The Chapter 11 bankruptcy filing from Central Valley-based Trinitas Farming, its investment organization and 17 subsidy almond ranches earlier this year has resulted in numerous media reports and subsequent discussions suggesting gloom and doom as the future for the California almond-producing industry after decades of massive growth and success.
Record low almond prices, high interest rates and the rising cost of capital all contributed to the bankruptcy, according to the filing. Chapter 11 bankruptcy allows a company to reorganize its finances, which Trinintas and its lender Rabo AgriFinance determined was the best course of action because it is selling the land holdings in a managed way.
Oakdale, California-based Trinitas Farming’s massive almond operation, which was established in 2015, encompasses 7,856 acres in Solano, Contra Costa, San Joaquin, Fresno and Tulare counties.
Many pundits and even a few farmers and ranchers are predicting that Trinitas’ Chapter 11 bankruptcy filing was merely the first shoe to drop in what they’re describing as the “decline of the California almond-producing industry,” arguing that many more California almond growers will follow Trintas and soon file for bankruptcy too.
I disagree on both counts. First, we aren’t experiencing the “decline of the California almond-producing industry.” Instead, what we’re seeing today is a ‘rightsizing’ or normalization of what’s been the fastest growing agribusiness in the state in modern history.
It’s been too fast of growth historically and practically when it comes to growing a crop segment in California. It’s been a wild success though. It will continue to be a success as well, just in a more balanced and normalized way. Mega-growth is over in favor of small, steady growth. By way of perspective, the almond industry today generates nearly $20 billion in gross revenue for California annually. Almonds are the state’s leading agricultural export, amounting to around $4.2 billion annually.
Additionally, I disagree with the argument that there will be a spate of bankruptcy filings in the wake of the Trinitas Farming Chapter 11 filing.
About 90 percent of almonds grown in California are grown by family operations, according to the Almond Board of California. Unlike investor-growers like Trinitas, these growers, although struggling right now, are generally diversified and will survive until the dual culprits hurting the industry – inflation and record low prices growers are being paid for their almonds – improve.
Two years ago, almonds went for about $2.50-$3 a pound. Right now, they’re selling for $1.35-$1.65 a pound, making it close to impossible to keep up with inflation. Growers need to sell for $1.80-$2.00 a pound to make a profit.
Inflation is the second culprit afflicting farmers. Depending on who you talk to, growers say they’re paying anywhere from 20-35 percent more for inputs like fuel, fertilizer, water, labor and the like than they were two years ago. This, combined with the record low prices they’re being paid for almonds, is the two-part formula that’s making it difficult for farmers to scratch out a profit on the almonds they’re producing.
The primary reason for the record low prices being paid to growers for their almonds is that supply exceeds demand, even though global demand for California almonds is increasing. It’s a supply-demand process that’s been in the making for over a decade. I see it beginning to change in the favor of demand.
Additionally, Rabobank’s RoboResearch arm is predicting a rebound in almond prices in the next year to 18 months. I agree with their assessment. The firm’s five-year almond market outlook says that ending almond stocks will hit their lowest level in four years. Global stocks could top just 700 million pounds at the end of this season, Robobank says, which should provide growers a chance at profitable returns. If they’re right, this would mean prices for growers in the profit range of $2-$3 per pound.
The game isn’t over for California’s almond-producing industry. The bloom is off a bit but it’s not gloom and doom. Rather, the process of ‘rightsizing’ or rebalancing is what we’re seeing today after two decades of hyper-growth, fueled in large part by investor money.
These are the key changes I see unfolding in the industry.
First, expect to see a number of the investment-growers like Trinitas Farming exit almond-production completely over the next few years. Private equity and other investment firms jumped into almond growing, amassing huge portfolios, in its boom years. These firms expect huge returns on their investments and since they aren’t getting them anymore with almonds they will be looking to exit, hoping to make a tidy profit on the farmland they’ve acquired in the process of leaving the industry.
Second, there will be progressively less acreage devoted to almonds in California over the coming years. It won’t be as drastic as what has happened with walnuts over the decades but it will be noticeable and even significant. On the plus side, this will help balance the supply and demand equation, leading to better prices for growers.
Additionally, global demand for California-grown almonds will continue to grow. India is now the top market for California almonds and it’s going to continue to grow in demand and sales. India has removed all its previously held trade barriers on California almonds and industry analysts expect U.S. almond exports to India to reach $1 billion this year.
Demand for California almonds continues to grow elsewhere in Asia, including China despite all the trade tension between the two nations. along with in Europe, particularly in Italy and Bulgaria.
California grows about 80% of the world’s almonds and California-grown is considered to be the gold standard when it comes to quality.
Domestic growth for almonds will be minimal (probably less than 5 percent annually) but global growth will be in the double-digits. The domestic market will remain strong though. Game-changing almond-based food and beverage products – almond milk introduced in the 1990s is an example of this – could usher in a new era for the industry as well when it comes to domestic consumption and sales.
Two thirds of all California almonds are exported, so the key to maintaining and continuing to grow the industry are global markets. The industry as a whole needs to continue to focus aggressively on global markets.
Lastly, inflation has been moderating and cost increases for growers are moderating, although fuel, which continues to spike in California, seems to be the most unpredictable of all the input costs. As inflation continues to moderate further, so should the percentage increases in input costs.
So far the spate of bankruptcy filings that have been predicted in the wake of the Trinitas Chapter 11 filing in late February have not materialized. Most growers still see opportunity rather than disaster when it comes to producing almonds.
Researchers with the Public Policy Institute of California estimate that addressing the ground water deficit in California’s Central Valley will probably require taking at least half a million acres of farmland out of production. They suggest this farmland be converted to other uses, such as solar development and habitat areas.
I suspect this is going to happen in the coming years and since almonds have been named as the crop most likely to deplete groundwater, I also suspect a significant portion of this likely to be fallowed farmland will include a lot of existing almond orchards, which ironically will probably improve the price growers will get for their almonds in the long term.
My Job Depends on Ag Magazine columnist and contributing editor Victor Martino is an agrifood industry consultant, entrepreneur and writer. One of his passions and current projects is working with farmers who want to develop their own branded food products. You can contact him at: victormartino415@gmail.com.
