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  • Select Harvests says it can weather almond price plunge

    Jan 25th, 2016

    Almond prices are falling, but Select Harvests says it can ride out the volatility.

    Almond prices are unlikely to bounce back to the dizzying heights of the past year, according to Australia's biggest listed producer of the nut, Select Harvests.But the company says it has a strong enough balance sheet to ride out the volatility.Rain in California, which produces about 80 per cent of the world's almonds, has fuelled expectations of a larger-than-expected crop, sending the spot prices of almonds tumbling.The current prices – $9.73-$10.30 a kilogram – are about 15 to 20 per cent off Select Harvests' pool price. The dive has also belted Select Harvests' share price, which has more than halved to $5.71 since its 12-month high of $13.48 last April.Managing director Paul Thompson said the company was robust enough to weather the downturn and expects profit for the first half of the 2016 financial year to be higher than the same period in 2015."The inevitability of running a company in the 'ag space' is you have to be prepared for the volatility of the market," he said."But you have to remember we are coming off record highs and if you look at our assets base we are still cash-generative, still making good profits – it's just that we are not making outstanding profits."

    Short positions

    Short positions in Select Harvests' shares have increased seven-fold over the past three months, and now account for 3.2 per cent of the share register.Mr Thompson said while almond prices were unlikely to rocket back to the highs of the past year soon, there was still strong demand for the nut and its associated products such as almond milk."The macro demand is still well and truly in place. Nobody is suddenly deciding, even in times of economic crisis, 'you know what, I'm going to go back to my old stodgy diet'."There are generations of people who have not grown up on sweet biscuits and demand nuts and muesli at the breakfast time. The movement towards almond milk will continue. The Westernisation of diets in Asia will continue as the middle class grows."Mr Thompson also stressed the company had transformed itself in recent years from a farm management business to a farm owner. It was also implementing a series of cost-saving measures, such as a biomass cogeneration plant which is expected to slash electricity costs.

    Volatile ride

    "Select Harvests had a pretty volatile ride, historically. But we are just not the same company."We were a manager who had 90 per cent of our business in one account and we lost that account. We are not that business."The highs and lows are nowhere near significant in our bottom line because we are a grower, a low-cost grower, we can sustain these price fluctuations and continue to grow."The company is also investing in its food business, which include the Lucky, Sunol, Renshaw and Allinga Farms brands, as well as planting an extra 971 hectares of almond trees this year.Morgans analyst, Belinda Moore, said it could be argued that Select Harvests' shares had been oversold, considering the drop was greater than the almond price fall.Uncertainty in the almond marketBut she said there was too much uncertainty in the almond market. The United States almond bloom, which begins next month, is expected to have a sway on prices depending on its quality."Our concern is that [almond] prices could fall further," Ms Moore said."Almond prices have clearly peaked and the earnings upgrade story which has driven Select Harvests' share price to record highs appears to be over."Ms Moore acknowledged Select Harvests management had a firm grip on "controllables" such as ramping up production, stripping out costs and investing in productivity."We would return to a more positive view if we saw almond prices rising," Ms Moore said, adding that every US10¢ shift in the almond price hit Select Harvests' earnings before interest and tax by $4.6 million or 6.6 per cent, based on Morgan's forecasts.