With the drought easing in parts of California, this year's almond harvest is shaping up to be a record haul for the state that could help its growers crack the nut on more sales.
The harvest underway in California's San Joaquin Valley is expected to result in an estimated 2.05 billion pounds of almonds this season, according to the U.S. Department of Agriculture. That's up about 8 percent from last year and would shatter 2011's record crop, which weighed in at 2.03 billion pounds.
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That level of supply should lead to lower almond prices that "flow through" to the U.S. consumer, spurring additional demand, Goldman Sachs analyst Jim Godsil told investors. It could also contribute to signs of stabilization in the industry.
Following a 6.4 percent decline in shipments during the year ended last July, the crop's shipments for the current crop year are 1.811 billion pounds. That's just slightly lower than last year's 1.813 billion, according to the Almond Board of California.
While domestic numbers have been slower to recover, export volumes are up by almost 4 percent, with the four months ended July producing double-digit percentage growth in shipments. International demand has picked up as prices on California's almonds have moved lower.
Yet some are concerned there may be overcapacity in the state's almond industry, which produces about 80 percent of the world's production. That could weigh on pricing down the road and ultimately hurt farmers' profits.
"Everybody can see that the almonds have been overplanted," said Bill Diedrich, who has grown almonds near Fresno since the early 1990s.
Consumers have already taken an interest in almond products because of their "heart health" benefits. Almond milk, for example, has recorded a 30 percent compound annual growth rate over the last four years, according to Nielsen data. Sales of almond milk reached $938 million in the 52 weeks ended July 2, a nearly 8 percent increase from a year ago, the firm said.
Even Starbucks is a fan. The coffee chain will make almond milk available in more than 4,600 stores next week, and a nationwide rollout is expected by the end of September.
"We're definitely on the upside with the growth," said Kyle McClintock, an almond grower in the southern San Joaquin Valley, near Bakersfield.
"We're seeing more almond milk, more almond butter, more almond flour, more trail mix, and more use of almonds in confections."
Yet despite growing in popularity, almond prices have lost nearly half their value over the past year, from around $5 last spring to below $3 a pound in recent weeks. That's because the domestic almond industry relies heavily on exports, so a strong U.S. dollar has made American-grown nuts more expensive on the global market. That's allowed Australian-grown almonds to become more competitive, hurting U.S. prices.
But there are signs the price decline has helped swing things back in favor of California growers. According to Goldman Sachs, the U.S. has seen "record" export shipments over the last three months, with pricing relatively stable. What's more, Goldman predicts there will be only "modest rises" in the price of almonds for the next several years, which should keep demand strong.
"Demand has adjusted to the substantial price falls earlier in the year," Godsil said.
A decline in almond prices is good news for ConAgra Foods, Hershey, Kraft Heinz and Kellogg, which all use almonds in packaged foods. Major almond milk producers such as WhiteWave Foods, known for its Silk brand, could also benefit.
But it's not something farmers are happy with, particularly those outside of Northern California. There hasn't been much drought relief for many of the almond-growing regions in the Central Valley. Growers such as Diedrich, who farms east of the Fresno area, have received below normal rainfall and low allocations of water from irrigation districts.
In some cases, farmers in this region were counting on higher almond prices to help pay for costly supplemental water purchases. McClintock was one of the lucky ones whose irrigation district received 100 percent of the water allocation this year.
"The availability of more water really, really helped increase the crop size for us, which has been able to offset that drop in price," he said
Overall, almonds were the second-most valuable agricultural commodity in 2014, with $5.9 billion in total cash receipts, according to the California Department of Food and Agriculture. Milk ranked first, with $9.4 billion in cash receipts.
Starbucks' use of almond milk could further stimulate demand for the nut, and lead to more consumers selecting it an alternative to dairy.
"Even though almond milk only accounts for 6 percent of the entire milk category, the performance over time is nothing short of remarkable," said Isabel Morales, Nielsen's manager of consumer insights.
Since 2012, almond milk has gained 4 share points in the "milk" category to become "the most important cow milk substitute, followed by soy milk," Morales said.