In theory, the lack of water in California should be slowing new acreage of almond trees, which tend to use more water than the average crop.
But a new report from Rabobank, a multinational banking and financial services that specializes in U.S. agriculture, predicts more acreage than ever will be devoted to almonds in the coming decade.
"In spite of ongoing water concerns and high land costs, Rabobank expects California almond growers will continue to increase plantings and total production, leading to a rise of about 2 percent and 3.5 percent per annum, respectively, over the next decade," writes Vernon Crowder, senior vice president and senior analyst for Rabobank's Food & Agribusiness Research Advisory .
The reason: worldwide almond demand is proving unstoppable, which has caused the price a farmer can get for almonds to soar.
"The popularity of almonds, and especially their high use as an ingredient, makes it more difficult for buyers to seek an alternative," he writes. "While almonds are increasingly popular as a snack in the U.S., the California Almond Board reports that 50 percent of U.S. almond consumption is for ingredient use."
Crowder told Fusion those ingredients include cakes, cookies, candy, almond milk, trail mix and granola. He also writes that demand in Asia has been growing rapidly since 2004, where its commonly used for snacking and at weddings and celebrations.
Here's the chart. The blue line shows price growth, which remains in positive territory despite having slowed last winter. Orange is acreage, which has climbed for three-straight winters.
Right now, many farmers are paying a premium for land with clean water. Others are foregoing the clean part entirely, instead mixing in saline water that can be bad for crops. Crowder writes it would now take 10 years to break even on an acre of almond trees.
But they're still getting decent returns, because yields remains solid. So the plantings continue.
"Nurseries report very little slowing in orders of new trees," he writes. "There are reports from nurseries of more interest in planting in northern San Joaquin Valley, where water is more available compared to many areas in the southern San Joaquin Valley. Some nurseries also report more interest in almond varieties that tolerate saline water better or require fewer bees for pollination."
If the drought does persist for two or three more years, yields and profitability will start to suffer, Crowder says.
We're not there yet, though.
And Crowder believes weather conditions will eventually return to something close to normal.
The only thing that can stop more production is lower prices. But because of the insatiable demand, that will likely only be brought about by…more production.
"If prices decline significantly as production increases, replanting orchards and planting new trees will slow, allowing this California agricultural star to balance itself with growing demand again," he writes.
Rob covers business, economics and the environment for Fusion. He previously worked at Business Insider. He grew up in Chicago.