California Supply of Almonds - When will it recover?, page-6

I would consider the current supply of almonds in California to be the new normal. On January 5, the Bureau of Meteorology predicted a shift in the El Nino Oscillation Index from El Nino to either neutral or La Nina this year, which should mean lower rainfall in California later this year. The drought is thus likely to continue. And a water deficit affects an almond orchard not only in the year in which the stress occurs, but also in following seasons, so yields will remain depressed for a few years even after the drought has broken (see UC Drought Management - Almonds). It's also worth noting that if there's widespread heavy rain in California from the tail of El Nino in late February and March this year, it will have a negative impact on the crop because the blossoms will fall off the trees prematurely.

But the weather in California is a bit of a distraction. California farmers pump water from aquifers to water their crops - they can do this even in dry years. In the long term, Californian agriculture has serious problems: water use practices are hopelessly unsustainable (This podcast makes interesting listening: Planet Money Episode 640 - The Bottom of the Well.) but right now water pumping has meant drought has only had a relatively modest impact on the Californian almond crop and I don't think there's going to be any large jump or fall in the size of the crop. The Almond Board of California's most recent almanac forecasts a Californian almond crop of 1800 million lbs in the coming year (slightly down on this year's 1870 million lbs).

I think the market has massively over-reacted to the recent rain in California and to a temporary fall in the almond spot price. With population growth, westernising tastes in China, and a burgeoning healthy snack food trend in the West, the long term price trend for almonds is only up.

Much of the price drop has to be put down to the ridiculous mood of the market this year. For all the patronising remarks Australian market commentators have been making about inexperienced Chinese investors panicking on the SSE, the ASX has been behaving every bit as badly. In fact, we're worse: we slavishly follow foreign markets down irrespective of the fundamentals. We don't even have the sophistication to form our own trends.

SHV has confirmed that its profits are up compared to the start of the year. Is it rational for its share price to have halved since August? No.
Are people going to stop eating nuts because Chinese manufacturing is slowing? No.

I think anyone selling SHV right now is gripped by extremely short term thinking.