Fighting macadamia
merger weighs down
nut grower

The Big Island's largest grower of macadamia nuts, ML Macadamia Orchards LP, lost $817,000 in the third quarter, with more than half the shortfall coming from a legal showdown over a rival's proposed merger that ultimately failed.

The company said yesterday that a later-than-normal harvest also contributed to the loss, which widened from a loss of $9,000 a year ago. The loss per Class A unit was 11 cents in the recent quarter compared with zero cents in the third quarter of 2003.

Revenues plunged 36.7 percent to $3.3 million from $5.2 million.

ML Macadamia said a continued Big Island drought resulted in a smaller crop in the Keaau region and a late harvest in the Kau region, resulting in some deliveries being postponed to next year from this year.

Nut sales dropped 33.4 percent to $2.5 million from $3.8 million as the harvest in the recent quarter fell to 5 million pounds, 37 percent lower than the same quarter a year ago and 28 percent below the historical average.

Contract farming revenue dropped 45.8 percent to $754,000 from $1.4 million.

"We didn't expect the legal fees and we did expect the crop to fall sooner, but we're still optimistic about the near-term future," said Dennis Simonis, president and chief operating officer of ML Macadamia. "Sometimes things happen in one short period of time."

Legal fees in the quarter came to about $450,000 as ML Macadamia successfully prevented Mauna Loa Macadamia Nut Corp., the state's largest nut processor, from buying MacFarms of Hawaii LLC, the second-largest processor and second-largest grower in the state. ML Macadamia, claiming that a merger would create a virtual monopoly over Hawaii's macadamia supply, sued to block the deal. But before Hilo Circuit Court Judge Greg Nakamura could rule last month on a preliminary injunction, Mauna Loa and MacFarms abandoned the merger.

"I wish we hadn't spent the money, but I think it was absolutely money well spent," Simonis said. "If we had not done what we had done, I think we would have paid the price for many years in the future."

Simonis said for the last quarter ML Macadamia continued to receive an estimated average price of under 50 cents a pound for its nuts from Mauna Loa, which has exclusive contracts to buy all of ML Macadamia's nuts. The market price for nuts is 95 cents to 99 cents, Simonis said.

"We're still getting paid a very low price," he said. "But that gets actualized after the fourth quarter and there could be some very good news when Mauna Loa looks at the actual performance for the calendar year. Mauna Loa typically has been paying us a price for the first quarter and holding that until the year is complete. Then, it pays an adjustment for the actual price."

ML Macadamia has a complex pricing arrangement based half on the current-year processing and marketing results of Mauna Loa and half on the two-year trailing average of U.S. Department of Agriculture macadamia nut prices.