February 2016 Almond Position Report Crooks are early ... · February 2016 Almond Position Report ... Indian Importer: ^I have heard that Turquoise Emerald is giving very good deals

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2670 West Shaw Lane, Fresno, California 93711 U.S.A. Telephone (559) 435-2664 Fax (559) 435-8520 www.dercofoods.com e-mail: [email protected]

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February 2016 Almond Position Report

“Crooks are early adopters.” Craig Newmark (1952 -) Bonus Defaulter Section AND Cartoon Inside

February 2016 shipments are 155 million pounds. This is 10.8% more than the February 2015 shipments of 140 million pounds. 2015 Almond Supply Carry-in from the 2014 crop: 376 million pounds 2015 crop size: 1.90 billion pounds Less 2% loss / exempt: 38 million pounds Less shipments to date: 992 million pounds Less commitments: 419 million pounds Remaining unsold supply: 827 million pounds Receipts, Shipments & Inventory v. 2014 Season Receipts: +1.5% Total supply v. 2014 season: +3.3% Shipments v. 2014 season: -6.3% Uncommitted inventory: +25.5%

Prices week of March 11, 2016 v. August 2015 BSU5% -57% Cal/Butte/Padre SSR 27/30 -55% NPS 23/25 -49% Inshell Nonpareil -49%

Receipts have levelled off – at 1.88 billion pounds through February, it would seem that the 1.9 billion pound mark now seems reasonable.

Domestic shipments are +3.7%. The industry needs the US market to come back. At the current prices, it is very likely that we will see domestic shipments improve dramatically over the coming months.

Export shipments are +14.6%. The driver once again has been Europe, which is +36%. Every market in Western Europe with the exception of Sweden and the UK is up. China/HK is +13%; Vietnam is +28%; India is -54% as expected. Inventories in India are running low but the Indian market is still struggling terribly to regain its footing after a disastrous first half of the season. The Middle East is +4%, but the UAE is -22%. With the difficulties in the Dubai market, it would seem that more and more of the countries in the region are importing directly and relying less on buying stocks from Dubai.

Commitments are lagging behind last year: domestic -7%; Export -4.6%. Uncommitted inventory is up 25%. This is one of the major factors that is keeping a cap on the market. Despite the fact that these shipment numbers are very good and only 5 million pounds less than the record set in February 2013 (160 million pounds), the specter of a large carry-out coupled with what promises to be a good 2016 crop is keeping a lid on the market. If we ship the same amount as last year for the duration of the season (this would include matching last March at 190 million pounds – and our highest month this season so far has been 162 million pounds in October), our carry-out will be around 450 – 500 million pounds. But new sales for the month of February were about 128 million pounds……

http://www.dercofoods.com/

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GULFOOD 2016 Gulfood is an event that you must experience in person in order to fully grasp its scale and scope. It’s a United Nations for the food industry – with people from all parts of the globe getting together to talk food business. For the most part, religious and ethnic differences are set aside as people chase the international language of love: money. Gulfood is also a fishbowl. During the five days of the show, especially for those exhibiting, the rest of the world seems to stop. From 11 am to 7 pm, it is a feeding frenzy where even time set aside for restroom visits comes at a premium. You feel terrible for the restroom attendants who are unable to keep up with the poorly aimed flow of an international clientele whose hand-washing regimen is even more lacking. Gulfood does not change market sentiment. Gulfood amplifies the sentiment that existed heading into the show. So it’s no surprise that this year, with a demoralized group of California tree nut exhibitors, nestled between the seemingly endless booths of US Pork Beef producers (it’s the Middle East, after all), the only thing missing was a WUSATA-sponsored game of Russian roulette. But since the .38 caliber pistol was nowhere to be found, Middle Eastern and Indian importers stepped in to do the job.


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In case you were not able to attend the show, here are two standard conversation templates that took place ad infinitum, to make you feel as though you were sitting right next to us in our booth at the World Trade Center in Dubai: 1 TEMPLATE 1: DEFAULTER WHO DOES NOT THINK HE IS DEFAULTING Middle Eastern buyer: “My brohzer, my brohzer. In ze last shipment of Noonbarel, ze cartoons were

not glosed well. Almoonds all over ze container floor. You know berry well zat I need ze ztrong cartoons. Alzo, I see one kernel wiz ze insect dahmaj. You know, my customers zey doughnut accept zis guality. So I want gancel my next shibment zat I bookit wiz you dwo weekuhs ago. You know, I am making big looses. Bery big looses. You must helb me.”

Darco Foods: “Mr. Buyer, we are sorry for the fact that some of the cartons were not sealed

well. We will reimburse you for the lost almonds and for any labor you incurred in your facility. Also, you realize that there is a tolerance for serious damage and having a few kernels of serious damage in a container is very normal.”

Middle Eastern buyer: “Mr. Eggo, you know ze situation in my marget. Zo bad. Zo bad. And wiz ze

boor governuhment regulations businez iz bery hard. Bery hard. So you bliz helb me. You are rich California man. For you one container is nuhzing. Next time we blaze big order and give you ze better brice.

Darco Foods: “Mr. Buyer - We have purchased these almonds and the grower does not care

about what is happening overseas. We do not have the luxury of renegotiating. This is now product that Darco owns. Do you think that it’s fair that Darco lose the money because the market fell since your last purchase?”

Middle Eastern Buyer: “Yez.”

1 These are not actual conversations; they are caricatures of actual conversations, with emphasis and exaggeration for effect. For

those who still remember their English classes, consider it ‘hyperbole.’ As usual, we are making fun of EVERYONE, including ourselves. We are a tolerant, multi-cultural company proud of the diverse ethnicities and religions that make up our team. In our company we have atheists, Christians, Muslims, Hindus, agnostics and maybe even Zoroastrians….we’re not sure about Neil. So permit us to have some fun with ourselves and with friends in the industry. If we don’t laugh together during a season like this, there is not much point to what we are doing. Nothing written here (all in good fun) is actually attributable to any particular person or entity. Everyone was mostly saying the same things, including us. We don’t know what others were saying because we were too busy welcoming defaulters to our booth with espresso and Danish cookies. So please relax and enjoy the narrative. If anything is hitting too close to home, it’s just coincidence. Just call me if you’re feeling stressed (559) 435-2664, and I’ll invite you over for a martini. I’ve gotten very good at making them this year; occupational hazard in a falling market. My 8 and 10 year old daughters even now know the best kinds of olives to use and the exact percentage of brine that needs to be mixed in with the shots of Grey Goose for that perfect ‘dirty’ flavor. That’s probably not a good thing for elementary students to know and unlikely to be a skill that they can use to get into a good college. I guess we have to continue with the language classes and musical instruments. It seems we’ve digressed….[And no, my children do not actually make or drink hard alcohol….they of course prefer a nice German Riesling with their fried chicken tenders. Please.]


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Darco Foods: “But Mr. Buyer, as I was saying….” Middle Eastern Buyer: “Habibi, Habibi…..Ogay, Ogay. Tank you bery much. Bye-bye, bye-bye, bye-bye,

bye-bye. Zee you later, insha’Allah.” TEMPLATE 2: INDIAN IMPORTER Indian Importer: “Hello Mr. Ago, it’s so good to see you again. What did you think of Khari Baoli?

Crazy, I know. How was the food in India? Did you stay healthy? So what do you think is going to happen to NP prices? Are we at the bottom? Where is the bottom? Do you know when we will hit the bottom? What is happening to prices? Every time we think we’re at the bottom, we realize we’re not at the bottom. I need to know where the bottom is because I need to buy at the lowest price of the season. You know, I paid so many contracts at the highest price of the season, so now I need to know where the bottom is. Do you know where the bottom is? When are we going to get there? Are we almost there? We have lost so much capital. What are these California growers doing? Do they know how much we are hurting? Where is the bottom? Where is it? Where? We need confidence. That’s all we need is confidence. But where is the bottom?

Darco Foods: “Hello Mr. Indian importer. So good to see you too. Welcome. India was great.

The people, the food, the bicycle rickshaw rides to Khari Baoli….We enjoyed it very much.”

Indian Importer: “I have heard that Turquoise Emerald is giving very good deals to people who

bought at higher prices. Same with Mountain Peak Farm, Pinnacle, Ranchers Domestic, Rocky Valley, CARP, PREEMIKS, Streameast Processing and others. What can you offer me for prompt?”

Darco Foods: “Well, the last prices we heard were $1.95 FAS for min. 70% meat yield, prompt

shipment. We haven’t seen a lot of support at that price.” Indian Importer: “I am not going to buy almonds again. I am done. Finished. You know I handle

so many items. Why bother with almonds? I’ve lost too much capital. Too much. Why should I keep losing when others are defaulting? I can buy cardamom, paprika, cloves, salt, pepper, chives, gold bullion and make money. Why should I buy almonds? Why?”


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Darco Foods: “You are right; it’s unfair that others are renegotiating while the good people are

paying full invoice value. There is no fairness in this. It’s just that with shippers not getting NOCs, they don’t know what to do. They don’t want to lose the entire value of the load. They need to do something to salvage their containers that are languishing at the ports. I’m sorry that you have decided to not handle almonds again. We are very grateful that you paid your bills and were honorable throughout this entire debacle.”

Indian Importer: “So what’s the best price you can give me on a couple loads? You just tell me

the price and I’ll book it. Whatever you say, I will buy it. I take them now.” Darco Foods: “1.95 / lb FAS?” Indian Importer: “I have $1.00. You know, Turquoise Emerald, they understand the Indian

market. They’ve been there for a long time. They know how to support their customers. Lorin has been visiting since 1875. He’s now 141 years old but he still comes every year a few times. And he’s offering min. 72%, but I know I will get at least 85% meat yield with guaranteed size 16/18. He promised me. Your size is too small and your nuts have too much chip and scratch. Your meat yield is always lower. You know I don’t want to pay according to USDA, I want the packer’s certificate – but if it’s higher, then I want the USDA. And your almonds they don’t look as golden brown and they don’t have the same crunch and they just don’t make me feel as good when I am standing near them. And you know, I get a premium for Turquoise Emerald. Not sure why, but I get it. Ok, keep me posted when you have a special price. I’m ready to buy, but where is the bottom?”

Conclusion If we’re not at the bottom, it would appear that we are near the bottom. Bloom was great. New crop should be very good: 2 billion, 2.1, 2.2, 2.3….take your pick and then wait for Paramount to tell you why you’re wrong. There will be a lot of almonds to sell. Prices are already reflecting this reality. Buyers know it. No one is looking for cheaper prices. What everyone wants is confidence. Time and time again we hear: “I don’t want to buy now, but I will be happy to pay $0.10 per pound more if I can believe that this recovery will hold.” There can be no clearer plea for confidence. California growers need to sell. No one wants to be holding too much inventory heading into the 2016 crop. The problem is that some people seem to not want to hold any inventory heading into the 2016 crop, so they are taking most of the bids that are coming their way. This is neither helping market confidence nor increasing intra-industry cohesion.


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We are at or near the cost of production for many growers. Does that really matter? We will find out soon enough. There is no rule that says growers cannot sell almonds below their cost of production. This has happened before and will happen again. But when prices reach the bone, we traditionally see more selling resistance and consequently, the time that the market spends below this cost of production threshold is relatively short. We don’t expect domestic and international buyers to complain if the market firms. They can make good money at these prices and they all have a vested interest in protecting their higher priced inventory. Given enough confidence, they will help raise this market by coming in with more substantial volume purchases. Guarantee a $2 floor and see what happens….. The challenge this past season was that grower profit margins had gotten so big, and the market so out of equilibrium, that until the most recent corrections, most growers were not losing money, they were just making less profit ….while everyone else in the chain was actually bleeding out. Prices bottomed out at Gulfood during a foolish 4-day cannibalistic feeding frenzy. Then on the last day and through most of the past two weeks, brisk business was done. What California needs now is a bit of discipline, some continued strong shipment numbers and some better than average commitment numbers (believe them or not, strong commitments make the report look good). Hopefully the experience of this season will result in future years of growers growing almonds and allowing processors and traders to market them. Call pools are enticing because they give a grower the illusion of control and do help push prices up faster in a rising market. But they create artificial ‘withdrawn’ highs and unnecessary ‘sell my nuts today’ lows. Growers are absolutely entitled to the lion’s share of the almond chain profit. Without them, there is no chain. They take the risk, they plant the trees, they secure the needed water and deal with the vagaries of the weather. Growers start the process. No one begrudges them a terrific return and everyone understands that healthy and strong growers lay the foundation for a vibrant industry. The challenge this season was that after a multi-year run of prices that coincided with smaller than expected crops and growing demand, many growers started to feel that market fundamentals were no longer relevant. They discounted external factors that were pointing to a global commodities slow-down. They also discounted the value of the other segments of the chain: from their own processors to reliable export outlets to good buyers. Sadly, that was an error in judgment that cost others much more than it cost them. “Even on the most exalted throne in the world we are only sitting on our own bottom.” Michel de Montaigne (1533 - 1592) Best regards, DERCO FOODS


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ATIF IBRAHIM – KHUSHI TRADING

Prada sunglasses: $350

Haircut and beard trimming at Gentlemen’s Tonic Emirates Palace Spa: $175 Casually unbuttoned Brioni dress shirt: $625 Armani blazer draped Over your leather headrest: $2,675 Defaulting on Derco and Skipping Town: Priceless2

2 This is our take of the old MasterCard commercials. Of course we don’t know the actual brand of the sunglasses, where he got his grooming done,

the make of his shirt or the designer of his blazer….but we have a pretty good idea on the details of the default.


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Documents

February 2016 Almond Position Report Crooks are early ... · February 2016 Almond Position Report ... Indian Importer: ^I have heard that Turquoise Emerald is giving very good deals