(To get alerts for commodities columns: SALT CMMKT.)
July 17 (Bloomberg) -- Farmers in California, the source of 80 percent of the world’s almonds, are rescuing the nut from drought this year by diverting water used for vegetable crops and drilling more wells to keep trees hydrated.
Instead of the 2.5 percent output drop forecast in May that helped spark a rally in almond prices to an all-time high, the U.S. government now expects a 4.5 percent rise in production to a record 2.1 billion pounds (950,000 metric tons).
“Some way or another, a majority of people have proceeded to come up with enough water” for the 2014 crop, which farmers will start harvesting at the end of this month, said Bob Weimer, 68, who began irrigating his 200 acres in Merced County in December, three months early, and added a 12th well. “We’re all keeping our fingers crossed for the next one.”
The efforts were necessary to combat a severe drought in California, the nation’s biggest agricultural producer, where little rain is forecast by the U.S. Climate Prediction Center until October or November. Even with the farmers’ changed tactics, prices for the nut consumed often as a snack food and used to make Hershey Co.’s Almond Joy candy and WhiteWave Foods Co.’s Silk almond milk have stayed elevated.
Almonds are fetching more than $3 per pound, heading for an annual average that would top the all-time high of $2.81 in 2006, U.S. Department of Agriculture and Almond Board data show.
“Supply over the next 12-plus months should be O.K., it seems,” J.P. Morgan Securities LLC analysts Ken Goldman and Joshua A. Levine wrote in a July 1 report. “After that, rain needs to fall.”
California, the nation’s biggest agricultural producer, was in severe drought as of July 15, with more than a third getting the driest rating available, according to U.S. Drought Monitor. Little rain is expected until October or November, the U.S. Climate Prediction Center said. The state is in its third year of insufficient rain, which will erase $2.2 billion from the economy this year, the California Farm Water Coalition said, citing data from the University of California, Davis. That’s down from an earlier estimate of $7.48 billion after groundwater supplies eased the burden on farmers.
As water deliveries were cut, the number of fires increased, and low rivers and streams required officials to give salmon truck rides to the ocean, almond growers had an incentive to conserve water, said Kelly Krug, deputy director of the USDA National Agricultural Statistics Service Pacific Region in Sacramento.
Almond trees take about three to four years after planting to bear a crop, according to the Agricultural Marketing Resource Center, so they are more expensive to replace than row crops that are planted annually.
Dan Errotabere, who helps farm 960 acres of almonds in Fresno and Kings counties, said he let some of his annual tomato, onion and garlic fields go without water, leaving 30 percent of his land fallow, in order to have enough to keep his nut orchards healthy. He now expects a near-average harvest of 3,000 pounds an acre.
“The first thing we have to take care of is our permanent crops,” Errotabere, 59, said by telephone from Riverdale.
The USDA revised its production forecast in a June 30 report, noting that the land devoted to almonds had increased 2.4 percent, based on nut-bearing acreage.
While almonds flourished, other crops suffered. U.S. produce prices have risen, with fresh-fruit costs forecast to increase as much as 6 percent this year, the USDA said. California’s winter-wheat output will fall 41 percent from last year, with durum output down 18 percent, the USDA said in a June 24 report. The agency predicted in May that the spring potato crop would fall 8 percent.
The drought may still keep almond production below the USDA’s forecast. Orchards need the most water between June and August, when weather is warmest and the leaves are the largest, said David Doll, a Merced County farm adviser with University of California Cooperative Extension and an author of The Almond Doctor blog. If growers can’t get the water they need, the nuts may be smaller than normal, he said.
Next year’s crop will be at risk if the drought continues and farmers are unable to sustain irrigation after drilling new wells and extending old ones deeper, Doll said. Some growers are concerned the increased pumping is damaging long-term water supply. Farmers are set to increase groundwater pumping by 62 percent this year, according to a study this week from the University of California, Davis.
“We’re overdrafting the aquifer,” said Michael Kelley, chief executive officer of Kerman-based Central California Almond Growers Association, which operates four sheller-hullers in the San Joaquin Valley that serve 400 growers with 47,000 acres of almonds. “Some growers aren’t going to have the water. Instead of the agony and the ecstasy, it’s going to be the ecstasy and the agony.”
Export prices in April, the most recent available, averaged $3.34 a pound, 41 cents higher than a year earlier, USDA data show. Shipments almost doubled in the past decade, reaching 1.3 billion pounds in the most recent crop year, the Almond Board said.
Hain Celestial Group, the Lake Success, New York-based producer of Almond Dream milk, paid $3.50 a pound for almonds in March, up from $2.70 a year earlier, chief John Carroll said in a March 13 presentation, dubbing them “the most inelastic product I’ve ever seen.” The company issued a price increase in April, effective in the next fiscal year, he said in May.
The gains are good news for California growers, who are facing higher input costs to keep groves healthy. Many farmers have put in additional wells or taken existing wells deeper to get enough groundwater, said Richard Waycott, president and chief executive officer of the Almond Board of California.
“Some of the best years you have are drought years,” said Kelley of the Central California Almond Growers Association. “That’s because you control a lot of the variables. You get rid of the funguses and the molds. You’re able to control things a lot better when you have drought conditions, even though you have a lot of stress on the plant.”