Clarissa Reyes, Orchard Systems Advisor, Sutter-Yuba, Butte & Placer Countie
Jaime Ott, UCCE Tehama, Shasta, Glenn & Butte Counties
Becky Wheeler-Dykes, UCCE Glenn, Colusa & Tehama Counties

In February 2024, the Sutter-Yuba and Tehama Walnut Day meetings featured panel discussions focused on the current economy of the walnut industry. We hoped these panels would address common questions we have been receiving from growers and other industry members. Each panel featured representatives from different industry sectors: Robert Verloop from the California Walnut Board and Commission, Brittney Goodrich from the UC Davis Agricultural and Resource Economics Department, a local grower, and a local processor/handler. The discussions varied slightly at each meeting due to different panelists and audience questions. Still, they shared themes addressing the importance of maintaining walnut quality, marketing to US consumers, and maintaining international markets. The panels offered useful information about where the walnut industry stands, how it got where it is today, and what to expect for the future. This article is a condensed recap of the discussions.

 

The Sutter-Yuba panel included Brian Dunning from ShoEi Foods USA and Davin Norene from Big Time Farming, along with Robert Verloop and Brittney Goodrich.

 

Q: What is the most pressing challenge facing your specific segment of the industry or your operation?

The panelists agreed that price is the primary concern—current prices are too low to sustain operating costs.

Robert touched on challenges with quality and edible yield—too many processors/sellers are selling lower-quality product to make sales.

 

Q: What are the notable changes between the 2018 and most recent 2022 cost studies?

Brittney: Increase in all input costs, including labor, fertilizer, and energy costs for irrigation. High interest rates make the cost of establishing an orchard higher than it used to be. Current break-even prices to cover: Operating costs: $0.57/lb; Total Costs: $1.24/lb.

Cost studies can be found at https://coststudies.ucdavis.edu/current/commodities/walnuts

 

Q: How are low prices affecting walnut processors? What changes have you been making to accommodate the prices?

Brian: Working harder to go out and build relationships with buyers. Chilean handlers have been really good about talking about their products, being out there and checking in with buyers. They have been excellent salesmen, and we need to follow their lead. We are also trying to get rid of inventory so that we don’t still have it when Chile’s harvest comes into the market (buyers want the freshest nuts, so once Chile’s harvest comes around, our crop will be worth less than it is now).

Robert: Over the last decade, Chinese walnut production has increased—they used to be an importer of CA walnuts and are now exporting. However, the quality they are producing is low, so they can’t sell into many of the markets we are working in. Input costs in CA are too high for us to be competitive in the low-quality sectors of the market, so it is crucial to focus on maintaining quality, as that is where we can get the price premium required to cover our higher input costs.

 

Q: Describe the history/scale of your operation, potentially any other crops you’re farming, and how these factors fit into your considerations for farming walnuts.

Davin: I’m focused on maintaining quality, so it’s hard to cut back on inputs. I’m still doing high-input farming – not cutting back on water or sprays – but focusing on increasing efficiency: spreading the fertilizer additions out to reduce loss, and irrigating efficiently so that we don’t water more than we need to. Pre-emergents have helped with weed control before it gets out of hand. Canopy management is important to maintain the health of the tree – we’re still taking the time and labor to cut out diseased and dead branches so that we reduce the spread of disease and keep healthy branches that will produce good nuts and healthy trees that will stay in production for longer.

 

Q: We’ve received questions from smaller-acreage or older growers about what to do with their current orchards. What should growers consider when deciding whether to maintain/harvest their trees or pull them out?

Davin: Don’t wait for a tree pull program to save you. We really don’t know if one will come down the line, but if it does, it likely won’t pay to take out old trees. Every grower knows their own operation best and must decide to keep or take out their trees based on whether the numbers make sense to them.

Brittney: There’s an Excel spreadsheet included on the cost studies website that growers can use as a tool to help inform these decisions. It doesn’t contain everything, but can give a better idea of the big picture.

 

The Tehama panel included Chuck Crain from Crain of California and Tyler Christensen from TC Farming, along with Robert Verloop and Brittney Goodrich.

 

Q: What is the most pressing challenge facing your specific segment of the industry or your particular operation?

Chuck Crain provided a detailed history of how we got into this low price situation:

• Increase in operating costs: up 10% last year, 20% since Covid.
• Increased pressure on growers because commodity prices are not rising with these costs.
• Clonal rootstocks made it easier for everyone to grow trees worldwide, including CA, China, Chile, and Ukraine. We went from a 500,000-ton crop to an 800,000+ crop and then were hit with trade barriers in India in 2019: retaliatory tariff from +33% to +120%.
• Import/export problems from COVID – 70% of demand for CA is from exports, but COVID stopped that and created a holdover.
• Surplus inventory due to Chilean crop growing. As prices fell, buyers became more conservative and pulled back their demand.
• 2022 quality disaster + China crop + Chile high-quality crop à CA entered 2023 with a large carryover of poor quality.
• 2023 quality was good + China crop had frost damage à demand and monthly shipments starting to increase again.
• Retailers were not reducing their prices with wholesale (increasing their profit margins); we lower price to move product at wholesale level, but that doesn’t reach consumers.
• Retailers are starting to adjust their prices, which is helping demand grow over the last few months. China’s short crop increased our exports to the Middle East.

Right now, the January and February shipments look good. Prices are still depressed, but now there’s demand/movement. Global overproduction needs to change. 38k acres were pulled last year, but those were primarily old or non-bearing, so will not have much of an effect on production.

Brittney: same as above – low prices are obviously the biggest challenge facing the industry

Tyler: Trees are a permanent crop, which is a long-term investment.

• We’ve cut back on some inputs – fungicides, insecticides, hedging cutbacks; fewer replants; hairier orchard floor; less hand labor in harvest, only doing a single pass. With increased supply and reduced price, quality is even more important, so we’re not dropping the Ethephon. Water management is important, so can’t cut back on that. Cut back to the bare minimum on Potassium. PG&E rewrote their rules after we made an investment in solar, so that hasn’t helped much.
• No new equipment, working to maintain what they’ve got.
• I have savings, but it was hard to save with taxes when times were good. Ideally, we would defer capital to our accounts and pay taxes as we pull it out.
• Regarding oversupply, we should look at prune farmers. I don’t feel like tree pull programs work; we should apply prune lessons to the walnut industry

Robert: Prune growers seem split on the success of the tree pull program. On March 13, there will be a meeting to decide whether or not to move forward with a tree-pull program [the tree-pull program was not approved; see the Tree Pull Program Update in this newsletter for more information]

• The walnut industry was built on a distribution model – all walnuts found a home, which attracted acreage. Now, we need to shift and look at how handlers/processors market the crop. Also, we aren’t caught up with the current needs – there are still value-added and high-value markets.
• There are too many sellers – we currently have >72 handlers. Good handlers are price setters, but others are just price takers.
• Underserved domestic market – historically, 65-70% of our crop went overseas, and the worst quality was kept for the domestic market. This has reduced our ability to sell “at home” with all of the logistical and regulatory benefits that would provide.

 

Q: How are low prices affecting walnut processors? What changes have you been making to accommodate the prices?

Chuck: It was easy to sell for a while (for years). What creates value? Differentiation and matching product with the right buyers. With a surplus, buyers move toward both higher quality and lower prices. There is a market for darker nuts, but not at a price that CA can sustain their production. Don’t cut costs so much that it impacts quality.

Handlers with enough capital in the bank can set their price. But for smaller processors, they must accept low prices to make sales, and we’re waiting for those suppliers to drop out. High-value products will eventually succeed. Input costs in CA are too high for us to be competitive in the low-quality sectors of the market, so it is crucial to focus on maintaining quality, as that is where we can get the price premium required to cover our higher input costs.

Looking forward: knowing where we’ve been, where we are going, and how it will improve. CA produces 33% of the walnut supply (it used to be 50%). China’s industry has grown, but we don’t know how much it has in production. We think they produce ~50% of the world’s supply and have 60% meat yield sold at less than CA’s production cost.

Chile’s harvest is coming up, but we expect a 10% drop, so no carryover. New Chilean pricing is ~$0.75-0.80 to growers – above CA. Buyers are holding back because they’re waiting on CA supply. 2023 crop will be able to compete [with Chile’s quality], and we will reduce carryover. We are hoping to increase demand to keep selling both our and Chile’s crops. But we don’t know how China will recover from their frost-damaged year – sometimes, the following year’s crop is big.

 

Q: Over the next 3-5 years, what can growers do to improve their economic situation?

Tyler: Need to acknowledge that handlers can add value to product. Think about your handler’s ten-year average [pricing] and pick accordingly. Your responsibility as a grower is to choose a handler who is adding value to your product and the industry, not someone looking to turn over product as quickly as possible at the expense of the industry as a whole. You can change handlers.

Robert: There are too many players with no skin in the game, like brokers and traders. Negotiate with your crop to sell to handlers who are partners in marketing and the industry, not just someone who supplies a commodity. Good examples of handlers who are industry/marketing partners are Blue Diamond with almonds and Wonderful with pistachios—they have both built reputable brands. We need to invest in consumer packaging and value-added products. There are plenty of good handlers who want your crop– shop around.

Brittney: Scrutinize your business decisions: maximizing profit is NOT the same as minimizing cost, and likely not the same as maximizing production. Don’t sacrifice where it affects quality.

 

Audience questions from both panels:

 

What are we doing to address allergies?

Many handlers have strict cross-contamination reduction protocols. In the longer term, medical advances are coming into play that would reduce/eliminate nut and other food allergies.

 

Why have I seen commercials for almonds but not walnuts? Would it help to advertise to our domestic consumers?

Commercials can help, but there is a lot of other work to do that will give us more bang for the buck—think grocery store promotions with paired sales and eye-catching displays. Commercials are expensive, so with our advertising budget, we need to focus on these other methods, which have been proven to substantially increase sales at a much lower cost.

 

Is there a future for alternative varieties, like Tulare, that are more heat tolerant?

For Tulare, there’s a good crop for one out of every three years, but the other years aren’t better in color. Howard really needs Ethephon to get crop off, and as the trees get older, the kernel gets darker. And leaving these nuts on the ground reduces their quality.

 

Can you predict a trend in supply with planting and pulling acreage?

Robert: From the last land IQ survey, most of the acreage that was pulled was old, so it won’t really affect the current crop. 2023 had a large crop and large carryover.
Chuck: Tendency will be for larger crops. Cutting input may affect this, but there are currently a lot of young orchards in the ground.
Robert: The newer plantings also are planted at higher density.

 

Will there be tiers for the tree pull program? More money for younger orchards than older ones?

If a tree pull program is approved, we would consider this approach. Ag economists say we need to pull 100k acres of high-producing acreage, but it’s not practical to ask USDA for help on that scale. [Note: a tree pull program was not approved. See the tree-pull program update in this newsletter for more information]

 

COVID/shipping messed with prices. Any sign that this is behind us?

Chuck: Record demand in Jan, good in February, give signs that we’ll get rid of volume. Chile and CA produce the top third of the market in terms of quality. Retailers are finally starting to pass lower prices on to consumers, which increases demand. Domestic demand is up 25%, and the EU demand is up 40%. We need to keep producing high-quality crop. China is unknown, and they undercut price. They’ll take the Iranian market back (but that market is for lower-quality product, so not where CA will find its success anyhow).