This article is one of many articles focusing on the agricultural business.
John Aguiar is surrounded by for-sale and bulldozer signs everywhere he turns.
He said: 'You'll notice that suddenly, as you drive down the road, a sign for sale will appear. It wasn't there the year before.' You can see orchards being destroyed that were there just three months ago.
Aguiar manages his small farm, located outside Winters. He grows almonds and nuts on less than 100 acres. He is employed as a salesman at Mariani Nut Company, Winters. Last year the landscape was dominated by almond and walnut orchards. This year that could change.
Aguiar stated that this is one of the inflection points in agriculture. It's sad.
In the last few years, California's agriculture has been dominated by tree nuts. Farmers have planted orchards of nuts on their land because they are low-labor intensive and offer relatively high returns. Some growers are barely surviving after years of drought, export crisis, and catastrophic weather events.
Orchards explode with explosive growth
Since around a decade, tree nuts have been an investment favorite for farmers. The high profit margins on walnuts, almonds, and pistachios attracted growers. The process of growing and harvesting these crops is largely automated, making them more cost-effective than other, more labor intensive crops. The demand for these crops on overseas markets is also a factor in their relatively high price.
Californian farmers can also sell almonds because they face little competition on the market. Central Valley has the perfect climate, soil, and other conditions for almonds to be grown commercially. Around 80% of the almonds consumed in the world are grown in California.
According to an analysis by the Business Journal of the annual agricultural commissioner reports, in the Sacramento region the area of almond trees that are mature has more than tripled from 2011 to 2021. Almond orchards accounted for 51,020 acres in Yolo County, Placer County, and Sacramento County in 2021. This equated to $161 million of revenue from growers.
Walnuts saw a more modest, but still steady, growth between 2011 and 2021. They added more than 10,000 acres and generated $58.6 millions in revenue.
Richard Waycott said that the days of rapid growth might be over.
Waycott stated that the 'go-go' years of increased plantings in the past 20 years will not likely repeat themselves over the next twenty years. You'll likely see slow or no growth in the next few years.
Costs rising and revenue decreasing
The almond board is waiting for the U.S. Department of Agriculture to release a report in spring showing how many trees were cut down after harvesting last fall. The number of new almond plantings had already started to decline last year. This led to a reduction in the almond acreage throughout the state.
Waycott stated that this was the first time in many years they had seen a decrease in the total area.
Farmers of almonds and walnuts are both weighing up the benefits of almonds in the long term, despite the challenges of recent seasons.
The port crisis made it difficult to sell both crops in 2020.
Aguiar stated that the supply chain had just broken. It was really horrible for the walnut industry as we could not get our products to market.
Growers hire handlers who pack, sell, and ship their crop. They are paid for the crops sold by the handler throughout the year.
Aguiar explained that payments to growers are made as the marketing year progresses. If product is not moved, then you will not be paid. You will feel the impact of this very quickly.
Waycott stated that almond exporters ended the crop year of that year in a positive position.
Waycott stated that despite the logistics we had to do to locate a container for shipping, we were still able to ship in record numbers.
There was still carryover due to the size and quantity of the crop.
Waycott stated that they had accumulated a larger inventory at the end of the year, which was about twice as much as in previous years.
This led to a glut of almonds and nuts, which lowered prices. According to USDA data, in 2021 the price of almonds per pound was 86 cents less than the average over the past 10 years. Walnuts were sold at 73 cents per pound, which is below the average price of $1.09 over the past 10 years.
Costs for everything increased at the same time. The cost of water increased; the war in Ukraine pushed up the price for potash, which is a common fertiliser; diesel prices made equipment more costly; and the oil price pushed up the cost of petroleum-based fertilizers, as well as other inputs.
Waycott stated that the increase was widespread. I can't think of a single farming input that has remained the same. Some have gone up by 1000% or more.
Costs are rising, revenue for growers is decreasing and payments are delayed.
In the meantime, they need to prepare for next year by buying supplies.
Waycott stated that if possible, you will need to borrow money at higher rates of interest to cover your cash flow and prepare for the coming growing season.
Walnuts on the tree wither
Last summer, the walnut farmers suffered a further catastrophe.
Aguiar stated that the weather we experienced last September at the start of the walnut harvest was as bad as it could be.
The Labor Day heatwave of last September, which lasted for a week in the West U.S. broke all records. Sacramento recorded the highest temperature -- 116 degrees. It was 110 degrees or higher for four consecutive days.
Walnuts can be particularly vulnerable to changes in weather conditions just before harvest. Walnuts are damaged by extreme heat and turn darker brown when exposed to it, especially if they have no time to cool off at night. Some walnuts will even shrivel.
Aguiar described it as a 'empty shell'. You've already invested in the irrigation, fertilizer, and other inputs, but right before harvesting, the crop withers.
Robert Verloop is the CEO of the California Walnut Board and Commission. He said that growers did not realize the full impact of the damage until after harvest because they cannot see the walnut's condition until it has been cracked open.
Verloop stated that the net result was that 30-40% of the crop had been so badly cooked that it wasn't fit for human consumption.
This has left hundreds of thousands tons of walnuts that growers and handlers can't sell.
Verloop stated that 'we're producing a lot unsellable products'.
Walnuts sold at prices that are far below the cost of production. According to the walnut board, this will result in a loss of over $1 billion for growers from last season's harvest.
Trees are being ripped out
Many walnut farmers, old and young, are now re-evaluating whether walnut farming is worthwhile.
Verloop stated that it was all about cash flow.
Verloop predicts that walnut acres will decrease by 10% this year. USDA will provide more accurate figures later in the year.
Verloop confirmed that he has heard from many growers that they are tearing down their old orchards. These trees are up to 50 years of age and produce walnuts which are no longer in fashion. They also don't fetch as high a price.
Verloop says he is aware of growers who also remove their young trees.
Orchard planting is expensive in the beginning. A 2020 study by University of California Agriculture and Natural Resources revealed that walnut orchards cost $13,934 an acre for their first year. The trees won't produce walnuts until at least year four, and they're not fully productive until years seven or eight. But the trees continue to produce for many decades.
Verloop says some growers don't wait for the weather to improve.
He said, 'They've invested in trees but are opting to not stay on that course for the next four or five years.' In order to maintain their cash flow, the company is planting other trees in the meantime.
Waycott predicted that some almond farmers would also remove their orchards due to the long-term stress of low almond prices.
Waycott explained that 'it would usually be in those parts of the State Water Project or federal projects which haven't received allocations'.
This is mostly in the San Joaquin Valley south of the Delta where it's harder to find water both above and underground.
The state has passed a new law to regulate well users to stop them from overdrawing aquifers. This is the first time that regulations have been put in place in order to prevent overpumping. The Sustainable Groundwater Management Act affects different areas depending on how fast well users draw water. The law will be implemented first in the San Joaquin Valley, where parts are overdrawn.
Waycott stated that they were considering a longer-term solution, such as if it was possible to grow a permanent crop within the environment.
Waycott stated that tree nut farmers are not the only ones asking these questions.
He said: 'I would say we are looking at a reckoning for California agriculture, where growers will have to take tough decisions about groundwater and production costs.
By nature, optimists are optimistic
Aguiar, as well as Waycott, sees reasons to be optimistic about the future of their respective industries.
He said: 'We think California will always be the leader in almonds as long as the crop's financial viability is maintained.
Waycott stated that the almond board was looking to create additional revenue streams for farmers by finding new ways to use some of their byproducts. Growers have to use the hulls or shells of the almonds that are harvested, as the almonds themselves only make up 30%. The rest is used for animal feed and bedding. The almond board is looking for new ways to use the hulls, shells, and other parts of an almond orchard. These include using them as an ingredient in recycled plastics, activated carbon in water purification systems, and food ingredients.
Waycott stated that they are "trying a lot of different things" to explore the possibilities.
Waycott is optimistic about the future despite increased competition from abroad.
He said: 'Almonds will continue playing a significant role in California agriculture and globally'.
Aguiar remains optimistic despite the challenges facing the walnut industry.
As a farmer you have to be optimistic.
Aguiar is aware that many farms are on a knife-edge.
He said, 'It will be very, very difficult.' We as an industry cannot have this happen again.