshell total supply for the next 16 months, provided Nichols estimate of the 2006 crop at 195 million pounds is accurate, will be approximately 280 million pounds. At present, the industry holds 142 million pounds of open inshell inventory, and Nichols expects 130 to 140 million open inshell from the 2006 crop (based on 195 million pound total crop). Desirable carryout into the 2007 crop is 40 to 50 million pounds; this volume is necessary to keep supply moving to market prior to new crop availability. Thus they have 230 to 240 million pounds available as an industry for the next 16 months, with the greatest variable being the size of the 2006 crop. Given that the last two such 16 month time periods resulted in total usage of 215 million pounds (May’03 to Aug’04) and 254 million pounds (May’04 to Aug’05), supply should be close to demand, and thus the importance of monitoring the 2006 crop as it matures.
At the same time supply for 2006/07 is shrinking, demand is improving. Industry shipments in April were down 20% from April a year ago. Nichols Farms May shipments, however, have been very strong. They are interested to see if the industry numbers mirror their results for May. Along with strong shipments has been active contracting by export and domestic customers. Prices have moved up $0.15 in the last month.
Typically by the end of
April, the California Pistachio Crops are 3 weeks past peak bloom, and nuts are
beginning to size. As being witnessed, this is not a typical year. Unseasonably
warm weather from November through mid-February, and cold and wet weather from
mid-February through mid-April has delayed bloom several weeks. Close to 50% of
the state’s bearing acreage had dormant oil applied during January and February
to enhance and accelerate bud break. This is a common treatment for early
bearing pistachios after warm winters. The oil treatments, to some degree,
replace chilling hours. At any rate, most trees which had oil applied will hit
peak bloom between the 20th and 25th of April. Trees not treated with dormant
oil (mostly older trees) for the most part will not hit peak bloom before this
week. Most cannot remember a later bloom than this year.
In addition to the late bloom, many orchards are exhibiting wide variations in bloom date. We typically see some variation, both within the tree and within the orchard, but it strikes that this year the variation is wider, in some cases much wider. These observations are made mostly in looking at oiled trees, as they are further along in bloom.
Much has been made of inadequate chilling this past year, particularly on the west side of the San Joaquin Valley. Visually, they do not see much difference between east and west side orchards as to time of bloom, or variability within the orchard as bloom. They do see a very light bloom on the west side of the San Joaquin Valley, and a more variable situation on the east. Correlating their field observations to historical yield records (shown on attached graph), appears difficult. Production records are county based, most of which encompass both the east and west side of the San Joaquin Valley. Fortunately, the two largest counties of production, Madera and Kern, have their main production on opposite sides of the San Joaquin Valley. Most of Madera’s production is on the east side of the Valley, while most of Kern’s is on the west side. Kern and Madera Counties together account for 2/3 of California’s bearing acres, and slightly more than 2/3 of the annual yield from 1999 through 2005. Most west side Kern County orchards had high (on year) yields in both 2004 and 2005; this year there are very few blooms in either young bearing trees or mature bearing trees. Madera is a different story. 2005 was a down year, and 2006 appears to have very good potential, at least as related to the quantity of bloom. Both old and young trees have sufficient bloom for large crops.
So what does this mean? First, the growing season weather and harvest weather are critical this year. Because bloom is so late this year, further delays in maturity due to poor growing season weather could push the harvest well into October. Second, yield may be lost to variability in maturity. As Pistachios are only harvested once (sometimes twice in an “on” year), variable maturity often translates into less yield and lower quality. Over-mature pistachios are consumed by birds, insects, or disease, or have excessive staining if recovered. Under-mature pistachios quite often remain in the tree, may not have split, or may have the exterior hull still adhering to the shell. Both late harvest and maturity variation have the potential to reduce yield or lower quality. While California still has the potential to produce 250 million pounds, Nichols now thinks it likely the crop will be smaller. Their best estimate at this time is 220 million pounds, but future events could change that opinion higher or lower. Supply will not become constrained unless the crop size moves below 180 million pounds, which is possible, but not likely.
Recently news out of Iran reports that the Iranian crop potential has also been reduced because of warm winter weather. Current estimates are 180 to 200 thousand metric tons, with minimal carryover from the 2005 crop.
Shipments during March continued the same trend as previous months, although domestic shipments are showing some signs of recovery. For the year to date, open inshell shipments are down 22% versus the prior year. March domestic shipments were ahead of February and down only 15% from year earlier levels. Exports year to date are down 20% from year prior, and March shipments were also 20% lower than March a year ago. We are seeing some life in the market, as both shippers and buyers have concerns about the new crop. For the time being, prices that were weakening have firmed and at least one shipper has withdrawn from the market. It is expected that prices will stay in a narrow range for some time unless a dramatic problem develops or becomes evident with the 2006 crop.
For the year thus far, the
industry has shipped 93.3 million pounds of open inshell pistachios to the
domestic and export markets. This represents a 23% decrease from last year, 5%
decrease from the 2003/04 marketing year, and up 1% from the 2002/03 marketing
year. Thus, while shipments are down substantially from last year, they are not
far off prior levels. Export open inshell shipments are down 20% from last year,
but up 48% over 2003/04, and up 29% over 2002/03. Of greater concern are
decreased shipments to our domestic market. Domestic open inshell shipments are
down 25% from last year, 29% from 2003/04, and 17% from 2002/03. Of even greater
concern is there have been no shortages of product for the last 6 months, unlike
the 2003/04 marketing year.
Inventory at the end of marketing year will likely be 90 to 100 million pounds of open inshell, or 135 million pounds total, including closed shell, shelling stock, AO’s, and kernels. At current shipment rates, this represents about 7 months worth of inventory. 7 months of inventory is not an alarming number in and of itself, but the trend of increasing inventories and declining shipments is of concern. We won’t know if 7 months of supply is positive or negative until the size of the 2006 crop is known.
Most growers and processors believe the 2006 crop to be 225 to 300 million pounds. Nichols tends to be a bit more conservative regarding the 2006 crop, as their range is 200 million to 275 million pounds. They believe the crop will be smaller because of the warm winter and back to back large crops for most of the state’s orchards.
For consumption to increase, reasonable prices for growers and consumers are needed. Depending on the size of the crop, we may or may not have to increase shipments over current levels, but given Nichols estimates of the crop and projected carryover, we think it likely. Prices have come down considerably since last fall as consumers told the industry prices were too high by buying substantially less than prior years. We are now close to the correct level with current range for US extra #1, and we expect movement to pick up for the remainder of the marketing year. In short, we believe a number of factors determine quantity shipped, but processor promotion, CPC’s generic programs, and price all have important roles.
February is a quiet time in
the pistachio industry. Movement typically begins to slow, and thoughts begin to
turn to new crop prospects and pricing. This is certainly true this year, but
there is a bit more anxiety amongst processors due to falling prices and large
We have seen enough of the marketing year to get a good handle on movement, which continues to be down substantially from last year. Current open in shell inventory is 175 million pounds, and we expect movement to average 10-11 million pounds per month for the balance of the year. Carryout inventory will thus be approximately 100 million pounds. This will be the largest carryout in our industry’s short history, but not far in excess of the carryout to the 2003 crop.
Prices continue to hold in the high $2.00 range, but there are certainly weak sellers offering occasional lots below these levels. Some reselling is also going on in the market, as customers that have overbooked due to slow off-take are dumping excess inventory. We have no idea how long this market will remain sloppy, but cant help but doubt it will end before the harvest of the 2006 crop.
Below is a chart showing predicted opening wholesale prices based on 100 million pounds of carryout to new crop, and movement to reduce next year’s carryout to traditional levels (35-65 million pounds). The second graph is grower price predicated on 100 million pounds carryout to the 2006 crop and the wholesale prices shown in the previously described chart. The assumption here is that processors will be partially compensated for holding over high priced stock from the 2005 crop, and make a reasonable return on the 2006 crop. This has not been the situation in the industry recently, so it may not necessarily be a good assumption.
If carrying costs of holding over 2005 crop are not considered, grower prices will be higher and/or wholesales prices lower. Growers will be short-term winners, while processors, re-baggers and consumers will be losers. Retailers will increase margin and not be affected. Over the longer term, this is not a healthy situation for our industry.
We expect wholesale and grower prices to come down from 2005 levels. How far will be determined by the size of the 2006 crop, and whether or not costs of carrying over a substantial portion of the 2005 crop is considered in setting grower and wholesale prices.
Shipments in December were
decent in both export and domestic markets. Total shipments for the first 4
months of the marketing year are on par with the 2002 and 2003 crop years, and
well behind the 2004 crop year. January numbers will be very interesting to see,
as they will reflect for the first time close to 100% new crop pricing at much
After 4 months of the marketing season, what do they in the industry know? First, that they have more than enough pistachios to satisfy demand at current price levels. Second, consumer demand is off, but they can’t yet quantify how much. They should know within the next 2-3 months if demand is off 15% or 40%. Third, there has been significant price erosion in the past two months. Raw prices are off $0.25 to $0.30 from opening. For the most part the weaker prices are believe to be short sellers or speculators sensing weakness in the market, and attempting to push the market down further. It is, however, expected that the market will settle in the $2.65 to $2.75 per pound range for raw US extra #1 until more is known about the potential of the 2006 crop. It is also felt that all pistachio processors (that means every single one, provided they are telling the truth) are losing money on every pound at these price levels.
One interesting thing Nichols has observed in the past 3-4 months is the reaction of pistachio growers to higher prices and slowing demand. As most in the industry are aware, pistachio growers sell almost 100% of their crop on a “pool” basis. Minimum prices are specified, and if the market rises after the contract is signed, growers participate in the price increases. The minimum prices this year were high relative to previous years, so growers have locked in a very profitable year. Price risk is entirely with processors this year. The interesting thing observed is that many pistachio growers are not happy with the current situation. While very happy with their crop and return for 2005, they see the current high prices as borrowing against future crop prices, and understand price disruptions as they have seen over the past few months shake buyer’s confidence. Several have offered to take a price reduction so they can move the crop at more reasonable price levels! It seems growers of pistachios are more in tune with how their product is marketed than most agricultural producers.
While Nichols does not expect, and have not asked, growers to reduce their guaranteed price for the 2005 crop, they do expect grower price guarantees to come down significantly for the 2006 crop. Depending upon how much demand is down, and the expected 2006 crop size, guarantees could range from $1.30 to $1.80 per pound. Expectations are for demand to be down about 20% over last year, the 2006 crop to be about 250 million pounds, and minimum grower prices to be about $1.50. This will provide an excellent return to growers, reduce wholesale prices to manageable levels, move consumption up (but not to 2004-05 levels) enough to consume a large portion of the carryover inventory, and allow processors to recover a portion of their losses from the 2005 crop.
In regards to the legal update within the industry; Paramount last week amended their lawsuit against the California Pistachio Commission (CPC) with the addition of 9 new claims and demands for relief ($). Paramount is now demanding the CPC not collect assessments from ANY growers, or expend ANY funds. They not only don’t want their assessments used for generic advertising, production research, and government affairs, they don’t want our assessments spent either! Further, they are now suing the CPC claiming the election process is unfair; the districts are not fair, and one person, one vote is unfair and unconstitutional. Paramount wants the CPC stopped, and wants compensatory damages; in other words, they want not only their assessments back, they want the assessments paid the CPC by all other pistachio growers.
The accompanying chart below
shows some interesting trends in pistachio shipments thus far this season. After
continual steady increases in shipments to the domestic market from 1996 through
last year, shipments thus far during the 2005-2006 crop year have dropped
sharply. Exports, though not as strong as 2004, still continue quite strong.
Overall shipments, though lagging 2004 by move than 15 million pounds, are still
the second highest on record.
One could explain the slowdown in domestic shipments by noting purchasers had raised inventory levels at the end of last year, and have been drawing down stocks since higher priced new crop became available. The only problem with this theory is shipments during the last three months of 2004-05 crop year were only 1.5 million pounds greater than the year earlier period, while shipments for the first 3 months of the 2005-06 year are 11.1 million pounds behind the previous year. Clearly, higher wholesale prices have slowed down the domestic market quite dramatically. The effect is somewhat exaggerated by the numbers, as we expect there has been a significant decrease in inventory held by retailers and wholesalers this year versus 2004.
There has been some continued erosion of prices over the past month, but it has been sporadic. Most of the lower prices are due to a lack of buying interest, and some packers are jumping at the chance to make a sale, any sale. This has certainly been the quietest November most can remember, at least in terms of sales inquiries. Current prices are hard to determine, but there have not been abundant sales at any levels.
Finally, a quick update on the legal battle within the pistachio industry between Paramount and the California Pistachio Commission (CPC). As was reported in the California papers earlier this week, Paramount was granted an injunction allowing them to escrow funds that would have gone toward advertising, promotion, and government relations. Based on the PR released by Paramount, and largely regurgitated by local newspapers, this could appear to be a great victory for Paramount. It was a significant victory for the California Pistachio Commission. Business will continue as usual, as the judge rejected almost every single demand made by Paramount. Paramount asked that reserve funds be frozen, the judge rejected the claim because Paramount had supported CPC programs at the time the assessments, now held in reserve, were paid. Only 2 growers were allowed to join Paramount’s suit; the judge rejected all others on the basis that they had no objection to the CPC’s programs, but were only joining in at Paramount’s request. This suit has a long way to go before final judgment is passed, but the CPC will continue to operate its successful programs, and continue to enhance California pistachio growers returns both now and in the future.
The pistachio market is very
quiet. The California pistachio industry is very noisy. Nichols for instance
would like things the other way around, but it’s not their choice.
Prices are between a rock and a hard place. The market wants to force down prices, but high field prices are holding them steady. As such, there is no place for prices to go, and they are stuck at the $2.85 to $2.95 level for raw US extra #1, size 21/25.
Inventory is more than adequate to keep buyers content to buy spot, rather than contract. Most buyers see little risk of rising prices, and a reasonable expectation of lower prices due to large inventories and slow shipments. Let’s take a closer look at shipment and inventory levels.
Certainly October, at 7.8 million pounds, was a very slow month for domestic shipments. The year prior, 15.5 million pounds were shipped domestically during October. However, open inshell shipments for the first two months of the new crop year at 37.1 million pounds are very close to the 4 year average from 2001 to 2004 of 37.4 million pounds. One reason shipments have lagged during the beginning of the New Year is shipment schedules at the end of the 2004 crop year were accelerated, as buyers took shipment on low priced contracts. Thus, the shipment data for the past 2 months may not correlate very well with actual consumption. The industry will need a couple more months of shipment data to confirm changes, if any, in consumption due to higher price levels.
Inventory numbers are much more straightforward. They have plenty of pistachios in California for the remainder of the 2005-06 crop year. Open inshell inventory is at 223 million pounds as of November 1st. This compares to 209 million pounds last year on the same date, and 212 million pounds on November 1, 2002. Nichols anticipates off-take for the remainder of the year to be 140 million to 160 million pounds, so ending open inshell inventory will be 50 to 70 million pounds at the end of next August…..there are plenty of pistachios for the remaining 10 months of the crop year.
The question everyone will be asking is: Is this too much, or too little carryout inventory? At this point in time, Nichols does not think it’s too much. If the 2006 crop is very large, they will have been wrong, but they don’t see a huge crop next year. Back to back large crops, along with a late and prolonged harvest in 2005 are impediments to a large crop in 2006. Young trees will have good crops next year, but older orchards will show the stress of back to back large crops. Nichols early opinion is the 2006 crop will be under 300 million pounds. If true, 50-70 million pounds is a correct amount of carryout.
Finally, the California pistachio industry is awaiting a decision on Paramount’s lawsuit against the California Pistachio Commission (CPC). Oral arguments were heard on November 14th, but as of the 28th, no decision has been issued by the court as to Paramount’s request for a preliminary injunction. A decision is expected in the next couple days, and we will forward on anything we hear.
The 2005 harvest is now
complete, and the crop received to date is 281 million pounds. The 2005 crop was
clearly a very good “off” crop. Open inshell receipts were 213 million pounds,
resulting in total open inshell supplies for the 2005-06 marketing year of 262
million pounds. Total open inshell supply during the prior year was 260 million
pounds. The difference in supply is negligible; the quality of supply between
the years is very different.
Because of very high grower prices, combined with the variation in maturity of this year’s crop, many growers harvested orchards a second time. Harvest cost is approximately $200 per acre. Breakeven for second harvest was only 90 pounds per acre this year, and on Nichols own orchards, they harvested from 150 to 900 pounds per acre. They estimate 10% to 15% of the 2005 open inshell crop came from second harvest. Second harvest product was high in stain, and sometimes in insect damage.
Combined with the approximately 25 million pounds of second harvest product were 48.5 million pounds of open inshell carryover from the 2004 crop. This carryover was mostly small sized (26/30) count. Finally, the 2005 crop was high in stain from the beginning of harvest. In summary, from the 2004 crop we had a supply of clean, uniform, and small-sized open inshell. From the 2005 crop we have 10-15% second harvest, 18.5% small-sized carryover, and approximately 70% (183 million pounds) large sized product with heavier stain levels.
What does this mean to the market? That is a difficult question to answer, especially given the much higher price levels compared to one year ago. We think purchasers will react to the larger crop size and total supply by continuing to hold off purchases as long as possible, expecting price declines. On the other hand, with grower prices at current levels, there is little motivation for processors to reduce price. Nichols thinks prices will remain flat for the remainder of the year at the $2.95 level for US extra #1 Raw, with occasional short term discounting by individual processors to meet cash flow requirements. There will be adequate supply of inshell pistachios, especially large sizes. Carryout to next year will increase marginally, but the quality of the carryout will be poor: a variety of small and large sizes, with high stain level and insect damage.
Looking out to next year’s crop, Nichols expects the crop to be down from the 2004 record “on” crop. Why? Two reason: First, many orchards produced back to back large crops in 2004 and 2005, and will rest in 2006. Second, as opposed to the very early harvest in 2004, the 2005 harvest started late, and ran late due to second harvest. When harvest is early, the trees have extra time to produce and store food for following year’s crop. Such was the case in 2004, and a very good 2005 “off” crop resulted. The last time prior to 2004 when such an early harvest occurred was the record 1997 crop. Instead of an “off” crop in 1998, the industry experienced another record crop. It is believed the same scenario occurred in 2004 and 2005.
End September 2005
The 2005 pistachio harvest is
80% completed as of 26-September. Nichols estimate for the 2005 crop is now
260-270 million pounds. On Tuesday, 20 of September, thunderstorms swept through
the pistachio producing areas of California. There was some damage from rain,
and minimal yield loss from high winds, but most of the pistachio crop avoided
weather problems. One processor received 2.7 inches of rain in 35 minutes, and
was shut down for several hours. Thunderstorms and rain are forecast again for
this last week in September.
There are a number of good things and bad things about the current crop. As previously reported, nut size is very large. Nichols average ounce count from the 2005 crop is 21 nuts/ounce versus 24 nuts/ounce in the 2004 crop. They have found sizes as large as 12/14 in this crop, but at the same time there are high levels of dark stain and light stain (11% vs. 5% in 2004) from some areas and growers, as well as high levels of closed shell. Defects in closed shell are high this year, probably due more to summer heat than insect damage. A significant portion of the final crop will come from re-shaken orchards. This fact cannot be overlooked; as much as 10% of the final crop may come from re-shaken orchards. The combination of high field prices and variable maturity will lead to more re-shaken orchards than ever before. Quite often this product cannot be used for inshell, due to high levels of insect damage and stain. They expect the harvest to continue, because of re-shaken orchards, into the 2nd half of October, and to inflate the final crop size.
Final shipment numbers for the 2004-05 crop year are in, and it was a very good year for the California Pistachio industry. Open inshell off-take at 212.6 million pounds was 26% over the previous crop, and total off-take at 282.7 millions pounds was up 47% from the prior year’s level of 192.5 million pounds. Final inventory of open inshell came in at 48.5 million pounds. This is 0.5 million pounds less than forecast last month, and 5 million less than forecast in May, 2005. Much of this product is already sold, and a high percentage of this product is small sizes (very small sizes from one packer), and also includes stained product. We view this level of carryover as bullish for prices.
Nichols is expecting shipments for the 2005-06-crop year to be even or slightly less than 2004-05, and carryout of pen inshell to the 2005-06 crop at 40 million pounds. Exports will be up over the previous year by 10% to 20% as more customers convert to California pistachios from Iranian pistachios. Domestic shipments will be down a like amount, largely because current price levels have cut demand. Because of the two consecutive large crops, it is expected that the 2006 crop will be smaller than 2004.
Shipments will remain strong through December, especially in export markets. Higher consumer pricing will hit domestic markets first, and then export markets early next year. Changes in wholesale pricing is not expected to occur until late in the crop year, and only then if shipments fall short or exceed expectations, or the 2006 is larger or smaller than current expectations.
The 2005 harvest is now
underway, and approximately 20% of the crop has been harvested. Nichols is
beginning to see some trends about this crop, but the crop size wont be known
for 7 to 10 days.
What is known is the crop is good sized, both in quantity and nut size. Most growers are reporting
yields better than expected, in some cases equal to or better than 2004 yields. Growers on the west side of the San Joaquin Valley are reporting very good yields. East side and northern orchards are yielding less than the 2004 crop, but much more than 2003. Nut size is very large. The average ounce count of deliveries to Nichols Farms thus far is 21.7 nuts per ounce. They expect 30% or more of the crop to be 18/20’s this year (versus 4% last year), and for the first time ever, they will have a significant amount of 16/18’s. 26/30’s are nonexistent.
Some other characteristics of the crop are as follows:
1) Maturity is uneven, making it difficult to determine harvest timing.
2) Staining on eastside nuts is high due to the above maturity variation and heavy morning dews
3) Insect damage thus far is low, as would be expected. Due to the late start, over 50% of the crop will be harvested after the next flight of navel orange worm, and insect damage could become a problem for the second half of harvest.
4) Closed shell is variable, but generally on the low side. It is definitely lower than the 2004 crop on the western and southern side of the San Joaquin Valley. Northern and eastside orchards are higher in closed shell than 2004. Defects in closed shell are higher than typical, probably due to the extreme summer heat.
5) The harvest will be long and drawn out due to the maturity issue. Due to high field prices, growers have incentive to capture every nut. Some are planning on shaking trees twice, and others will use hand crews to capture nuts not removed by mechanical shakers. Others are waiting for more nuts to mature before harvesting, and all these factors lead to an extended harvest.
Thus, in summary, Nichols expects the 2005 crop to be a good one. Quality of the second half of harvest is a concern, but overall yields are good, and better than expected. Closed shell is down, staining is up, nut size is large, and insect damage has the potential to be higher than last year.
We will send out a second update later this month in approximately 10 days when we are given a better feel as to the size of the crop and carryout inventory from the 2004 crop.
The 2005 harvest is just
around the corner. Nichols expect the earliest harvesting to begin during the
week of August 30th, and expect peak deliveries from September 10th to September
20th. They should have some idea of the total crop size around the 2nd week of
This crop continues to impress them. Size appears good, quality is excellent, and there is a minimal damage from disease. Maturity is variable across the tree and orchard, but no more so than an average year, and far less variable than the 2003 crop. The disease issue was of considerable concern to east side and northern growers due to the inclement weather in April and May of this year. The maturity issue is crucial, as pistachios are typically harvested only once. The more even the maturity, the higher the harvest efficiency, and the greater the crop. One reason the 2003 crop was such a disaster was this maturity problem. Millions of pounds of good pistachios were lost because the harvest occurred when the pistachios were immature (wouldn’t come out of the tree) or over mature (higher stain, insect levels, kernel decay). Nichols doesn’t see this happening in 2005, at least not yet.
Shipments for the 2004 crop year will be by far the greatest on record. Open in shell receipts from the 2004 crop were 254 million pounds. They are forecasting disappearance (the combination of shipments and processing shrink) for the 2004 crop at 211 million pounds, and carryout to the 2005 crop at 49 million pounds. Total receipts from the 2004 crop (including closed shell and shelling stock) were 347 million pounds. They are forecasting disappearance for the full year at 282 million pounds, and total carryout to the 2005 crop at 79 million pounds.
Pricing for new crop is fir. New crop business is picking up, but many buyers are contracting for lesser tonnage over shorter time periods than previous years, as they are unsure of demand at current price levels. We expect little change in prices until harvest is well underway, and only then if the crop is much larger or smaller than current expectations. A total crop less than 200 million pounds will produce moderate price increases, and a crop over 250 million pounds will pressure current price levels.
One thing we always think about is the impact of the current crop on the next year’s production. Should the crop come in at 250 million pounds, we would expect the 2006 crop to be something less than record crop in 2004. Many orchards will have produced consecutive large crops, and won’t produce a large crop in 2006. Put another way, an unexpected larger state crop this year will most likely reduce the size of next years crop. Thus, even a very large off crop this year (250 million pounds) will not affect wholesale pricing much, as expectations for the following year will be reduced.
We don’t expect price declines for another reason as well. Field prices for pistachios have risen another $0.10 per pound since last month, and any decline in market price will put additional pressure on processor’s margins. Growers are happy about the price they will receive for the 2005 crop, but many are concerned the high price levels will lead to building inventories above desirable levels.
NICHOLS FARMS SHIPS 100% NATURALLY TREE OPENED PISTACHIOS!
Much has happened in the
pistachio industry during the past month. Minimum grower pricing for the 2005
crop has been announced by most packers, and ranges from $2.10 to $2.19. The
effect of the grower-pricing announcement has been met with joy by growers, and
dismay by retailers and wholesalers. The effect of the announcements will
definitely firm pricing for delivery to retail and wholesale users, as packers
are unwilling to ship goods at a loss. Other developments during the past month
were the beginning of nut fill for the 2005 crop, sales activity for the 2005
crop picking up, movement of the 2004 crop continuing strong, and Paramount’s
resignation from the California Pistachio Board.
Nut fill began the last week of June, and is right on time. Harvest should begin the first week of September. We had expected nut fill to start later due to the exceptionally cool spring and early summer, but this was not the case. Most growers believe this will be their best “off” crop in many years. Nichols observations are that nut fill looks very good, with few blanks and uniform kernel development. Shell size is much larger than last year, and larger than normal. It is not possible to determine if the crop will be high in closed shell until harvest is underway. We still have 8 weeks until harvest begins, and many things can still go wrong or right, but the crop at this point in time looks good. Nichols have raised their estimate of the crop to 250 million pounds from 220 million pounds last month.
Sales for delivery during the 2005-06 marketing year are picking up. Current crop pricing is still in the $2.95 to $3.05 range for US extra #1 naturally tree opened 21/25 raw pistachios. New crop pricing is in the same range. Shipments of old crop through June have continued to be strong, especially in export markets. Nichols expect shipments to remain strong through August, as buyers complete delivery of lower priced contracts from old crop. It will be very interesting to see how shipments are going
this coming September, October, and November after current pricing has taken full effect.
Nichols is forecasting the open inshell supply for the 2005-06 crop year to be approximately 240 million pounds. This is composed of 45 million pounds carried out from the 2004 crop, and new crop receipts of 195 million pounds (250 million x 78% open inshell) open inshell. Much of the carry in will be small sizes, stained, or with other defects. They’re expecting total off take to be flat or slightly less than the current year at 200 to 210 million pounds. Unlike two years ago, they will have enough pistachios, but there may be limitations on certain sizes and grades as we get toward the end of the year. 30 to 40 million pounds of open inshell are necessary to transition from one crop to the next without shortages and breaks in delivery.
As always, NICHOLS FARMS SHIPS 100% NATURALLY TREE OPENED PISTACHIOS!
End June 2005
This is the doldrums for the
pistachio industry. The appearance of the California crop is unchanged from last
month, and will be the same next month. There is very little news to report, as
most shippers and buyers have not yet begun contracting for new crop, and old
crop movement is steady with most shipments off contract, and limited spot
sales. Movement during May was quite strong, pushing shipments for the year up
19% over the 2003-04 crop year. Export shipments are up 77% during this time
period, while domestic shipments are down 9.4% during the same period. Is this
an early indication of price affecting demand?
Attached is a summary of the forces working against each other over the next few months. It’s also pretty close to conversations between buyers and sellers.
Open inshell inventory at the end of May, 2005 is at 90 million pounds vs. 120 million pounds at the end of May, 2003, and of poorer quality (small sizes)
Open inshell shipments up 19% in 2004 vs. 2003, and up 27% in 2004 vs. 2002
Kernel shipments up 23% in 2004 vs. 2003, and up 47% in 2004 vs. 2002
US crop is much smaller than 2004
The Iranian crop is reduced 30-40% by freezing temperatures
Nutritional message about nuts being part of a healthy diet is gaining traction in US
Prices of competing nuts are at historically high levels
Federal Marketing Order Implementation on August 1, 2005 will remove some product from marketplace (how much is unknown)
The US$ has gained considerably against the yen and euro in the past 6 months: on December 30, 2004 the US$ was at 1.3623 euro; on June 12, 2005, the US$ stood at 1.2089 euro. On January 12, 2005, the US$ stood at 102.26 yen; on June 13, 2005, the US$ stood at 109.58 yen
Higher prices than past years will slow demand
Package sizes will be reduced slowing demand
The 2005 California crop should be much better than 2003
World supply in 2005 roughly the same as 2004
Domestic shipments are down during 2004-05 versus prior year
New crop pricing is now the issue occupying the thoughts of buyers and sellers. For the most part, the current crop is sold, and uncertainty about where pricing will go is greater this year than for several years. Opening prices will be much higher than 2004, with a supply that could be much less to slightly more than 2004. Supply of open inshell pistachios is composed of the 2004 carryout plus 2005 crop received minus carryout to 2006 crop. Here are three possible scenarios for supply.
Carryout to 2005 Crop Year
2005 New Crop (at 78% of total crop)*
2005 Crop Year Consumption
Carryout to 2006 Crop **
Percentage of Previous Crop Year Receipts***
Consumption vs. 2004-05 Crop Year
* The average percentage of open inshell is 78% for the past 10 years
** 10 million is the minimum carryout
*** The past three "off" years open inshell supply have been 40%, 67% and 76% of previous "on" year
Opening prices for US extra #1 21/25 will likely be in the $2.80 to $2.90 range. Roasted product will be $0.15 higher, and 18/20’s will command a $0.15 premium over 21/25’s. Nichols expect these price levels to hold from the present until at least November. From that point, pricing will be determined by which of the scenarios above actually occurred. Prices have the potential to be very volatile this year, given there are equal chances for tight supply due to a small crop (small supply scenario) and diminished demand due to 40% price increases from 2004 opening prices.
World supply of pistachios is similar to the California situation. Iran’s expected very large crop, estimated at 280,000 mt (618 million lbs.) prior to their freeze, is now estimated at 160,000 mt (353 million lbs.). Total world supply, as presented at the INC meeting in Berlin earlier this month, was estimated at 430,000 mt for 2005 versus 412,000 mt for 2004. However, the 2005 supply numbers include substantial increases for Turkey and Syria, both of whom export little and have no system to accurately determine crop size or total inventory.
Turkey, for example, estimates supply on a dried, inhull basis, not a dried, inshell basis. Nichols believes the total supply for 2005 available for export to be considerably less than 2004 due to limited supplies in Iran and the USA.
The phrase of the month is Frost damage. Enough to send chills down a growers
spine. Earlier this month, several nights of freezing weather severely damaged
the 2005 Iranian pistachio crop. This was to be the “on” year for the Iranian
crop, with estimates ranging from 240,000 to 280,000 metric tons (530 to 618
million pounds). The freeze reduced the potential by approximately 40%, or 240
million pounds. Put another way, the equivalent of the entire 2005 California
crop was lost!
The crop damage and size of the crop in Iran is subjective. There are no production or shipment statistics similar to California. The estimates above are an average of several sources close to the Iranian crop. We do not truly know. The most serious freeze damage occurred in the Rafsanjan area. Rafsanjan is the largest production area in Iran, and had more orchards in an “on” year than elsewhere in Iran. Rafsanjan is the equivalent of Kern County in California, although the production area in Iran covers a much larger area than California. Larger sized pistachio varieties were the most affected. Perhaps the most telling indication of the damage were price increases in Iran following the freeze. Prices rose about $0.10 per pound immediately following the freeze from already historically high levels.
The freeze in Iran has already had an effect on US prices. Where prices heretofore appeared to be softening somewhat, they have now firmed. There are substantial trades by resellers in both the domestic and export market as the supply is allocated to those most in need of pistachios. Shipment numbers for California pistachios in March were flat with previous year’s numbers in total, but exports were up 3 million pounds, and domestic shipments down a like amount. This continues a trend since November of domestic shipments trailing year earlier totals each month, and exports higher than year earlier totals. Since November, exports are 48% higher than year earlier, while domestic shipments are off 20%. As discussed last month, this is partially due to the strength of the dollar, but mostly due to high domestic retail prices resulting from a more direct link between processors and retailers in the US than abroad.
Because of the freeze in Iran, and resulting decrease in world supply, it is believed that the shipment trend of increasing exports and declining domestic shipments will continue throughout the rest of this year, and all of 2005 crop year. We were concerned opening price levels 40% higher than last year would have a dramatic effect on shipments to both domestic and export markets, but now see strength in the export market for the next 18 months.
Pistachios in California are now in the nut expansion period, and we are getting a better idea of the crop potential. Most growers report this is potentially a good or excellent “off” crop. More than one grower has told Nichols that this is the best looking “off” crop they’ve experienced. However, we’ve seen “off” crops that look good before, but harvestability and/or quality was poor. The past three “off” crops have been 66% (1999), 67% (2001), and 39% (2003) of the previous “on” crop. Throwing out the disastrous 2003 crop, we believe the potential crop to 60% to 70% of the 2004 crop, or 208 to 260 million pounds. Combined with carryout of the 2004 crop, supply should be adequate to meet demand, but it will be tight. Should the crop come in the low side, pistachios will be scarce and expensive this time next year.
The keys to determining pistachio pricing for the next 18 months will be as
follows: Shipments of pistachios to the domestic and export markets. Size of the
2005 US and Iranian crops Strength of the US dollar Prices of competing nuts.
Which of these factors are most important? Which factors can be measured? Lets
take a quick look at what we do, and what we don’t know about these factors.
The impacts of the weaker US dollar and high prices of competing nuts have definitely pushed prices higher over the past 8 months. Quantifying this effect is difficult, and predicting future trends even more so. Fortunately, while these factors have an effect on pistachio prices, it is far less than shipments and size of the 2005 crop. This leaves us with crop sizes and shipment numbers (a crude measure of demand) to determine where prices will go for the next year and one half.
We won’t know the crop size until mid September for California or late October for Iran. Clearly, the potentially most volatile time for prices will be this fall as the market discovers the size of the 2005 crops. For the other 16 months, shipment numbers will have the greatest effect on price movements. We watch shipment numbers very closely for this reason.
So far this year, shipments are up substantially in the export markets, and flat in the domestic market. Overall shipments of inshell pistachios are up 25%, and pistachio kernel shipments are up 32% for the first 5 months of the crop year (Sept.04 through Jan.05). The industry shipped large volumes in September and October last fall to fill empty pipelines, but since November, 2004, open inshell shipments are only up 2.4% over the prior year. Which way will the rest of the year go? At the present, it is impossible to determine. We will keep watching, as shipment numbers will be best indicator of price direction for the next 6 months.
At the present, there is still some upward pressure on prices, but at the current levels demand has slipped, and processors are selling some of their intended “reserves” for the upcoming short crop. We do not expect any significant price changes for at least another 2 to 3 months. Current levels for US extra#1 open inshell are still $3.05-$3.10 for raw and $3.20 to $3.30 for roasted/salted. Kernel prices have continued to rise due to still rising demand, and are in the $5.10 to $5.25 range for extra #1 80% whole kernels.
Late January 2005
Open inshell pistachio supply at the beginning of the 2004-05 season was 260 million pounds. 92 million pounds have been shipped or lost to shrink, 115 million pounds are committed, leaving 53 million pounds, or 20% unsold. This 20% will have to satisfy uncontracted demand and provide carryover to the 2005 crop. No wonder prices have spiked over the $3.00 level. The current price levels are necessary to pry crop away from packers planning to hold over a portion of the 2004 crop as insurance against a poor 2005 crop.
Attached is a summary of shipments through December, 2004, as well as anticipated shipments, shrink (adjustments to inventory), receipts for the 2005, and anticipated demand for the remainder of this crop year and next. It is Nichols belief that they have sufficient pistachios to meet demand, provided the 2005 crop is decent. Kernels should be plentiful, as there is sufficient closed shell and shelling stock to meet rapidly increasing demand.
Shipments have been strong through December. It will be interesting to see if
shipments continue on their record pace through the rest of the year.
Interesting because most shipments through December were contracted at much
lower prices than current levels. Through December, open inshell shipments were
27% higher than the last “on crop” year. Nichols is projecting this to slow to
around 9% for the remainder of the year. Shipments over the next several months
and the anticipated size of the 2005 crop will determine opening prices for the
New Crop est.
Shipment increase over '04-'05
FYI it was just learned on Tuesday that Paramount Farms has acquired Gold Coast Pistachio, and will take possession in March of this year. Purchase price was $21mm, and included the plant and equipment, but not any of Gold Coast's orchards.
Early January 2005
Not much happening
at the moment. December was quiet for Pistachios; it usually is the last couple
of weeks of the month. No relief in pricing at this point, but we think we've
peaked out on kernel prices; don't know yet about inshell.
Weather has been good for upcoming crop; it has been cold and wet. This does not ensure a good crop, but minimizes the chances of repeating the very poor crop of 2 years ago. Most in the industry place the prospect of the new crop at 200 to 250 million pounds; we certainly need this much.
Nichols is now planning an expansion of their huller to increase their capacity 30 to 35%. Part of the work will be done before the 2005 crop, and part before the 2006 crop.
The 2004 pistachio harvest is now complete. California growers produced a record 354,104,558 pounds, breaking the 2002 record crop by 17%. The crop was much higher in closed shell than 2002, as closed shell was up 78% over the 2002 crop, and open inshell was only up 7% over the 2002 crop. What do the numbers mean as the industry markets this crop and the 2005 crop over the next 22 months? Let’s begin with prospects for the 2005 crop, then look at supply over the 2004 and 2005 crop years.
Prospects are for a better than average off year crop in 2005. The 2004 summer was mild, with little water stress and healthy trees despite the heavy crop load. Assuming average winter chilling and 2005 growing season weather, California could easily produce 200 to 250 million pounds in 2005, or more than double the last off crop in 2003.
Assuming a 225 million pound crop, and we all know assumptions can be very dangerous, the two year supply from the 2004 and 2005 crops will be 580 million pounds. The previous two year supply was 407 million pounds. Open inshell supply will be 430 million pounds from the 2004 and 2005 crops versus 317 million pounds in 2002 and 2003, a two year increase of 35%.
Prices have risen $0.40 to $0.50 over the past two months in response to very strong demand, more customers booking larger volumes to avoid shortfalls created by the short crop last year, higher closed shell in the 2004 crop, and increased demand from Europe. As a result, all California processors have sold most of the 2004 crop. Before the season began, most processors planned on carrying over 15% to 30% of the 2004 crop into 2005. Many still want to hold that amount over, but some have sold beyond the level to carryover even lesser amounts. As a result, there are still unsold pistachios from this crop, but they are not on the market at any price; hence the rapid price increase.
We believe from what has happened that the current prices will hold for the balance of this year, and may soften or increase next summer based on offtake this year, and expectations for the 2005 crop. In any case, pistachios will be available, but may be more expensive than in past years.
Harvest of the 2004 is nearing completion.
Through the end of September, processors reported receipts of 335 million
pounds. We expect another 10 to 15 million pounds will come in during October,
and a total crop size of 345 to 350 million pounds. A very respectable crop, but
less than some had anticipated.
Our industry continues to rapidly grow. The 2000 crop was 242 million pounds, 60 million larger than the previous record. The 2002 harvest resulted in a 302 million pound crop, followed by this year at about 350 million. Our industry has doubled in size since 1998! What is more amazing is the demand side of the industry.
Shipments during September came in at 27 million pounds, compared to September, 2003 at 16 million pounds. Truly amazing considering there was no carryover available to ship at the end of August! Commitments are at 193 million pounds already, for total sales in this crop year of 220 million pounds, and harvest hasn’t even finished. The magnitude of demand, and the fact that 70% of this crop is already sold explains the strength of the pistachio market.
Prices have continued to rise, as demand must be cooled a bit to prevent the industry from running short of product. Current prices are in the $2.50 range for 21/25 US x#1, although supplies of this size will be short this year. Various estimates put the sizing at: 0-2% 18/20, 30-60% 21/25, and the balance 26/30 and smaller. Quality is good despite the small size. Kernel demand is very strong, with prices for kernels ranging from $4.25 to $5.00, depending on quality.
Part of the reason for increased demand is the short Iranian crop. This was to be the large crop in Iran, but a combination of freezing temperatures and wind storms reduced the crop by 50% to 60%. Prior to harvest, most estimates of the Iranian crop were 100,000 to 120,000 metric tons, but as harvest has progressed, these estimates have been downgraded to 95,000 to 110,000 metric tons, and prices for Iranian pistachios have increased faster than California, although starting from a lower level.
Harvest of the 2004 crop is well underway. The
first inbound loads was received by Nichols on August 22nd, 19 days earlier than
the 2003 crop. As of September 3rd, Nichols was about 30% complete in receiving
The impression of the crop is favorable. Stain and insect damage are relatively low. Closed shell is variable and higher than expected. Nut size is smaller than the 2001, 2002, and 2003 crops; it is similar to the large crop in 2000, when nut size was very small.
There have been numerous reports of very small size and very high closed shell from other processors. Although Nichols has seen some of this, they are not seeing it at the levels reported.
Most growers are happy with yields, but few are ecstatic. The crop did not mature evenly on the tree in many orchards, making harvest timing difficult, as growers weigh the decision to give up either the early maturing or late maturing portion of the crop. Many orchards will be harvested twice this year. Nichols still feels that the crop will yield about 320 to 340 million pounds as reported earlier, even though others had estimated as high as 370-400 million pounds. Most growers are reporting similar yields to 2002, and young orchards are producing heavier crops than in recent memory.
Prices have risen about $0.20 to $0.25 cents per pound in the past month. This type of increase was not expected, but in light of concerns of small sizes and high levels of closed shell, it is not surprising. Most processors have moved to the new levels to limit sales until they have a better idea of their crop volume and quality, as well as the total state crop volume and quality.
The first report of new crop receipts will be released October 10th.
Pistachio movement continued strong in June and
July. Kernel consumption has increased most dramatically on a percentage base
year over year.
Prices have steadily moved up from new crop since the original offers in early spring but we do not expect additional upward movement from this level. 18/20's are moving at a $0.15 per pound up charge to 21/25's. This may increase or decrease depending on the quantity of 18/20's in the 2004 crop. Approximately 14% of each of the last two on crops were 18/20, but it appears nut size is smaller this year due to the early spring hot weather.
The current estimate of the 2004 crop range from 300 to 375 million pounds. Nichols Pistachio estimate is 320 340 million pounds. Carry-in to new crop will be the smallest, and availability in August will be the tightest in many years. The good news is that this years crop will be early, and shipment of new crop will begin in the middle of September.
Despite a large expected crop, prices are expected to remain firm at current levels. There are two reasons behind the higher price levels. First, California harvested a record crop in 2002, followed by a small crop in 2003. Low prices during 2002 allowed record shipments and insufficient carryout to the 2003 crop, with shortages and steep price increases during the 2nd half of the 2003 crop year. Slightly higher prices this year will allow enough products to be carried in to the 2005 crop year to mitigate shortages. The second reason for higher prices are cost increases at the processor level. Grower prices are much higher this year, as the two largest processors have announced grower prices at $1.47 per pound, an increase of $0.27 per pound from the 2002 crop. Added to this increase are substantial increases in natural gas, transportation, worker's compensation and health insurance, and processor's costs are up $0.32 per pound from the 2002 crop year. Wholesale prices are up about $0.30 per pound versus two years ago.
Most of the growing area has been slightly drier than preferred, with most storm patterns being mostly northerly within the state. Some very southern areas did get a good amount of rain. More good news is that Chilling hour accumulation has been better than last year which in most locations was above 900 hours by mid February.
With the trees well rested from this past seasons off year, a nice size 2004 crop is expected.
California pistachio producers were expected to produce 144
million pounds of
marketable pistachios this season.
A recent California Agricultural Statistics Service (CASS) objective
measurement survey estimated this year's harvest to produce 180 million pounds. Based
on the survey and past production data, marketable open in-shell is estimated
to reach 144 million pounds, approximately 80 percent of total production.
This is an off-year for alternate bearing pistachios.
Last year California's pistachio producers produced a record 302.4 million
pounds. Marketable open in shell reached 241.6 million pounds.
In contrast, the 2001 off-year crop produced 160 million pounds with 125.8
million pounds of marketable open in-shell, representing 78.5 percent of the
For 2003, the overall average number of clusters per tree decreased 42
percent to 462 from the previous year. The average cluster per tree for Atlantica
(616 clusters per tree), Pioneer Gold 1 (372 clusters per tree) and Pioneer Gold
II (606 clusters per tree) all decreased from the previous year by 47, 38 and
43 percent respectively. The average number of nuts per cluster increased
considerably from 13.8 to 20.6 nuts per cluster.