Company News President's Corner - May/June 2007 2007 INC Almond Working Group May 12, 2007 The following is the text and charts used during my presentation as chairman of the 2007 Almond Working Group at the International Tree Nut Congress in Madrid, Spain, on May 12th. As the Chairman of the 2007 INC Almond Panel I would like to introduce the distinguished members serving on the 2007 almond panel with me.  They are Mr. Antonio Pont (Borges Company), Mr. Stewart Resnick (Paramount Farms), Mr. Tony Campos (Campos Brothers) and Mr. Rex Lake (Blue Diamond Growers). Estimated World Almond Production At last year’s presentation, we said that the 12% increase in world supply would: Bring supply and demand into better balance Restore buyer and seller confidence And, allow steady growth to return to world markets That is precisely what occurred. Estimated World Almond Supply 2006 & 2007 This presentation was prepared before the California subjective estimate was released just three days ago on May 9th.  Within this presentation we estimated the 2007 California crop at 1.25 billion pounds.  The subjective estimate was 1.31 billion pounds or 4% higher.  On June 29th, the objective estimate will be released.  At that time, we’ll know which number is closer. Dependent upon which number is used, the expected supply increase for the 2007 world almond crop will be in the range of 14 – 18%.  This will result in a record supply of 1.7 billion pounds (or 770 thousand metric tons).  This is great news.  It is precisely what we need to enable consumers throughout the world to increase their consumption of great tasting, versatile and good-for-your-health almonds. Breaking down production by country of origin, California will supply over 82% of the 2007 world supply, Spain will supply close to 5%, Australia and Italy will each supply about 3%, and other Mediterranean countries and Chile will account for most of the remaining 7%. California Almond Supply & Consumption From an historical perspective, as California supplies increase, breakthroughs in new consumption have always followed.  Nowhere is this more evident than in the US market where consumer demand for almonds continues to set new records. U.S. per capita consumption is now above 1.2 pounds and rising. World Almond Supply & Consumption Given the record supply outlook for 2007, the opportunity exists similarly for global markets to increase their consumption of almonds.  Of note is the accelerating economic growth in markets like China, India, Russia, Eastern Europe, and Brazil, where three billion people are climbing higher on the economic stepladder. This will present our industry with millions of new customers for almonds in the years ahead. The opportunities for growth that exist in these markets are enormous. Estimated 2006-07 Per Capita Consumption Compared to 1.2 pounds in the United States, the weighted per capita consumption in the emerging markets just mentioned is only .03 pounds – about 1/40 of that which exists in the United States and in Europe as well.  This chart puts the huge opportunity for growth into perspective. California Almond Bearing Acreage Based upon the latest NASS (National Agricultural Statistics Service) review of California orchard plantings and nursery reports, bearing acres are expected to increase each year through the balance of the decade.  The recent NASS May 1st projection of 615,000 bearing acres is shown here for 2007.  This projection was the basis for the May 9th subjective estimate. Estimated Age of California Acreage Over 20% or 140,000 acres of the bearing acres are over twenty years old.  These acres will begin to be removed from production as their economic life cycle declines – they are commonly referred to as “pull-outs” and they are part of the net bearing acreage calculation. California Almond Crop Production With acreage increasing, it is likely that California will consistently produce crops over 1 billion pounds.  However, prudent buyers and sellers tend to keep in mind that almond crops are not produced in factories but on farms, and as such can be dealt a blow if a major weather event occurs during the critical bloom, growing and harvest seasons. California Almond Carry-in Trend While California almond crops have increased substantially over the years, carryover inventories have not.  This is because the demand driven market of the past five years has not allowed it. Carryover levels have simply been unable to rise in the face of ever-higher consumption levels.  This has led to difficult transition periods between crop seasons. Given the forecasted 2007 supply and expected demand, this year’s increase in California production will enable the carryover inventory level to increase.  The positive aspects of this are: A smoother transition between crop years A decrease in price volatility A reduction in out-of-stock conditions And, increased user confidence in developing new markets and new products If carryover inventory levels become a market concern, it is conceivable that growers will adopt a voluntary reserve strategy as a means to maintain sustainable prices and as a means to offset the variability of orchard production from year to year. California Almond Production/Shipment Trend Given the natural variability of almond crops, the historic 5.4% consumption growth rate trend should continue and may have the opportunity to accelerate in the next decade as significant new global opportunities present themselves. Record Crops = Double-Digit Shipment Increases It is worth noting that record crop years have invariably delivered great shipment results – not in a small way, but in the form of double-digit increases.  This was true in each of the record- production years of 1994, 1997, 1999, 2001, 2002, and 2006.  In those years shipment increases between 10% and 25% were registered, enabled by record crops. Extrapolating to the coming 2007 record year would seem to suggest that shipments of 1.150 billion pounds (an increase of 10%) are readily attainable. Historical Price Levels After five years of steadily rising prices with frequent price volatility, price levels during the 2006 crop year were at sustainable levels for both buyers and sellers.  Sustainable prices reduce risk – and less risk fosters market growth. Outlook Summary Given all of the foregoing, the outlook for the world almond market is as follows: Increasing California almond bearing acreage will lead to more consistent and larger crops that are needed to meet dynamic new global demand. As in the past, breakthroughs in new consumption will keep pace with increases in production. Carryover inventory levels will increase and be managed to enable a much smoother transition between crop years. Market price levels will be less volatile inspiring buyer and seller confidence, new product development and new consumption. The 2007 crop season will be positive for our industry as buyers and sellers approach the bigger crop with confidence in our markets and our products.
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