The Southern Advantage
We think every new grower should be looking to start their orchard in the Southern Hemisphere. Competition among growers in the north is ferocious. Walnuts are a commodity product and walnut buyers can and do source globally.
To understand why Northern Hemisphere growers are at a disadvantage compared to growers in the Southern Hemisphere, it is important to first understand (1) how the walnut harvest season works and (2) the makeup of the world market.
The Walnut Harvest Season
The weather marks the rhythm of the annual harvest, from Payne through Chandler.
Walnuts are harvested in the fall. The harvest season runs from mid-September to early November in the Northern Hemisphere and mid-March to early May in the Southern Hemisphere.
Around mid-September the walnut varieties with an early harvest date, such as Payne, Ashley, Serr, and Ivanhoe are harvested. During the last week of September and the first week of October growers harvest varieties such as Eureka, Howard, Hartley, Poe, Sexton, Tulare, and Vina. Finally, in mid to late October the bulk of the walnut harvest hits the market with Cisco, Fernette, Forde, Franquette and the largest harvest coming from the Chandler walnut.
By the end of October and early November world markets are flooded with new walnuts. Walnuts, like all commodities, are subject to the laws of supply and demand when it comes to their prices. Since all Northern Hemisphere walnuts are harvested between late September and early November, prices continue to head downwards throughout the harvest season.
The same price dip is not repeated during the Southern Hemisphere harvest between March and May. Why not? The answer is found in the makeup of the world walnut market.
The World Walnut Market
The Northern Hemisphere concentrates 93% of the world’s walnut supply, with more than three-quarters of the production concentrated in the United States and China. Among the world’s top growers, Chile is the only country in the Southern Hemisphere that grows a significant quantity of walnuts.
|2017/2018 World Production||2,069,670||100%|
Source: USDA Foreign Service Data
What this means is that 93% of the world’s walnut supply is harvested during a short 2-month window in from mid September to early November. While there are a few seasonal dishes that cause a small spike in in walnut consumption during the fall and winter months, most consumption is spread-out year round. With the demand spread-out over 12 months and 93% of the supply packed into 2 months, a large supply/demand imbalance in the market is the predictable yearly result.
The Northern Hemisphere’s Arms Race
The rush to market is extremely fierce in the Northern Hemisphere. With prices dropping by the week during harvest season, growers use all the means at their disposal to harvest earlier than their competition.
Cultivars with Early Harvest Dates
Many northern growers favor cultivars with early harvest dates such as Ivanhoe, Payne, and Ashley which are all very susceptible to blight. These cultivars are hardly used in the Southern Hemisphere since there is no need to rush to market and it is preferable to grow a more blight-resistant variety. With only 7% of the world’s production arriving between March and May, there is no significant difference to selling a harvest in March or in May.
Ivanhoe, Payne and Ashley are some of the earliest cultivars and are used by northern growers looking to beat the competition to market.
Most large commercial orchards in the north also spray ethylene-producing compounds on their crop to accelerate the harvest date. The most popular compound used is Ethephon (sold by Bayer Crop Science, ex-Monsanto).
What is the harvest effect of spraying Ethephon?
Harvests are accelerated by just 7 to 10 days when spraying an orchard with Ethephon. Hot weather will reduce its effectiveness. Additionally, Ethephon can cause a slight yellowing of leaves and leaf drop on healthy trees. Growers therefore need to be careful not to spray trees that are low-vigor, diseased, or stressed.
During the harvest northern growers are doing cost-benefit analyses with Ethephon, trying to predict price movements during the harvest season, watching the weather so they don’t spray when it is over 90°F (32°C), and deciding whether to spray by air or apply from the ground, southern growers simply harvest their walnuts on their own schedule without the application of accelerants.
The Key To The Southern Hemisphere Price Premium
During the first half of the twentieth century walnut demand was limited to Europe and the United States, with most demand being seasonal during the Christmas period. Today, with its enormous new middle class, China is the largest walnut consumer, accounting for almost half of world consumption. Trends in worldwide healthy living have made walnuts a food that can be consumed year-round and walnuts have lost their strong seasonal demand component.
This graph helps illustrate the imbalances that exist in the walnut supply and demand curves. The glut of walnuts flooding the market September through November cannot be absorbed by the fairly constant rate of consumption demanded by consumers. The Southern Hemisphere harvest, between March and May, can’t even supply half of consumer demand during those months.
The Market’s Answer: Cold Storage
How does the market satisfy constant customer demand with a supply curve so ill-suited to the market’s needs? The answer is mass refrigeration in cold storage facilities. The bulk of the global harvest is stored and then released from cold storage month by month as demand catches up to supply. During the March-May harvest season in the Southern Hemisphere, the only walnuts that are available on the market in the Northern Hemisphere are nuts that have been in cold storage for 5-6 months.
The Freshness Premium
This is the key to understanding why Southern Hemisphere growers are paid a freshness premium during their harvest months. Any buyer looking to purchase walnuts in March must pay a premium, since the price is composed of the walnut price plus 6 months of cold storage costs. Since walnuts are a global commodity, Southern Hemisphere growers get paid this cold storage premium when they sell their harvest.
It goes without saying that European buyers that are sourcing the absolute highest quality walnuts for their customers prefer to buy freshly-harvested Southern Hemisphere walnuts over Northern Hemisphere walnuts that have been in cold storage for months.
Growing Walnuts in the Southern Hemisphere
At Chandler Orchards we believe Mendoza, Argentina is the best place for growing walnuts in the Southern Hemisphere (and therefore, the world’s best location) to plant a new orchard. Not only are the climate, soil, and water conditions perfect for walnut growing, but the cost structure is advantageous compared with other Southern Hemisphere sites such as Santiago, Chile or New South Wales, Australia. Argentine growers pay less for labor and electricity than their Chilean neighbours or Australian counterparts.