The Californian Almond Objective measurement report was released yesterday. The Blue Diamond and the RPAC website have posted updates analysing the figures over the past several hours.
According to this latest estimate, California is set to produce a crop of around 2.2 billion pounds. This estimate, if it turns out to be accurate, would represent a 3.5% drop compared to the Californian almond crop of 2018, which weighed in at around the 2.27 billion pound mark.
You might recall that Subjective estimate, released back in May, estimated the Californian crop would weigh in at a hefty 2.5 billion pounds. Needless to say, there is quite a big gulf between 2.5 billion pounds and the latest estimate of 2.2 billion pounds. In fact, apparently the gap between the Subjective and Objective estimate reports this year is the largest in history.
What on earth is going on?
Well, I think there are two possibilities that could explain the anomaly: a) either one, or both, of the estimate reports were completely wrong; or b) something hammered the almond crop between early May (when the Subjective estimate was released) and early July.
Considering the first of the two points, I think if one of the two reports was off (and there is always the chance of that) I would say that it is more likely to be the earlier Subjective report. The Subjective report is based on the opinion of growers via a phone survey, whereas the Objective report relies on a more statistically rigorous methodology based on actual almond counts and measurements. So on balance, the lower estimate of the Objective is more likely to be closer to the mark.
But I wouldn't rule out b), either. Certainly, this year there was indeed some strange weather in much of California's almond growing region in the weeks after the release of the Subjective estimate, with many areas experiencing the wettest late-Spring conditions in decades, and some areas getting pelted by hail stones. Excessive precipitation can have a major adverse impact on crop quality, and indeed, this was undoubtedly a major cause of Select's crop downgrade back in 2017.
Hail, of course, can also knock nuts off trees, and almond trees in some areas of California were certainly impacted by this. But by and large, most areas were not much affected, and most of the comments from farm advisors reported in updates from Agfax and Blue Diamond seemed fairly upbeat, with most seemingly convinced that the weird weather in May didn't inflict major damage to the almond trees in the state.
At any cost, it looks like the optimism was misplaced. There is little doubt that we are going to see a jump in the almond price in the weeks ahead, as the almond supply situation was tight even before the release of this latest, rather dismal estimate.
It thus looks like we will have a strong almond price going into the new year, which bodes well for Select Harvests, especially considering the very favourable orchard profile of the company, with a large number of young trees just starting to bear fruit. I'd say that the jump in the SHV share price on Thursday is just the first move in a significant share price re-rate.
The RBA move to cut interest rates again earlier this week is also probably adding a bit of fuel to the share price as well. Any company that is a reliable dividend payer is looking attractive right now, and Select has managed to pay out a dividend every year over the past decade. Lately the dividend has been rather uninspiring but as noted above there is reason to think this will change within the next couple of years.
SHV Price at posting:
$7.46 Sentiment: None Disclosure: Held
(20min delay)