Processing and Marketing California Walnuts Charles R. Crain, Jr.

Advances in Walnut ProductionUC Davis

November 5, 2018Unless otherwise noted, statistical data sourced from CWB, CASS, NASS and USDA.

Introduction

Family Owned and Operated since 1961

Growers, Processors and World Wide Marketers

Grower Base Throughout all Major Growing Regions

Retail, Food Service, Ingredient Manufacturers

Headquarters in Los Molinos, CA

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Crain Walnut Shelling and C.R. Crain & Sons

2

Processors’ Goal – Produce What Consumers Want

Premium Variety Characteristics and Values

Supply Trends

Key Markets

Global Production

Marketing Hurdles

Looking Forward

Today’s Discussion

3

Processors’ Goal Produce What Consumers Want to Buy

4

Color is King

5

USDA Walnut Color Chart

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Premium Variety Characteristics and Values

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Premium Variety Characteristics and Values

Produce What Consumers Want

IN-SHELL PREMIUMS KERNEL PREMIUMS

In-shell SizeShell Cleanliness Light Kernel ColorHigh Kernel YieldVoid of Shell DamageVoid of Kernel Damage

Light Kernel ColorHigh Kernel YieldHalf YieldVoid of Damage

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LCHANDLER VARIETY INSHELL

Super Jumbo34 mm +

Jumbo32–34 mm

Large30–32 mm

Larger In-Shell Size and Smooth Shell Characteristics

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Kernels Characteristics

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In-Shell Characteristics

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Premium Varieties

Producing What Consumers Want to Buy

Chandler– Smooth Shell– Light Kernel Color– Thin Shell– High Half Yields– Varietal Recognition

Howard– Large In-shell Size– Superior Flavor Profile– Thicker Shell Suitable for

Inshell Market– Varietal Recognition

Tulare– High Kernel Yield– Early Harvest

Hartley– Shape– Thicker Shell Suitable for

Inshell Market– Varietal Recognition

Perceived Quality Characteristics

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2018 Crop Est.

California Production By Variety

Chandler52%

Hartley 6%

Howard 13%

Tulare 16%

Serr 3%

Vina 4%Other 6%

Data from CWB, CASS, NASS and USDA. 13

Supply Trends

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In-Shell Basis (Tons)

California Walnut Crop Size

Data from CWB, CASS, NASS and USDA. *CASS September Objective Measure.

Crop Size

436,000

437,000

503,000

460,000

497,000492,000

571,000 603,000

686,000

628,000

690,000*

300,000

350,000

400,000

450,000

500,000

550,000

600,000

650,000

700,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*Crop Year

+9.9%

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In-Shell Basis in Tons

Source: USDA, *CWS Estimate

California Walnut Crop Projection

460

497492

571603

686

628

691*730

700

740

400

500

600

700

800

900

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Future Crop Size Estimate

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In-Shell Basis in Tons

Chandler

Data from the CWB. * Statistical extrapolation from USDA CASS Objective Survey.

226,055255,076

288,991

366,785 358,777361,000*

200,000

250,000

300,000

350,000

400,000

2013 2014 2015 2016 2017 2018 Est*

0.6%

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In-Shell Basis in Tons

Data from the CWB. * Statistical extrapolation from USDA CASS Objective Survey. CWB *Statistical extrapolation from USDA CASS Objective Survey

Howard

69,577

79,26483,863

90,338

100,153

93,000*

60,000

70,000

80,000

90,000

100,000

110,000

2013 2014 2015 2016 2017 2018 Est*

-7.1%

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In-Shell Basis in Tons

Data from the CWB. * Statistical extrapolation from USDA CASS Objective Survey.

Tulare

63,235

74,758

85,650

84,863

71,671

111,000*

63,000

73,000

83,000

93,000

103,000

113,000

2013 2014 2015 2016 2017 2018 Est*

54.9%

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In-Shell Basis in Tons

Data from the CWB. * Statistical extrapolation from USDA CASS Objective Survey. USDA CASS Objective Survey

Hartley

52,089 51,694

45,039

56,353

35,226

40,500*

30,000

40,000

50,000

60,000

2013 2014 2015 2016 2017 2018 Est*

15%

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In-Shell Basis in Tons

Data from the CWB. * Statistical extrapolation from USDA CASS Objective Survey.

Other Varieties

79,597

107,738

98,725

85,999

61,971

84,500*

60,000

70,000

80,000

90,000

100,000

110,000

2013 2014 2015 2016 2017 2018 Est*

36.4%

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Varietal Production

Producing What Consumers Want

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2012 2013 2014 2015 2016 2017

In-S

hell

Equi

vale

nt T

onna

ge

Chandler Howard Tulare Hartley All other

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Export vs. Domestic ShipmentsIn-Shell Ton Equivalent

42% 36% 37% 37% 32% 34%

58% 64% 63%63%

68%66%

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2012 2013 2014 2015 2016 2017Crop Year

Domestic Export23

Kernel vs. In-Shell Shipments

0

200

400

600

800

1,000

1,200

1,400

2012 2013 2014 2015 2016 2017

Crop YearKernel In-Shell

26%30%30%

23%24% 24%

70% 70% 74% 76%77%76%

In-Shell Equivalent in Pounds (Millions)

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Key Markets

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2017

Top In-shell Consuming Countries

Sales in Millions of lbs. For the Crop/Marketing Year Listed: *Includes China, HK and Vietnam.

Turkey21%

China Bound10%

Italy11%

India6%

U.A.E.7%

Spain 5%

U.S.A. 6%

Germany 3%

All Other31%

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2017

Top Kernel Consuming Countries

U.S.A.43%

Germany13%

Japan10%

Korea6%

Spain 5%

Canada 2%

Israel 2%

Australia 2%

Netherlands 3%All Other

12%

Sales in Millions of pounds for the Crop/Marketing Year Listed. 27

Global Production

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In-Shell Short Tons

Global Production

INC/USDA/Industry Experts *Calculation Change

Country 2015 2016 2017 2018Projection

% Change(‘17 vs ‘18)

U.S.A. 603 684 628 690 9.9%China 639 992* 924 825 -10.8%Turkey 22 22 29 28 -3.4%East Bloc* 240 177 245 255 4.1%Iran — — 105 99 -5.3%Chile 79 79 117 148 +17.9%France 44 40 39 39 —India 38 40 39 39 —Italy 19 17 20 18 -10.0%Global 1,684 2,051 2,146 2,141 -0.2%

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USA 49%

Ukraine 11%

Chile 8%

Moldova 7%

China 3%

Romania 3%

Germany* 3%

India 2%

Others 14%5-Year Average

Exporting Countries

*Transit Country 30

Marketing Hurdles

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Export Tariffs and Currency Roadblocks

March 8th - U.S. Secretary of Commerce announces tariff on steel and aluminum imports of 25% and 10% respectively

June 1st - tariffs went into effect. Immediately thereafter the retaliatory walnut tariffs came into effect

Walnuts were not included in China’s list of tariffs to be imposed effective September 24th.

Turkey’s unofficial ban on issuing permits to free enterprise zone has (reportedly) been lifted.

Country2017 January 1, 2018 Current

In-Shell Kernels In-Shell Kernels In-Shell Kernels

China 40% 35% 40% 35% 65% 60%

India 30% 30% 30% 30% 100% 30%

Turkey 43% 43% 15% 15% 25% 25%

Data provided by the CWB 32

Looking Forward

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Larger Crops Projected

Reduce Dependence on China & Turkey

Increase Domestic Demand

Promote Superior California Crop Characteristics

Promote California’s Food Safety Environment

Produce What Buyers Want to Buy

Reduce Trade Barriers

Looking Forward

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Thank you