The Goldilocks Crop

Patrick Fresne

In pre-industrial times, the influence of climate and weather on human societies was readily apparent to the World’s predominantly rural populations: inclement weather could result in failed harvests, higher food prices, unrest and revolutions.

Today, meteorological matters seldom seem to rank as a concern for financial analysts, and especially so in the field of equity research.

Climate and weather are of secondary importance for many modern industries, and thus most analysts can probably get away with ignoring this topic. But one industry where the topic certainly can’t be avoided is agriculture, and this is doubly true for sensitive tree-crops, most notably almonds.

Despite this, the twin issues of climate and weather are all-too frequently overlooked in research on companies operating in this sector, yet, as contended in this wire, the evidence is growing that a changing climate could represent a material risk to the four listed companies operating in the Australian almond space.

Almond trees: fragile flowers

Almonds are the fragile-flower of the tree-crop world, only truly thriving in a limited number of Mediterranean-type 'Goldilocks' climatic zones where the environmental conditions are just right.

The tree is an early bloomer, with the Northern-Hemisphere almond bloom commencing just prior to spring, with Valentine’s Day (14 February) being the traditional marker for the beginning of the bloom. In the Southern-Hemisphere, the bloom usually commences in August.

Most varieties of almond-trees are pollinated by honey-bees, and so it follows that those regions of the world that are too cold for honey-bees are unsuitable for almonds as well. On the other hand, excessively warm climes are also unsuited, as almond trees require a certain minimum number of 'chilling hours' during their winter-time dormancy phase.

Extreme weather during bloom-time can damage flowers and disrupt bee-flight, and inclement weather in the weeks after the bloom period can be equally problematic, with excessive precipitation resulting in over-watering, as well as increasing the likelihood of the ‘jacket rot’ fungal infection. Both circumstances are deleterious to the nascent crop.

As almond-trees awaken from their dormancy phase relatively early, frost is another significant risk during the bloom period. Unseasonably warm weather in late winter can prompt early-flowering in almond trees, and every day that the bloom commencers earlier than average increases the likelihood of a frost event.

There are some indications that within recent decades, the frequency of both excessively wet years and bloom-time frost events have been increasing in Australia’s almond growing regions, a pattern which is most likely driven by climate change. This pattern of extreme weather has been particularly pronounced in the New South Wales almond growing region known as the Riverina.

Clouds over the Riverina

New South Wales is the second largest almond producing state in Australia, falling behind the leading producing state, Victoria, and slightly ahead of South Australia. The other state in which almonds are grown, Western Australia, is a bit player. (1)

Almond production in New South Wales is largely concentrated around the towns of Hillston and Griffith, in the Riverina district. At current, about 15% of Australia’s almond supply originates in this region. All four of the listed stocks offering exposure to the Australian almond industry -Select Harvests (ASX:SHV), the Rural Funds Group (ASX:RFF), Webster Limited (ASX:WBA) as well as the Singapore-based agribusiness giant Olam International (SGX:O32) - have operations in this region.

As recently as 2017, one of Australia’s largest almond processors, Almondco, was billing the Riverina as the growth engine for the Australian almond industry, with an expectation that almond plantings in the region would double over the next few years. Events over recent years, however, are raising some question marks about the long-term suitability of the area for growing almonds, and episodes of excessive precipitation, untimely frosts and abnormally warm years are of increasing concern to growers operating in the region.

Heavy Rain

Over the past ten years, the Riverina has experienced an unprecedented number of excessively wet years, as illustrated in the chart below, depicting the annual precipitation in Hillston since 1900.

Source: Bureau of Meteorology website. Includes data up to 30/11/18.

Three of the ten wettest years since 1900 have occurred within the past decade, including the wettest year ever recorded at Hillston, 2010. This apparent pattern of increased precipitation doesn’t seem to have reduced the risk of drought, with 2018 being one of the driest years on record.

Hillston is unusual in that weather records in the region go back a long way, and the data in other localities in the Riverina is not as extensive. However, the precipitation data from one weather station at Griffith goes back almost as far.

The trend towards higher precipitation is not as immediately obvious at Griffith as it is at Hillston, but is still apparent. Of the six wettest years in Griffith -1974, 1956, 2016, 1993, 1995, 1999- four have occurred within the past 25 years.

Source: Bureau of Meteorology website.Includes data up to 30/11/18

This data would seem to suggest that excessively wet years are becoming more common in the area around Hillston and Griffith.

This trend, if it continues, is set to make life harder for almond growers in the region.

As noted earlier, heavy rainfall during or immediately after the bloom-period is not ideal, and episodes of such extreme weather during this critical period will not bode well for the eventual crop.

In 2016, for example, a deluge in the weeks after the almond bloom was one of the causes for the shock crop downgrade announced by Select Harvests in the following year. (2) Although all almond growing areas that the company operates in were impacted by heavy rainfall in this period, things were particularly extreme in the orchards around Hillston and Griffith, where total precipitation recorded in September of 2016 was the highest on record for that month in Hillston, and the second highest on record for Griffith.

Intermittent rainfall can also disrupt the harvest, leaving it unfinished. Rainy conditions during harvest-time- which typically runs from late February until May- is particularly problematic for almond orchards in the Riverina, with the heavy soils in the region liable to becoming akin to a quagmire following on from excessive precipitation.

Warming Trend

The amount of moisture retained by the air rises with temperatures, and thus it seems likely that rising temperatures in the northern Riverina is behind the increasingly erratic pattern of rainfall in the region. (3)

Source: Bureau of Meteorology website

Since the year 2000, the average annual mean maximum temperature in Hillston has frequently risen above the 26 degree mark. By comparison, in the 1980s and 90s the same measure never appears to have never topped 25.5 degrees.

Although more pronounced in Hillston, this warming trend is apparent in most almond growing localities.

Apart from apparently increasing the likelihood of excessive rain, higher temperatures can also lead to more crop-damage from problematic insects.

In Australia, the two most significant insect pests faced by almond growers are the carob moth and the carpophilus beetle. (4) The life-cycle of both insects is measured in weeks, and over the warmer months of the year, tree-nut growers are thus faced with several successive generations of these pests. Like most insects, their development is influenced by temperature, with warmer temperatures speeding up their life-cycle.

The trend of higher average temperature is leading to more abnormally warm years, and thus growers are more frequently having to tackle an extra generation of almond-munching pests.

Late Frosts

The third natural force, untimely frosts, has proved particularly costly for almond growers in the Riverina over the past two years.

In the month of August, almond trees in Australia emerge from their period of dormancy, and the bloom-period begins. The dormant buds on the trees become flowers, and once pollinated, the flowers drop off and nutlets begin to form. Both flowers and nutlets are susceptible to frost damage, and sub-zero temperatures during and in the weeks after the almond bloom can result in damage to the developing crop.

Curiously, despite the warming trend detailed above, the minimum temperatures recorded in Riverina weather stations for the month of August seems to be falling ever-lower with the passing of the years.(5)

In both 2017 and 2018, unusually cold late August conditions resulted in significant damage to the crop of many almond growers around Griffith and Hillston.

In response to the adverse impact of the August frosts of 2017, both almond-grower Select Harvests and the agricultural REIT Rural Funds Group installed more frost-fans in their orchards around Hillston and Griffith. In 2018, this measure appears to have prevented a recurrence of the post-bloom damage that took place the previous year. Even so, it highlights that even now, the region is becoming an expensive place to grow almonds relative to other Australian almond growing regions.

Select Harvests' tree-change

The three forces detailed above- excessive rain, warmer temperatures, and untimely frosts- appear to be conspiring to make like more difficult for almond farmers around Hillston and Griffith.

It seems that the changing weather patterns in the region has been noticed by the major players operating in the region. The almond acreage of Select Harvests, for example, has risen significantly over the past three years, from 14,020 acres in 2016 to 18,970 acres in 2018, as depicted below.


Despite this, in the northern region- the area around Griffith and Hillston- there have been minimal plantings by the company over the past three years, and apparently not a single tree was planted by the company in the area between 2017 and 2018.

This is an indication that concerns about climate change are influencing decisions being made by some agri-companies operating in the region.

But while the erratic weather in the Riverina is an issue for Select Harvests, over the long term it is likely to be of greater concern for their Landlords in the area, the Rural Funds Group.

Rural Funds Group: Climate Change on the radar

In the northern region, most of the land on which Select’s almond trees are planted are owned by the Rural Funds Group. All of the Rural Funds Group’s almond properties are located around Hillston and Griffith, and the lion’s share of Rural Funds revenue (44%) are derived from these almond properties. (7) Apart from Select Harvests, the other lessees in the area are Olam, the largest listed almond grower in the world, and the Rural Fund Management Almond Fund.

As is the case with Select Harvests, there are indications that the management of the Rural Funds Group are aware of the increasingly erratic weather patterns in the region. Since 2016, the Group has embarked upon a significant diversification push, acquiring macadamia orchards, cattle and cotton properties in Queensland and NSW, somewhat reducing the exposure of the Group to the almond properties.

A climate diversification paper released by the Group in 2016 discussed climate change (8), and the drive to diversify seems to be partly in response to this issue. It is also noteworthy that the latest issue of the RFF Investor Newsletter commences with an article on global warming (9), which should probably be interpreted as a signal to investors that this issue is a concern for the company.

Analysts covering the company, however, don’t appear to have picked up on this. One of the more popular Australian stockmarket newsletters, for example, has released numerous updates on the Rural Funds Group over recent months, but without any mention of the ‘c’ words. (10)

While it might be foolish to expect the highest standards of research from the tipsters, even reports on the company by analysts working at respected financial institutions seem to have missed this elephant in the room.

As recently as October last year, a report on the Rural Funds Group released by one well-known institution does not include ‘climate change’ in the list of risks associated with the Rural Funds Group, nor is there a mention of this term in the report, despite the evidence highlighted above that the issue seems to be of significance for this stock. (11)

As this Analyst notes in his report, if Olam, like Select Harvests, had shied from planting more trees in the region, this could have resulted in a reduction or deferral of rent received under the lease. Fortunately, it seems that the Group may have dodged a bullet here, as the concerns about the shifting climate in the region only became glaringly obvious to local growers in late 2017, and by then most of Olam’s trees were already in the ground. (12)

The two Olam properties, Tocabil, near Hillston, and Kerarbury, south of Griffith, are leased until 2037 and 2038, respectively, while the 20 year lease of Select Harvests expires in 2030. Thus, although there is a risk that the Riverina properties owned by the group might become a less desirable place to grow almonds as a result of climate change, the Rural Funds Group would seem to have time on its side as it looks to diversify.

Webster’s folly

Webster is the most recent entrant to the almond-club, having purchased an almond property near Tabbita, to the north of Griffith, for $16.8 million, in early 2018. (13)

Webster, originally a Tasmanian company, is today better known for its extensive walnut orchards in Leeton and Tabbita in NSW, which the company acquired from Gunns in 2010.

Walnuts are a hardier tree than almonds, and as such many of the extreme weather events seen in the Riverina over recent years have been of little consequence for walnut growers in the area. Walnuts bloom around two months later than almonds, and so the late frosts that have troubled almond growers over the past couple of years were not an issue for walnuts.

That said, the company experienced a nut-set problem in their NSW orchards in 2015, which was blamed on abnormally warm late-spring temperatures in the previous year. Thus, even walnut trees have not been left unscathed by the pattern of extreme weather seen in the region in recent years. (14)

It remains to be seen whether Webster's move into almonds will pay off. At first glance, $16.8 million seems expensive for a property with only 260 hectares of trees planted, even without factoring the risk posed by the climate-shift that seems to be underway in the region. Time will tell whether Webster overpaid, though one suspects that the former owners are not overly burdened by feelings of seller’s remorse.

The weather worries of Olam

In September of 2017, while on a visit to Australia to inspect the Olam orchards near Griffith, Sunny Verghese, the CEO of Australia’s largest almond grower, multinational agribusiness giant Olam, singled out climate change as a major challenge facing the company in an interview

…Based on our footprint, in terms of where we are growing these many crops across the World, in almost every area we are seeing the impact of climate change… in the mid 70s…early 80s, (the) average number of extreme weather events were between seventy and eighty, and last year we had more than one thousand extreme weather events. The acceleration of the number of weather events, the prolonged duration of these episodes, and the severity of these episodes, all lead us to believe that there is climate change impacts…

It is surely no coincidence that Verghese’s visit to the Riverina orchards took place only a few weeks after freakish late frosts devastated the crop of many almond farmers in the region, and so the issue climate change would have been no doubt been front of mind.

As noted by Verghese, climate change pressures are not isolated to Australia, nor the almond industry. But almonds, a particularly sensitive crop, may be the agricultural equivalent to the canary in the coal-mine, and over recent years all almond growing regions in the globe seem to have felt the climate-change pinch to some degree.

These worldwide environmental challenges may be setting the stage for a period of strong almond prices as well as that of other tree-nuts. (15)

The listed Australian almond companies, however, may not be so well placed to ride the next price-boom, as all four stocks are exposed to the Riverina region to some extent, where, as has been noted above, the impact of the climate shift seems to be especially pronounced.

Perhaps the stocks best placed to benefit from this trend may not be almond growers at all. If, as the evidence suggests, the Riverina is becoming a less desirable place to grow almonds, it would follow that the other major Australian almond growing regions in Victoria and South Australia, such as the Mallee and the Riverland region, are likely to become more desirable. Agri-stocks that sit on acreage in and around these regions thus could be set for a valuation boost.

But for those who prefer almonds, it would be shrewd to be cognisant of the climate risks asociated with the sector while investigating these stocks, and hopefully this wire offers some measure of insight into the topic.

Disclosure: the author owns shares in Select Harvests.

Disclaimer: The article is of a general nature and should not be taken as financial advice. Investors should seek financial advice from a licensed advisor before making investment decisions. Opinions expressed are the authour's own.


1 Almond Board of Australia, Almond Insights, pg 9  (VIEW LINK)

2 SHV Results Presentation, pg 10, 30/06/17

3 NASA Website: How does climate change affect precipitation?  (VIEW LINK)

4 The Almond Doctor, Observations from a Trip Down Under- The Australian Almond Industry, 28/11/17 (VIEW LINK)

5 Bureau of Meteorology Website

6 2016: SHV AGM Presentation, pg 37, 25/11/16, 2017: SHV AGM Presentation, pg 40, 24/11/2017, 2018: Select Harvests Website  (VIEW LINK)

7 RFF Domestic and offshore Investor presentation, pg 8, 09/10/18

8 RFF Climatic Diversification Discussion Paper, 09/06/2016

9 RFF Investor Newsletter, 11/12/18

10 One example: 2 ASX stocks to hold forever, The Motley Fool, 28/11/18

11 Bell Direct, ‘Rural Funds Group (RFF) : Beefing up the Portfolio’,19/10/18 (VIEW LINK) It should be noted that this Analyst is not alone, for another example see the RFF research update from Wilsons (04/09/18) 

12 Rural Funds Group website (VIEW LINK)

13 WBA Webster acquires Sandy Valley almond property, 7/3/18

14 WBA Preliminary Financial Report, pg 5, 28/08/15

15 For example, warmer temperatures in California, the leading global almond producing region, are exacerbating problems from a dreaded pest, the Navel orangeworm, which has caused significant damage to the Californian almond crop for two years running. The pest is also of concern for pistachio and walnut growers in the state. (VIEW LINK)

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Patrick Fresne
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