Earnings drop for
Big Isle nut grower

The company has signed a deal
that will garner better prices
for its macadamia nuts

Nut grower ML Macadamia Orchards LP's earnings swung by nearly a million dollars to a loss of $576,000 in the fourth quarter as a late harvest and low nut prices cracked the Big Island company's bottom line.

However, the grower recently inked a more favorable deal to sell its nuts.

President and Chief Executive Dennis Simonis, who has been critical of the prices the company receives from its exclusive nut purchaser, said ML Macadamia has signed a deal with processor Hamakua Macadamia Nut Co., which will buy 6 million pounds of ML Macadamia's nuts when they become available in 2007.

Mauna Loa Macadamia Nut Corp. paid ML Macadamia, the state's largest grower of macadamia nuts, an average price of 49.7 cents a pound in 2004 for wet-in-shell nuts. Mauna Loa held the exclusive rights to purchase ML Macadamia's nuts until mid-December, when Hershey Foods Corp. bought Mauna Loa.

The 49.7 cents-a-pound price is far below the market price of 95 cents to 98 cents that independent growers are receiving.

"The nut prices we've been getting are very disappointing," Simonis said. "Paying 50 percent of the market price for nuts-in-shell doesn't make sense to us."

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

The grower, which owns and leases about 4,170 acres on the Big Island, now will deal with Hershey. Four of the five contracts that ML Macadamia previously had with Mauna Loa expire at the end of next year. Those contracts account for about 15 million pounds, or 75 percent, of the nuts that ML Macadamia annually produces. The agreement with Hamakua will cover 6 million pounds, with the other 9 million available to Hershey or other nut processors. The fifth contract, with Hershey, expires at the end of 2019.

"Really, the only thing we're disappointed about (in 2004) is that we're down about 2.3 million pounds (in nut production) vs. last year," Simonis said. "That's worth about a million dollars to us."

The company also spent about $500,000 in attorney fees fending off Mauna Loa's proposed acquisition of MacFarms of Hawaii, the No. 2 processor in the state, he said.

ML Macadamia's revenue in the fourth quarter rose 10.4 percent to $7.6 million.

The company's net income in the fourth quarter of 2003 was $406,000. Earnings per Class A unit were a loss of 1 cent a unit in the fourth quarter of 2004 compared with a gain of 5 cents a unit a year earlier.

For all of 2004, ML Macadamia lost $1.6 million, or 22 cents a unit, compared with a gain of $69,000, or 1 cent a unit, in 2003. Full-year revenue fell 11.4 percent to $13.7 million. Nut production slipped to 18.9 million pounds from 21.2 million pounds.

Simonis said he's looking forward to working with Hershey.

"We have a lot of confidence that they will run the business for growth and profitability," Simonis said. "They're a very strong marketing company, very well managed, and we do have contracts that need to be renegotiated. We believe those will be at market prices rather than at the current prices."

The board of the grower's general partner, ML Resources Inc., maintained its quarterly cash dividend at 5 cents a unit, to be paid May 12 to unit holders as of March 31.