October 22, 2024

By Gerelyn Terzo, Global AgInvesting Media

While GAI News has wrapped up our Asia 2024 event in Tokyo, the buzz is still alive. Among the many highlights, AgIS Capital Vice President of Acquisitions and Investment Strategy Cody Dahl presented a session on U.S. permanent cropland. With an emphasis on nut crops like pistachios, walnuts and almonds, Dahl documented the challenges California’s nut crops have experienced of late followed by the opportunities that await the industry, offering a unique perspective on how AgIS, which oversees $936 million in AUM, envisions returns going forward.

It’s no secret that California’s nut market has been in the doldrums for the past several years, owing to a dynamic in which prices received by farmers have fallen below the cost of production for crops such as almonds and walnuts. Over the past four years, the National Council of Real Estate Investment Fiduciaries (NCREIF) Permanent Cropland Index, a barometer of cropland sector performance, has delivered its lowest returns since the early 1990s, a trend that’s expected to persist in 2024. AgIS Capital’s Dahl broke down the state of California’s nut markets, including permanent cropland challenges and the hidden opportunities within.

Permanent Cropland Breakdown

Almonds: California’s 2024 almond crop is predicted to be 2.6 billion pounds, reflecting an increase of 6.1 percent year-over-year. However, that’s a 16.5 percent drop compared with an all-time high of 3.1 billion pounds reached in 2020. U.S. almond supply comprises three-quarters of the global supply, with seven California counties contributing 85 percent of total U.S. almond production. Almond prices have hovered at or below the cost of production for the past several years; however, AgIS expect the pricing pendulum to swing in the opposite direction for the 2024 crop, with approximately 75 percent of total shipments poised for export.

Pistachios: California’s 2024 pistachio crop is expected to hover at just over 1 billion pounds, reflecting a 30.3 percent drop year-over-year. U.S. pistachio supply represents between 50 percent and 65 percent of global supply, with five California counties contributing over 90 percent of U.S. pistachio production. Pistachio prices are holding their own, with close to three-quarters of total shipments poised for export.

Walnuts: California’s 2024 walnut crop is predicted to be 1.3 billion pounds, reflecting a decrease of nearly 19 percent year-over-year. The U.S. supply represents over one-quarter of global supply, while rising production from Chile and China have pressured prices. Walnut prices have hovered at or below the cost of production for the past several years, with nearly two-thirds of total shipments poised for export.

Cropland Challenges

A perfect storm of challenges has gathered over California’s nut crops in recent years, clouding the outlook for growers and investors alike. Chief among these have been supply chain disruptions, owing to the COVID-19 pandemic, retaliatory tariffs and geopolitical tensions. As a result, the nut markets have faced higher cost to market crops coupled with stifled shipments, the latter of which has caused higher ending stocks for the following year.

Additionally, AgIS Capital’s Dahl pointed to the adage, “high prices cure high prices” to justify the supply response. Growers ramped up their plantings during the high-price cycle of 2010-2016, crops that have since matured and are fully producing nuts. This surplus production has pressured output prices lower.

Lastly, an increase in the value of the U.S. dollar in 2015 weakened the purchasing power of international consumers, given that the lion’s share of almonds, pistachios and walnuts are exported, resulting in lower domestic output prices.

Opportunity Awaits

Despite the industry headwinds, AgIS Capital sees a light at the end of the tunnel for California’s nut crops. While high prices beget high prices, the same mantra holds true for low prices, which Dahl said are the cure for low prices.

On the supply side, he noted how almond and walnut acreage is rapidly contracting, a phenomenon that unfolded during the 2022 and 2023 crop years. Meanwhile, nut production is expected to be greatly reduced in the coming years, owing to the amount of acre-feet of water nut crops command annually in the context of of California’s Sustainable Groundwater Management Act, through which groundwater basins must reach sustainability by 2040.

As a result, AgIS Capital forecasts that almond, walnut and pistachio production should contract by 2025. For these reasons, plus the seemingly normalization of supply chains and a dollar that should revert lower sooner than later, AgIS Capital is optimistic about the future of California’s nut crops.

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