Almond sourcing and supply: what’s going on?
One commodity defying Covid-related price increases are almonds.
2-min read
What’s going on with almond prices? I get asked this by brands all the time.
Let’s breakdown what is supply chain related vs what is normal business for the almond industry.
(Don’t ask me to predict future almond prices – I don’t have a crystal ball.)
What sets almond prices
Foreign markets are price setters for almonds. This is because about 70% of California’s crop is sold overseas. Supply chain bottle necks due to Covid have disrupted off-shore shipments causing California to be undersold in almonds. More supply here at home drives prices down.
We are experiencing a supply-led market. It is unusual because demand remains high; the expectation is once logistics get unclogged, shipments will resume.
What it means for brands
For brands sourcing manufactured almond products (sliced, diced, flour, butter) pricing is even more volatile. This is because suppliers of value-added products find it pretty tough to make their margins right now. In a bearish market, margins get compressed at every step on the value chain. (Some blame the largest processor, Blue Diamond, for taking out the market with predatory pricing on manufactured almonds.)
Let me give you an example.
If under frothy conditions a processor was getting $0.27 on a manufactured almond spec with a 10% operating income margin, in a bearish market they might be compressed to $0.23 leaving them with a measly 1% margin. This is unsustainable. Processors will either get out of this business (as many have) or will look for premium plays – which I explain further down.
Brands building business models should understand the breakdown of their almond costs
Add-on costs are based off of “Standard 5’s” (US Select Sheller Run 5% Split & Broken) grade of almonds. Brands should know the breakdown of costs to get to their particular spec. For example, a natural (skin on) almond that is a certain size and quality, that is blanched then made into flour has several steps in processing. Each step has a related cost. This cost may swing ~20% depending on bearish or bullish times. Once you get a handle on this, you can make a better P&L.
Almond farmers and processors wonder how to get better margins during bearish markets. The answer is: understand what your buyers want, give it to them, and charge for it.
(this is part of a 2 part series)
All my best,
Jennifer