JULY 2020 WALNUT MONTHLY MANAGEMENT REPORT AND DISCUSSION
The California Walnut Board released the July 2020 Position Report. Our table of these figures are shown below:
MMR and YTD HIGHLIGHTS
1) Monthly inshell equivalent shipments +7.0% vs PY
- Export inshell equivalent shipments +31.2% vs PY
- Domestic inshell equivalent shipments -5.1% vs PY
2) Year to date inshell (total) equivalent shipments -5.5% vs PY
- Export inshell equivalent YTD shipments -7.0% vs. PY
- Domestic inshell equivalent YTD shipments -2.5% vs. PY
MMR DISCUSSION
July's performance was better than expected at +7.0%. July inshell of 3.28MM pounds was up 188.7%. July kernel of 24.6MM pounds is up 2.69%. In many countries, especially in the U.S, Covid-19 remains virulent and the 5-6 month lockdowns in many countries begs the question of "what could have been?" As in the past quarter, many packers are completely sold out while a handful of packers still have inventory of most colors and sizes. No doubt they would like to clean up this inventory before harvest begins in September 2020.
Chilenut has not released any numbers for July and only had released the June Walnut Position report with shipment of 19,481 tons compared to last year of 28,515 tons a decrease of 31%. For the month of June 2020; UAE down 45%, Turkey down 60%, China down 65% and India up 30% compared to last year. YTD shipments are 47,109 tons compared to 72,342 tons last year a decrease of 35%. Chile so far shipped 36.2% of their crop and needs to ship additional 83,000 tons for this season. Chile is virtually sold out of any good quality in shell and what remains is of lower quality.
Chandler 30mm+ is around $2.50-2.60/kg CFR. Chandler 20% LHP is $6.40/kg CFR, 80% LHP is $7.4/kg CFR and Hand cracked is between $9.5-10/kg CFR.
New Crop Inshell Prices and Kernel Prices
While some June and July sales of new crop inshell J/L Chandler's had been consummated at $.85/lb - $.90/lb, the market today is in the approximate $.90/lb to $.95/lb range with $.95/lb being the most popular price point for most packers. They claim that prices below $.90/lb result in a loss for growers and they are reluctant to book a loss with the nuts still on the trees. We know, however, the market is indifferent to grower losses as the market takes no prisoners.
New crop Chandler LHP 20's currently in the $2.35 to $2.45/lb range. New Crop Domestic LHP is $2.25 - $2.30/lb range and Combo Halves and Pieces in the $2.10/lb to $2.20/lb range. Chandler halves are in the $2.60 - $2.70/lb range. Business has been and can be done at these price levels but will be affected by the 6 C's below:
- Carryout: Currently we estimate carryout of approximately 81,000 ton based on an August 2020 shipment number of 27,447 the average August shipment number over the past 3 years.
- Crop Estimate: The California Walnut Crop Objective estimate generally comes out near the last Friday in August so expect an estimate around August 28th. Subjective estimate is 723,636 inshell ton.
- Chile: Their success or lack thereof in moving their crop will largely influence California. Through June 2020, Chile is behind 35% over PY. Will they decide to move their crop just prior or at the same time as California?
- California Independent Handler's Coalition: The meeting yesterday which normally focuses on export pricing was uneventful. In this tumultuous time, there was not much point in setting export prices without an Objective estimate. While the Objective number should still be a "record" crop along with a record carryover, the Coalition felt it was prudent to gather more information and to set a price that packers were willing to support and be unlikely to waiver. Since they could not figure out a consensus price, they would most likely convene again just after the Objective estimate.
- Covid-19 issues: The U.S. is bracing for a 2nd wave of Covid-19 issues. If the virus begins to reappear worldwide, that could be detrimental to California Walnut sales. Additionally, some packers are fearful of what "positive Covid-19" test results could do to their ability to process the crop. Most packing rooms are fairly congested with people in tight quarters. One positive test can throw a plant into full disarray.
- China's crop (size and aggressiveness) and how it is marketed to the rest of the world will impact California's prices. Also, trade tensions with China must be closely watched.
Existing Inventory and sales position
While the top brands and cheaper sellers are largely sold out, there is still an abundance of goods in all product categories. As packers would like to limit cold storage fees, CHP can be had today in the $2.05 to $2.15/lb range with Domestic LHP in the $2.30 range and Chandler in the $2.50/lb to $2.60 range. Chandler halves are in the $2.75/lb to $2.80/lb range.
What We Know and Don't Know
- The crop is final at 650,730 ton and carryout is estimated at 80,000 - 85,000 inshell ton at the end of August 2020.
- Chile's crop of 130,000 ton is moving slowly. Inshell JL Chandler of approximately $1.15 CFR and Chandler 20% LHP pricing around $2.90/lb CFR would tend to help California and allow California to submarine under them. What will Chile do to combat California? How much of the typical Chilean "higher" quality product to they have remaining. We hear that remaining crop is of mediocre quality.
- What will the post Covid-19 world look like? Many industries like Cruise Lines, Airlines and Amusement Parks are still hurting and less than 20% of normal. Will the Super Market bulk business survive? Many bulk bins have already been pulled from the stores. How long will it be before Food Service and Restaurants get back to normal? What will happen if a second wave of Covid 19 arises around the world? How will a positive Covid test adversely affect a given packer's ability to pack?
- What will the 2020-2021 new crop walnut crop look like. The first data point for the 2020 walnut crop came out on July 30th with a handlers crop estimate at 723,636 tons which is an 11% over last year's crop which, if accurate, would be the largest crop ever for the state of California. The objective estimate is thought to come out approximately August 28th 2020. This number will use a base bearing acreage of 365,000 ton but at what ton yield per acre? The past 4 years ton per acre were as follows: 2016/2.19, 2017/1.88, 2018/1.94 and 2019/ 1.79. Most experts believe that something closer to 2 ton per acre is more likely as the Walnut Nursery Sales Survey and the "Calculated Acres planted" for Chandler was massive during 2013 - 2016 where Chandler plantings were 71.88% of all plantings during that time period. Basically "out" with the old darker and lower yielding varieties and "in" with the much higher yielding Chandler varieties. Those planting should help to increase the tons per acre to over 2.
CONCLUSION
The California Independent Handler's Coalition not coming out with prices yesterday speaks to the complexity it faces. It does make sense to wait for the best possible information (and the Objective estimate is very important) but to wait another 3 weeks portends consternation. The Objective estimate will likely be a record crop at any level. Buyers would like to know a price and make their decisions based on that price. Without price direction, market momentum tends to stall. This is a strange world in which we live today with Covid and political strife and kicking the can down the road and thinking strategically about the price that packers can support is probably prudent. There are still 8-10 weeks prior to harvest for Chandler (the largest variety) leaving opportunity for hot weather that can burn the crop or rain in October that could degrade quality. California packers and it's various leaders are no doubt debating how to position pricing going forward to yield the best return for walnut growers and to try to trend the market upward over time. It will be interesting to see how this will play out over the course of the season.
We look forward to any questions, comments or interest you may have and we would be happy to assist you.