Continued drought and poor pollination decreased California's almond crop nearly 12 percent in 2014, helping drive prices to record highs. According to a new report by Rabobank's Food & Agribusiness Research and Advisory group (FAR), the decline in year-over-year yields was despite the addition of nearly 20,000 bearing acres.

Vernon Crowder, a senior vice president and senior analyst with FAR, said that one of the primary drivers of continued demand and higher prices is the use of almonds. "According to the Almond Board of California, nearly 50 percent of the almonds consumed in the U.S. are used as ingredients," said Crowder. "The higher usage as an ingredient increases the inelasticity of demand for almonds." Released today, Rabobank's report, "California Almonds: Maybe Money Does Grow On Trees," notes that in other parts of the world almonds are used as ingredients even more, in some cases exceeding 75 percent of overall consumption.

The report goes on to examine where growers and marketers will look for price trends. It notes that in-shell consumption has shifted since the early 2000s. In 2013, 86 percent of in-shell exports amounting to 400 million kernel pounds went to the Middle East, South Asia and East Asia markets, which overtook Europe as the largest purchaser of almonds.

Rabobank's report concludes that the price for almonds will continue to increase in the short term, not only because of supply and demand but also due to increased awareness of the health benefits of the product. This trend is expected to drive further plantings, though the growth of total production will be slower than in recent years due to the higher cost of suitable land and the scarcity of water.