The market prospects look, literally, very healthy but Australia’s biggest almond business has become more than a little gun-shy about over-anticipating its fortunes in the year ahead.
The nut harvest on about 4900 hectares of orchards in Victoria, South Australia and NSW is less than two months away, but after shock yield setbacks caused by unusually rainy, mild weather last summer and spring, nut grower, processor and marketer, Select Harvests, is not making rash promises.
In theory, a 15,800 tonne almond crop will be available for sale into a rising market.
However, two successive years of underperforming yields have now left the one-time share market darling of the agribusiness set nervous about recent frost activity, particularly on its NSW farms at Hillston, Griffith and Narrandera.
Agriculture’s variability is well known and weather can be frequent challenge when you have 2.5 million trees in a range of microclimates
“We know there’s been sporadic frost impact in parts of some orchards, but we’re still assessing where, and if, it may have been significant,” said managing director Paul Thompson.
“It’s difficult to judge while the crop is still in the weight gathering stage.”
Although Select has frost fans and sprinkler systems on many orchards, which mitigate cold snap risks, this winter’s frosts struck randomly and in some sites where there had been no similar cold spikes for 50 years.
“Agriculture’s variability is well known and weather can be frequent challenge when you have 2.5 million trees in a range of microclimates from Renmark (SA) to Hillston,” Mr Thompson said.
“In any five year period you may get one great season, two average and two bad, but there’s also no guarantee you won’t get four tough years – or better years – in a row.”
Last autumn’s 14,100t harvest was one of those tougher seasons, yielding about 100t less than the previous crop, and a whopping 2000t less than expected.
The company’s share price spent much of the past year struggling with the yield setback and adverse exchange rate trends, dragged down from highs above $12 a share in mid-2015 when global prices also spiked, to a $4/share low in September.
Select’s net profit had also slumped from almost $34m in 2015-16 to just $9.2m for 2016-17.
However, shareholders still like the almond market’s blossoming fundamentals and Select’s surging production and sales agenda.
They were quick to back the business with a bigger than expected $90m capital injection for extra shares offered in October, helping management pay for a $26.4m March purchase of the Jubilee Orchard at Waikerie, SA, and to pay down debt incurred investing in new processing and electricity co-generation operations in Victoria, now coming into production.
Select Harvests’ diverse product range includes almonds, other nuts, snack bars and breakfast cereals sold locally and overseas under popular brands such as Lucky, Sunsol, NuVitality, and Alinga Farms.
The company’s “Jubilee” farm acquisition included 320ha of extra almond-bearing trees and 1335 megalitres of high-security water.
Both will be valuable in contributing to Select’s expected 30pc jump in production volumes in the next four years to a likely 21,000t as global demand hungers for more nut-based foods and beverages, particularly almond products.
More than 2500ha (34pc) of the Select Harvest crop area are young trees still approaching their first yields at six years of age.
Theoretically, by 2019 an extra 3000t will be harvested, taking the total harvest to more than 22,000t by 2026, or 57pc above this year’s yield.
Meanwhile, rising global prices in the past six months have complemented a steady lift in international consumption, despite increasing production in Australia, the US and elsewhere.
Blended average almond crop prices now approaching $8 a kilogram, compared with last season’s $7.43.
At the same time, volumes being absorbed by key markets such as Europe, India and the US are up 22pc on 12 months ago.
“We’re also seeing strengthening in the premium end of the market because insect pressure has caused quality problems in the US crop,” Mr Thompson said.
Almost 80pc of the Australian crop sells into premium-paying markets.
Five years ago only 7pc of Japanese ate western style breakfasts, now it’s 30pc - and that includes almonds in their muesli or plant-based beverages such as almond milk.”
Apart from the almond nut’s diverse consumption and processing appeal in developed markets, the health attributes associated with nuts in general are driving Select’s sales into exciting new territory, particularly Asia where consumers are eager for more protein.
“Plant-based protein choices are already strong in Asian diets - meat is not necessarily a priority – and the science repeatedly points to almonds being good for your heart and cognitive function,” he said.
While India is already a robust and expanding market, Mr Thompson said the “superfood” health factor factor and a rising popularity of western diet products, such as breakfast muesli and healthy snack bars, was opening up new markets.
“Five years ago only 7pc of Japanese ate western style breakfasts, now it’s 30pc - and that includes almonds in their muesli or plant-based beverages such as almond milk.”
Select Harvests’ nut-rich breakfast products, including Sunsol muesli and granola have just launched in Japan and China.
“We’re also seeing good prospects opening up in China, Japan and South Korea on the back of their recent free trade agreements with Australia.”
Select Harvests listed as a public company in 1987 and has grown partly from acquisitions of orchard assets established by several failed managed investment scheme projects.
More recently it planted 844 hectares of trees in 2016-17 supported by a lease partnership with investor, First State Super.
Apart from its orchards the company has a primary processing plant in north-western Victoria and a value added processing and packing factory at Thomastown in Melbourne.
Mr Thompson said it was now well-positioned to capitalise on its recent investment and surging demand for nuts.
After a recent two-year run of “ambitious” capital investment on new plantings, new farmland, and irrigation efficiency and factory upgrades, the business expected the returns to start flowing.
This included an expected $2m a year from cuts to Select’s energy costs when its new electricity cogeneration plant switched on in April, fuelled by husks from the Carina West plant.
Meanwhile, ongoing capital investment would be mostly to support extra tree planting and harvest harvest equipment needs from the expanding crop.