With more California walnut orchards being removed, the outlook for the industry is expected to improve as growers try to balance supply and demand.
But such efforts alone will not be enough to put them on a fast track to market recovery and profitability, analysts suggest.
A new report by RaboResearch Food and Agribusiness says walnut production may not decline as fast as acreage because growers are taking out older, less-productive trees and so-called "heritage" varieties that are also lower yielding. Growers are also removing orchards with poor water availability or soil quality. What's left are orchards that have higher-density plantings and improved cultivars, with yields expected to surpass historical averages.
"The remaining acreage is going to be more productive," said David Magaña, a senior analyst with RaboResearch and one of the authors of the report.
Until recently, walnut-bearing acreage in California has been on a steady climb, reaching a peak of 400,000 in 2022 before dropping to more than 382,000 in 2023. For now, acreage appears to have stabilized, Magaña said, with trees being removed as others come into production.
"Things are starting to turn around from 2022," when growers faced elevated production costs, a lower-quality crop and historically low prices, Magaña said. Thanks to "exceptional quality" nuts in 2023, prices have started to rebound, he said, though not as much as growers would like, largely due to the record size of the crop and the difficulty of moving such volumes.
Yolo County has seen the effects of dropping walnut acreage. In 2021, according to the Yolo County Crop Report, there was 16,898 acres devoted to walnut production, delivering 27,900 tons at $1,345 per ton or $37,526 million. However, by 2022, the number of walnut acres in the county dropped to 14,985 with only 23,200 tons produced at $652 a ton for a total of $15.126 million.
Magaña said he expects production will return to more normal levels in the next few years, weather permitting, with more trees being pulled. This will allow the industry to be "in a more favorable supply-demand balance," though prices will probably remain below break even for most growers, he added.
The slowing production trend is happening not just in California but in other major walnut-producing regions such as Chile and China, RaboResearch reported. Globally, walnut supplies are expected to be stable or declining in the next few years, Magaña said.
In Chile, where walnut plantings have been increasing for the past two decades, growers have started to cut acreage after years of declining prices and impacts from adverse weather, which reduced this year's crop by 30% after record volumes last year.
China, the world's largest producer and consumer of walnuts, also is not expected to increase production in the next few years, Magaña said. Once a net importer of walnuts, China has become a net exporter in recent years, changing the dynamics of the industry, he added.
Even so, Magaña said he expects the U.S. and Chile will maintain a competitive advantage over China because of their reputation for high-quality nuts, especially with ongoing efforts by the California walnut sector to increase demand and consumption.
"That is going to help support prices and profitability in years to come," Magaña said.
He said he considers Chile to be a "friendly competitor" of California due to its counter-seasonal production in the Southern Hemisphere. With its product commanding a premium, Chile could potentially create more demand for walnuts by helping to provide consistent, year-round supplies of the tree nut, Magaña added.
He noted how other agricultural sectors such as avocados and blueberries have grown consumption due to wider product availability. With Chilean supplies in key markets such as Europe and Asia, there is opportunity "to change consumer perception that walnuts are mostly a seasonal item and mostly a baking ingredient," Magaña said.
He stressed the importance of not just promoting walnut consumption but how it is eaten. Diversifying walnut consumption to snacking, in food-service channels and in manufactured products will help the industry absorb larger volumes, he said.
Increasing export demand also remains critical, Magaña said. With India's expanding middle class and its substantial vegetarian population, he said he thinks walnut exporters are "just scratching the surface" in the southeast Asian market, noting India has already become the main destination for California almonds.
Looking at state production, Brian Fedora, a Sutter County walnut grower and processor, said he has seen Sacramento Valley growers move away from higher-density plantings, which allow growers in the early years of an orchard achieve higher yields more quickly when young trees begin to produce.
But the hedgerow-style plantings tend to choke each other out once the trees become bigger, he said, with yields falling or trees not producing as much as expected in the long term. Planting twice as many trees to the acre also gets costly, he said.
"Then it didn't look like the economics were panning out quite like what the model stated," Fedora said.
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