DENVER, May 19, 2016 /PRNewswire/ -- The U.S. tree nut industry's golden run may be winding down as it prepares to absorb a significant increase in supply in the face of weakening global demand and softer prices, according to a new research report from CoBank. Growers' margins should remain positive through 2017, but operating profitably after that will become increasingly challenging.
Fueled by soaring nut prices over the past 15 years, growers worked to fill a seemingly insatiable demand for U.S. nuts, resulting in thousands of acres of newly planted trees that will soon begin bearing nuts. It is estimated that by 2020 as much as an additional 1.2 to 1.3 billion pounds of walnuts, almonds and pistachios could enter the market—up 35 to 38 percent from the 2015 crop.
"The key question is whether the market can accommodate this projected increase in supply," said Christine Lensing, senior economist with CoBank's Knowledge Exchange Division. "Prices may need to ratchet lower to adjust to the growth in supply, resulting in margin compression for U.S. nut growers."
Over the past few months, nut prices have decreased by nearly 50 percent from the record highs seen in 2013 for walnuts and pistachios and from the 2015 levels of almonds in response to waning demand in developing and traditional markets. Some have argued that the rebalancing of prices was inevitable, if not long overdue, as nuts were starting to price themselves out of the market.
The U.S. nut industry faces other challenges as well, including a stronger U.S. dollar, water supply issues, increased global production, and slowdowns in growth in China and other emerging economies which have been key engines of growth for the industry over the last decade.
Lensing notes that lower profits for the nut industry could result in a shake-out of growers and as well as the pulling of older, less productive and less profitable orchards in California and elsewhere.
"Grower profitability will suffer in the short term," said Lensing. "However, we are cautiously optimistic about the U.S. nut industry's longer-term outlook. The recent price corrections should re-invigorate domestic and global demand, and long-term consumption trends remain bright."
A video synopsis of the tree nut industry report, "Is the U.S. Tree Nut Industry Nearing the End of Its Golden Run?" is available at CoBank's YouTube page and the full report is available to media upon request.
CoBank is a $118 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 75,000 farmers, ranchers and other rural borrowers in 23 states around the country.
CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.
For more information about CoBank, visit the bank's web site at www.cobank.com.
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