Why the Select Harvests (ASX:SHV) share price is up 23% in a month

The Select Harvests share price has been rising over the last month.

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The Select Harvests Limited (ASX: SHV) share price has gone up around 23% over the last month.

What is Select Harvests?

Select Harvests is a vertically integrated almond business, consisting of almond orchards, processing (hulling, shelling, roasting, slicing etc), trading (industrial products) and consumer products (through brands like Lucky and Sunsol).

It’s one of the largest Australian almond companies, supplying almonds domestically and internationally, to supermarkets, health food stores, other food manufacturers, retailers and the almond trade.

What has happened recently?

Yesterday, the business gave an update about the 2021 crop and current market conditions.

Select Harvests said that its 2021 harvest has been completed and all of the 2021 crop has been delivered to the Carina West processing facility in Victoria.

With over 60% of the crop processed, the nut company estimated that the crop volume, including from the acquisition of the Piangil orchard, will be approximately 28,250 MT, up around 21% from the 2020 crop volume of 23,250 MT.

Select Harvests said that processing productivity is continuing to improve, with investments in technology delivering efficiency gains and improving quality after leaving the farm.

Market conditions

Select Harvests also said that the almond industry has experienced significant growth in global demand across all markets, particularly in the markets of India, Europe and China.

Australian almond exports year on year are up 54%, with the South and Central Asian (India) market up 200%, Europe up 69% and the North East Asian (China) market up 9% during the period.

Continued strong shipment numbers and the worsening drought situation in California have led to an appreciation in almond pricing of between 5% and 10% over the last six months.

In the last few days, the US Department of Agriculture released the 2021 objective crop estimate for the 2021 US almond crop of 2.8 billion pounds, down 12.5% on the 3.2 billion pound subjective estimate released on 12 May 2021. With the California drought worsening in recent months, Select Harvests said the subjective estimate has proven to be too optimistic.  

Select Harvests said that forward commitments for California’s 2021 crop are down 29% compared to the same period last year with growers reluctant to sell and waiting to understand the potential impact of the drought on supply.

The business said that 60% of its 2021 crop is committed at prices in the range of A$5.90 per kilo and A$6.40 per kilo. However, the un-committed portion of the crop is the lower value grades. Select Harvests also said that 90% of the crop is covered at an exchange rate of 0.73AUD/USD and the current market price is in the range of A$6.20 to A$6.60.

Both Australian and US processors are experiencing some shipping delays due to container shortages. But Select Harvests said that it’s only experiencing minor related cashflow delays.

Management said development of Select Harvests’ 2022 crop is progressing well with good tree health, according to management. Volumes are benefiting as younger orchards reach maturity. Water supply and pricing is “much improved”.

Leadership commentary on the outlook

Paul Thompson said:

Record almond shipments and the worsening Californian drought have led to a recent price appreciation. Demand for almonds, both in their natural form and as a value-added food ingredient, in products such as plant based milks and yoghurts, continues to grow. Thanks in part to the December 2020 acquisition of Piangil Almond orchard, Select Harvests is set to achieve a record almond crop of 28,250MT in 2021. With good progress being made on the 2022 crop, Select Harvests remains focused on the factors within its control, including almond volume, quality, value adding and operating costs.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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