Tariffs Toasted: Advantage For Select Harvests

This story features SELECT HARVESTS LIMITED. For more info SHARE ANALYSIS: SHV

The company is included in ASX300 and ALL-ORDS

Select Harvests’ production guidance downgrade looks like a speed hump for analysts with the company set to benefit from rising almond prices amid the US/China trade war.

-China tariffs shift demand from US almonds to Australia
-Almond prices strengthen as supply tightens globally
-Select Harvests cuts FY25 volume but lifts earnings outlook

By Danielle Ecuyer

Australia, California and China setting the stage

Sifting through the impacts of the Trump administration tariffs, Select Harvests ((SHV)) is one company that has the potential to be a net beneficiary. The share price rallied from a low last November at the time of the US election around $3.50 to a 52-week high recently of $5.45.

For investors, a precedent was set during the first Trump Administration in April 2018 when China raised tariffs on US almonds as high as 55% from 10% in response to US tariffs on Chinese goods.

By way of context, California is the world’s major almond producer and generates around 76% of global almond production. In 2024, California exported around 1.22m metric tonnes of almonds, some US$5.5bn or 20% of the state’s US$23.6bn in agricultural exports.

During the first US-China trade dispute, estimates suggest a loss of -US$565m in export revenues.

The latest trade war impositions pose a threat of 125% China tariffs on Californian almonds.

In contrast, according to the INC Organisation’s (International Nuts and Dried Fruits) recent extract on Australia:

“As reported by the Almond Board of Australia, the industry is experiencing a strong 2024/25 selling season, driven by rising demand from China and India. August marked the third consecutive month of record-breaking sales, and the fourth in the last six months, despite rising prices.

“Total exports to China surged by 93% compared to last year, while Indian demand was recovering after a slow start, aided by the Australia-India Economic Cooperation and Trade Agreement. Although domestic sales remain flat, total export volumes are up 21%, at 88,090 MT kernel weight equivalent and in-shell sales reached a record level at over 47,000 MT, up from 27,000 last year.

The 2024/25 crop was updated to 153,550 MT, primarily due to lower yields from older trees. Late September frosts in key growing regions have raised concerns for the 2025/26 crop, with the full extent of the impact still being assessed at the time of reporting.”

Re-pricing a production downgrade for FY25

The Australian share market had been one step ahead, with the stock price rallying up until the company offered a second trading update in just over a month, which cut the expected almond crop volumes for FY25 by -10% to 24-26.5mt from 27.5-29mt.

Ord Minnett argues management has again overestimated volume guidance, following on from the record 2024 crop of 29,527mt, which was based also on downgraded guidance.

Market participants delivered a swift response, taking the share price down -15%, which UBS highlighted as an entry point opportunity, with Select Harvests expected to benefit from the US-China tariff dispute and increased likelihood China re-positions imports away from California.

While the updated volumes disappointed the market, FY25 almond price guidance was raised to $10.35/kg from $9.20/kg.

Bell Potter notes 33% of the crop has been sold and hedged at an AUD:USD of 0.648, which aligns with the analyst’s estimate of a year-to-date volume-weighted average price. This stands below the spot pricing at over $11/kg.

UBS envisages the volume downgrade is only a FY25 story and can be attributed to a softer bloom period, fewer nuts per tree, as well as lower crack yields, which refers to reduced yield of the edible kernel post-shelling for nonpareil (premium almonds).

On balance, the net impact is a forecast rise in earnings before interest and tax by 7% to $61m against the consensus estimate of $63m.

Outlook for Californian almond supply

Multiple positive industry tailwinds should underwrite higher almond prices in FY26. UBS details how supply is expected to tighten due to lower Californian crop production in 2024 of 2.7bn pounds against industry predictions at 2.8bn pounds.

The decline in the crop of -100m pounds more than forecast is likely to result in a fall in the “carry-out” or the amount of unsold almonds carried into the next crop year. Lower production and ongoing robust demand result in tightening supply and a decline in the carry-out to below 500m pounds.

Supply challenges from higher crop pull-outs (older trees) than new plantings have been created by California’s Sustainable Groundwater Management Act to reduce water overuse.

Growers have also been impacted by liquidity issues, which has resulted in reduced input purchases like fertiliser and water, while demand from China/India remains solid.

Almond pricing looking up for Australian growers

All augurs well for almond prices and UBS raises FY26 earnings before interest and tax estimates by 12% to $86m versus consensus at $83m, with a conservative FY26 almond price forecast of $9.50/kg and a volume rebound to 29.8mt, below the circa 31mt target.

If almond prices were to remain stable at $10.35/kg in FY26, this would underwrite an upgrade in earnings estimates by 30%, assuming all other variable factors remain stable.

Through the cycle, the almond price forecast from UBS stands at $9.37/kg from FY25-FY29, with the balance of risks slanted to the upside on “structural supply headwinds” and “strong near-term demand” out of China/India.

Select Harvests’ management are tilting more of the company’s product mix to China.

Bell Potter emphasised the trading update omitted any commentary around costs. The analyst factors in higher spot water pricing assumptions for lower storage levels across the Southern Murray Darling Basin, down -51%, which will impact one third of the company’s water purchases.

The baseline price assumption for the analyst stands at spot prices around FY21/FY22, which is a “material premium” to current forward rates and those being experienced in FY25.

Accounting for the trading update, Bell Potter lowers net profit after tax estimate by -13% for FY25 and lifts FY26/FY27 forecasts by 8% and 15%, respectively for higher almond prices, and lower volumes in FY25 and higher costs in FY26/FY27.

Ord Minnett stresses comments around costs were “conspicuously absent”. Costs are expected to rise with higher water cost imposts. Adjusting for the lower volumes, this analyst reduces net profit after tax forecast by -23% but believes earnings upside remains from ongoing price rises.

The spot price remains above the revised company price guidance by 9%, with tariff wars a net potential benefit to Select Harvests. A Buy rating is retained and target price slips by -3.4% to $5.60 post the trading update.

On the caveat management can benefit from higher almond prices, particularly into FY26 to offset the downgrade in crop production volumes, while exhibiting cost controls and achieving additional processing capacity, Bell Potter’s analyst believes the earnings profile for the company will improve in FY26/FY27, with additional pricing strength from Chinese tariffs on US imports.

The stock is rated Buy with an unchanged $5.80 target post the trading update.

UBS upgrades the stock to Buy from Neutral with a $5.40 target price.

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