A Good Time to Go Nuts

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As developing countries continue to grow their middle classes, markets for many specialty crops – including tree nuts – continue to grow along with them. The International Nut and Dried Fruit Council (INC) estimates that growers around the world will produce about 4.2 million metric tons of tree nuts during the 2017-2018 season, 11 percent more than the previous year and about 30 percent more than the past decade’s average annual production. The United States is the world’s leading producer of tree nuts, with a 41 percent share. The tree nuts covered by federal marketing orders – almonds, pistachios, and walnuts, the vast majority of which are grown in California – accounted for 96 percent of U.S. nut production last season.

Peanuts are different from tree nuts in two distinct ways: First, they’re legumes, more closely related to peas and beans than tree nuts; second, they’re a commodity crop, grown and traded in large quantities and capable of being stored for long periods of time. However, most consumers simply think of the peanut as another nut, since it’s composed of a hard shell and an edible seed. It’s consumed and processed in ways similar to tree nuts. The INC’s forecast for global 2017-2018 peanut production is 42 million metric tons (in shell), a 16 percent increase over the last decade’s annual average. China is the world’s leading producer, averaging about 43 percent of global production; the United States and Nigeria are tied for third, each producing about 6 percent of the world’s supply.

In short, it’s a good time to be an American nut grower. After a reprieve from a historic drought in the nation’s principal tree nut growing region, and improved conditions across U.S. peanut acreages, the numbers for the 2016-2017 season are impressive – staggering, even. Here’s a rundown for each of the major categories grown in the United States:

 

Peanuts

According to the American Peanut Council, the industry’s trade association, peanuts are the nation’s 12th most valuable cash crop, with a farm value of more than $1 billion. Because of their economic importance throughout the southern United States – peanuts are grown commercially in 13 states, from Virginia to New Mexico – their price is supported by the federal government, to protect the industry from demand/supply fluctuations.

Internationally, both demand and supply have been trending steadily upward, though U.S. production has recently outpaced the considerable demand in domestic markets: The U.S. Department of Agriculture (USDA) recently projected U.S. peanut production to be a record high 7.64 billion pounds, up an astonishing 37 percent from 2016.

Peanut butter is North America’s strongest market segment. Americans and Canadians eat more peanut butter than anyone else in the world – about three pounds per person per year – but with a record crop and production continuing to trend upward, the challenge for producers will be to expand the domestic market. According to Ryan Lepicier, senior vice president of marketing and communications for the National Peanut Board, the USDA-sponsored marketing program, the industry is in the process of rolling out several new products, including Milked Peanuts, one of several plant-based dairy products made by Elmhurst Milked, and a line of specialty peanut butters with flavors including honey chipotle, spicy Thai, and espresso nib, produced by Eliot’s Adult Nut Butters. On the heels of new recommendations for introducing peanut-containing foods to infants, developed by a panel sponsored by the National Institutes of Health, the industry is also developing foods appropriate for younger consumers. “The new guidelines say you can and should give peanuts to kids early, to prevent peanut allergy,” said Lepicier. “So we’re seeing many new products in that space.” Trader Joe’s recently introduced Bamba, the iconic Israeli peanut puff, in the fall of 2017. Over the past three years, Lepicier said, introductions of new peanut products have more than doubled.

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Eliot’s Adult Nut Butters come in a variety of bold flavors, including honey chipotle, spicy Thai, and espresso nib. Peanut butter is North America’s strongest peanut market segment. Image courtesy of Eliot’s Adult Nut Butters

The greatest room for expanding the market for U.S. peanuts, however, remains overseas. Despite some volatility – exports have fluctuated from 12 to 37 percent of the overall market over the past years – the percentage of exports continues to grow, said Stephanie Grunenfelder, the American Peanut Council’s vice president of international marketing. The monetary value of U.S. peanut exports in 2016 was $837 million. In other countries, few customers consume peanuts directly; the end products tend to be oil, cake, and meal.

Variations in export percentages are largely due to circumstances in the industry’s largest export market, China. “In the last couple of years,” Grunenfelder said, “China’s demand has been outpacing their supply. However, in 2016, they harvested one of the largest peanut crops they’ve ever had. U.S. peanuts tend to be higher quality, and therefore higher priced.” Because China uses peanuts primarily for oil, quality isn’t as big a consideration as in other markets.

The year before its record harvest, China was the most valuable export market for U.S. peanuts, and Grunenfelder said the export market continues to be an increasingly import segment of the total industry: “All of our traditional export markets – the EU, Japan, Canada, Mexico – show slow and steady growth.”

 

Almonds

California is the only U.S. state that produces almonds commercially, and more than 80 percent of the almonds consumed worldwide are farmed on about 1.1 million acres along a 400-mile stretch of the Central Valley. Like most Western crops, production of almonds, a water-intensive crop, declined some during the recent drought, even as growers increased their acreages statewide. But the 2016-2017 rainy season, the wettest in recorded history, has spurred a rebound. USDA’s National Agricultural Statistics Service (NASS) projects the 2017-2018 crop to be a record 2.25 billion pounds.

The United States and Canada consume about a third of the almonds produced in California, making North America the crop’s top global destination. Almonds have traditionally been the state’s most lucrative agricultural crop, but overall increases in production have caused the grower price to decline from a 2014-2015 peak of $4 a pound to $2.44 last season.

Like most Western crops, production of almonds, a water-intensive crop, declined some during the recent drought, even as growers increased their acreages statewide. But the 2016-2017 rainy season, the wettest in recorded history, has spurred a rebound.

More than 90 countries import California almonds, and in 2017 India became their largest importer. India accounted for nearly half the total in-shell exports of U.S. almonds last year. While many export markets have seen considerable gains in recent years – including Vietnam, Turkey, Pakistan, and the European Union – China has been more unsettled. Between 2012 (still the record high for Chinese imports of U.S. almonds) and 2017, about 75 percent of the almonds sold in China originated in the United States. Over that period, however, lower crop yields and rising prices caused a slowdown in Chinese almond imports, from which the industry is still recovering. In May 2017, however, the Almond Board of California reported that exports to China had increased 21 percent over the last year, leading it to project that China, with the growing spending power of its middle class, is likely to regain its position as the leading export market for California almonds.

 

Pistachios

Probably no American nut crop was hit harder by the recent drought than pistachios – 99 percent of which are grown in California, with Arizona, New Mexico, and Texas growers accounting for the other 1 percent. Poor yields cut the 2015-2016 crop in half over the previous year, and exports declined significantly in each of the major international markets, including China and the European Union. Nearly 20 percent of the nuts harvested did not split, making the pistachios unmarketable.

This crop failure was followed by the production of a record crop of about 900 million pounds – triple the previous year’s production, and twice the previous seasonal record. The increase was due primarily to improved weather, including more winter chill hours, along with increased bearing acreage, reported at 239,000 acres. Yields also rose to a near-record 3,750 tons per acre. With the 2016-2017 crop, the United States regained its status as the world’s leading pistachio producer, overtaking its only strong global competitor, Iran. The one drawback to this bumper crop has been a drop in grower prices, which averaged $1.68 a pound, a seven-year low based on NASS data.

With the 2016-2017 crop, the United States regained its status as the world’s leading pistachio producer, overtaking its only strong global competitor, Iran.

Overall, American pistachio growers expect production to continue a downward trend, as water supplies dwindle and become more saline. But this year’s news is mostly good: According to the Administrative Committee for Pistachios, which administers the federal marketing order for U.S. pistachios, domestic shipments in 2016-2017 were up 49 percent over the previous year. In December 2017, the American Pistachio Growers (APG), the industry’s advocacy organization, claimed year-to-date exports had rebounded strongly, more than doubling in all the top markets. European customers purchased 126 million pounds, up 75 percent over the previous year, while China-Hong Kong exports totaled a record 211 million pounds, a staggering 390 percent increase over last year, re-establishing China as the largest export market for U.S. pistachios. The industry is working to expand exports into untapped markets in Southeast Asia and South America.

 

Walnuts

Ninety-nine percent of U.S. walnuts – all of them of the species juglans regia, known as the English walnut, though it originates from Persia – are grown in California. According to Jennifer Williams, marketing director for the California Walnut Board, the most recent estimate of the crop’s value is $1.24 billion.

The California Agricultural Statistics Service projects that the 2017-2018 crop will be down slightly from last year’s record yield of 686,000 tons (in shell), but the expected 650,000 tons will still be more than the previous five-year average.

Walnuts don’t really have many marketing challenges, Williams said: “Our demand has always exceeded supply.” The industry had no problem moving last year’s record crop.

Ninety-nine percent of U.S. walnuts – all of them of the species juglans regia, known as the English walnut, though it originates from Persia – are grown in California.

According to the USDA’s Economic Research Service, about 40 percent of U.S. walnuts are sold domestically. “Predominantly,” Williams said, “the domestic market is retail, somewhere between 60 to 75 percent.” Industrial sales – processors and outlets like McDonald’s, which uses them in salads and desserts – purchase shelled walnut kernels.

While U.S. markets are holding steady and the industry explores ways to build on this industrial market, most of the increased production has been sent to export markets such as South Korea, Japan, Turkey, India, China, and the EU.

Exports to China, typically a strong market for U.S. walnut exports, declined significantly last year, as its own walnut production jumped 55 percent over the 2015-2016 season. The country produced 47 percent of the world’s walnuts in 2016-2017, but Williams still sees both China and India – where walnut consumption continues to increase – as having great potential for export growth, not only because they contain more than 2 billion consumers, but also because those consumers already know and appreciate walnuts.

“We did some research,” Williams said, “and it showed that the middle class is increasing in both countries. And they have all the diseases of affluence we have here, like diabetes and heart disease, and walnuts are very good for their health – and there is even Chinese medical folklore about eating walnuts. We’ve found there is a really strong market for them.”

 

Pecans

The pecan, the only commercially grown nut in the United States that’s native to North America, is produced in several southern states, though Georgia, Texas, and New Mexico account for about three-quarters of the nation’s production. The industry continues to lobby for its own federal marketing order, to allow it to compete with other American tree nuts.

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Bags of pecans grown in Texas. Pecans have seen steady increases in both production and global demand. China in particular has developed a taste for pecans, and about a third of American pecans are sold to the Chinese market. USDA photo by Lance Cheung

American pecans have enjoyed steady increases in both production and global demand. The 2016-2017 crop was valued at a record-high $696.8 million, and the 2017-2018 crop is forecast by USDA to be about 277 million pounds, or 3 percent larger than last year’s. The increase likely would have been greater had it not been for orchard damage from Hurricanes Harvey and Irma, particularly in Georgia. Through July 2017, exports gained market share in both the in-shell (up 8 percent) and shelled (up 58 percent) categories.

One of the biggest events in the history of the American pecan industry has been its discovery by Chinese consumers, who like to flavor whole kernels and eat them as a snack. Within the span of just a few years, the Chinese went from buying 5 to 10 million pounds to about 100 million pounds. Today about a third of American pecans are sold to the Chinese market – and the demand for them there continues to outstrip the American supply, which helps to explain why, according to the USDA, the 2017 reported price for pecans was $2.59 a pound, an 18 percent jump from the previous year.

 

Hazelnuts

The hazelnut, a native of Europe and western Asia, is an up-and-comer in American agriculture. About 75 percent of the world’s hazelnuts are produced in Turkey, but the American crop, grown almost exclusively in Oregon’s Willamette Valley, has more than doubled its acreage in the past seven years, according to Geoff Horning, chief executive officer of Oregon’s Hazelnut Marketing Board: “There’s been a significant uptick in demand for hazelnuts, not just domestically but globally,” he said. “In 2010, there were about 30,000 acres of hazelnuts in the Willamette Valley, and our latest statistics show 67,000 acres of hazelnuts planted – not all are in production yet, but they have been planted.” According to the USDA, Oregon’s 2016 hazelnut crop was valued at nearly $119 million.

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A hazelnut orchard in Canby, Oregon. Demand for hazelnuts has resulted in a doubling of U.S. acreage devoted to the crop. USDA Flickr

A wet spring, followed by a hot summer, caused the USDA’s regional office to forecast a slightly smaller crop for 2017: about 72 million pounds (in shell), 18 percent lower than last year, but still 7 percent higher than the previous five-year average. Most of the domestic sales are shelled kernels sold for processing or confections; only about 5 percent of the domestic market is for in-shell nuts.

The export markets, where most Oregon hazelnuts are sold, are different: About 45 percent are sold in shell, and most of those are shipped to China. “It’s kind of a niche market, unique to Oregon,” Horning said, “because of the type of nut we grow here. The Chinese eat it almost like a pistachio, cracked.” About 41 percent of Oregon’s exported hazelnuts are sold as kernels.

Like every other nut crop grown commercially in the United States, hazelnuts are experiencing steady growth in both availability and demand: Domestic availability was up 26 percent in 2016-2017, and export volume increased more than 30 percent over the previous year. While the volume of hazelnuts continues to increase in Oregon, Horning said, the industry is looking to develop and mature new markets. “China will continue to be our primary market, in no uncertain terms,” he said. “But as the industry grows, we need to continue to seek new opportunities.”

Caption for top photo: An almond tree in a Livingston, California orchard. About a third of almonds grown in California – the only U.S. state that produces them commercially – are consumed by the United States and Canada, but 90 countries around the world import the nuts. USDA photo by Lance Cheung

This article was originally published in the 2018 edition of U.S. Agriculture Outlook.

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