The Select Harvests Limited (ASX:SHV) share price has surged nearly 5% in today's trading session, hitting a high of $7.66. So, what's behind today's surge?
A closer look at Select Harvests
Select Harvests is Australia's largest almond grower and processor and the third largest producer in the world. The company manages almond orchards in Victoria, New South Wales and South Australia and is a fully integrated business, controlling primary and secondary processing and marketing to consumers.
Select Harvests has not released any news today, so the price action can be attributed to the company's strong performance in the first half and outlook for the almond market. The Select Harvests share price has performed strongly in 2019, up more than 23% for the year. Almond growers in Australia have enjoyed hot and dry conditions with the Australian Almond Board predicting a record crop production of 93,000 tonnes, which is 13,000 tonnes more than 2018.
Impressive half-year performance
Earlier this year, Select Harvests was able to convert these excellent harvesting conditions and released a strong half-year report with interim profit more than doubling to $20 million, in comparison to the year prior. In addition, shareholders were rewarded as the company increased its interim dividend by 140% to 12 cents, up from 5 cents the previous year. The higher harvesting yields from Select Harvests were also able to offset a 39% increase in water costs, due to lack of rain in the Murray-Darling Basin.
The company was also able to capitalise on strong retail and industrial demand, in addition to rising almond prices. It estimated that it will receive $8.50 per kilo for its full-year crop, up from $8.05 in FY18. Select Harvests attributed this rise in prices to a weaker Australian dollar, increased demand from China, and a shortfall of exports from the United States (US).
California supplies more than 80% of the worlds almonds; however, difficult growing conditions and tariffs have impacted their output. Late last month, India imposed tariffs on US almonds in addition to the 50% tariffs placed by China and as a result the California Almond Board has estimated that US almond exports were reduced by a third.
Foolish takeaway
Select Harvests is well poised to take advantage of the gap in the global almond market. As harvests in the US slow and exports are impacted by an ongoing tariff war, the company has the opportunity to address the growing demand from China and India. While rising water costs are a concern for production costs, industry experts are confident that the market will level out.
