UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2009

OR

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-9145

ML MACADAMIA ORCHARDS, L.P.

(Exact Name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (808) 969-8057

Registrant’s website: www.mlmacadamia.com

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of 15(d) of the Act.  Yes o  No x

Indicate by check mark whether the registrant has submitted electronically and posted on it corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this 10-K or any amendment to this 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company”  in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company as defined by Rule 12b-2 of the Securities Exchange Act of 1934.  Yes o  No x

As of March 12, 2010, 7,500,000 shares of the registrant’s Class A Units were outstanding, and the aggregate market value of such Units held by non-affiliates was $17,250,000 (based on the closing price on that date of $2.30 per Unit).

PART I

Item 1.  BUSINESS OF THE PARTNERSHIP

(a) General Description of the Business

ML Macadamia Orchards, L.P. (the “Partnership”) is a master limited partnership, organized under the laws of the State of Delaware in 1986.  The Partnership is engaged in the business of growing and farming macadamia nuts in the State of Hawaii.  The Partnership believes that it is one of the world’s largest growers of macadamia nuts.  The Partnership owns or leases approximately 4,190 tree acres of macadamia nut orchards in three locations within a 50-mile radius on the island of Hawaii.  (“Tree acres” are acres of the Partnership’s owned or leased lands utilized for macadamia nut orchards.  “Gross acres” includes areas not utilized for orchards.)  In addition, the Partnership farms approximately 1,980 tree acres of macadamia nut orchards for other orchard owners under farming contracts.

The Partnership commenced operations in June 1986, following its acquisition of 2,423 tree acres of macadamia nut orchards from subsidiaries of C. Brewer and Company, Ltd. (“CBCL”).  In December 1986 and October 1989, the Partnership acquired 266 and 1,260 additional tree acres of macadamia nut orchards from subsidiaries of CBCL.  In September 1991 the Partnership acquired 78 tree acres of macadamia nut orchards from CBCL.  On May 1, 2000, the Partnership acquired 142 tree acres of macadamia nut orchards and its macadamia farming operations from subsidiaries of CBCL.  In April 2006, the Partnership acquired approximately 21 tree acres of macadamia nut orchards from J. W. A. Buyers.  The farming operations consist of farming contracts, farming equipment, vehicles, a husking plant, irrigation well, office buildings, garages and warehouses, office furniture and equipment and material inventories related to macadamia farming.  The Partnership’s assets and operations are located on the island of Hawaii.

The Partnership is managed by its general partner, ML Resources, Inc. (“MLR” or the “Managing Partner”), which is a wholly owned subsidiary of the Partnership.

During 2006 the Partnership sold all of its macadamia nut production to Mauna Loa Macadamia Nut Corporation (“Mauna Loa”) under four nut purchase contracts.  Three of these nut purchase contracts representing approximately 16 million field pounds per annum, expired on December 31, 2006 and the fourth contract representing approximately 6.3 million field pounds per annum expires on December 31, 2011. In lieu of renegotiating the expired nut purchase contracts with Mauna Loa, the Partnership executed nut purchase contracts with three other processors; Hamakua Macadamia Nut Company, Inc. (“Hamakua”), MacFarms of Hawaii, LLC (“MacFarms”) and Purdyco International, Ltd. dba Island Princess (“Island Princess”) beginning January 1, 2007.  The nut purchase contracts with Island Princess, Hamakua and MacFarms were terminated on October 31, 2008, June 10, 2009 and December 22, 2009, respectively.  The details of the Partnership’s nut purchase contracts are discussed in Item 1 (c), Owned Orchard Segment on page 3.

On December 22, 2009, the Partnership and Mauna Loa executed an addendum to the June 1, 2006 nut purchase contract which provides that all of the macadamia nuts harvested by the Partnership will be sold to Mauna Loa in 2010 and 2011 at a nut purchase price of $0.73 per pound on a WIS SK/DIS basis.  As Mauna Loa will be sole customer for the Partnership’s production additional risks are inherent.  Refer to Item 1A. Risk Factors - Market and customers for additional information.

(b) Financial Information about Industry Segments

Information concerning industry segments is set forth in Note 3 to the Notes to Consolidated Financial Statements filed herewith.

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(c) Narrative Description of the Business

Owned-Orchard Segment

The Partnership’s average annual nut production has been between 20.5 and 22.0 million field pounds.  In 2009, the Partnership sold macadamia nuts from its orchards to Mauna Loa and MacFarms under nut purchase contracts and related addendums which provided for the sale of approximately 21 to 27 million field pounds.  On December 22, 2009, the Partnership and Mauna Loa executed an addendum to the June 1, 2006 nut purchase contract which provides that all of the macadamia nuts harvested by the Partnership in 2010 and 2011, estimated to be between 19 to 21 million pounds wet in shell each year, will be sold to Mauna Loa.

During 2008, the Partnership sold macadamia nuts from its orchards to Mauna Loa, MacFarms and Island Princess under nut purchase contracts and related addendums.  The Partnership attempted to sell and deliver macadamia nuts to Hamakua under the terms of its nut purchase contract, but Hamakua refused to accept delivery of any macadamia nuts from the Partnership during 2008.  Despite Hamakua’s refusal to take delivery, the Partnership was able to sell all of its 2008 nut production.

During 2007, the Partnership sold macadamia nuts from its orchards to Mauna Loa, MacFarms and Island Princess under nut purchase contracts.  Hamakua did not purchase any of the Partnership’s 2007 production and instead processed the Partnership’s macadamia nuts into kernel for the Partnership to sell in the wholesale market.  The Partnership was unable to sell all of its production in 2007 and all of it kernel inventory in 2008 and 2007, which resulted in $335,000 and $2.0 million of kernel and unsold nuts at December 31, 2008 and 2007, respectively.  During 2009 and 2008, the Partnership sold or discarded its entire inventory balance that was held as of December 31, 2008 and 2007, respectively.

Nut Purchase Contracts.  During 2009, the Partnership had nut purchase contracts with: Mauna Loa, MacFarms (terminated December 22, 2009) and Hamakua (terminated June 10, 2009), as detailed below.  Nut purchase contracts require the buyer to purchase a quantity of macadamia nuts.  Nuts from the field are weighed after they are husked, which leaves the nut still in its hard shell, referred to as wet-in-shell.  Orchard to orchard and year to year, wet-in-shell nuts have varying moisture and saleable kernel contents, accordingly, each nut purchase contract has a standard wet-in-shell moisture of 20% (“WIS”) and a standard saleable kernel / dry-in-shell of 30% (“SK/DIS”) to which the delivered field pounds are adjusted to determine the pounds for which the Partnership is paid.  If the moisture content is above the 20% standard, then the pounds of nuts paid for will be less than the pounds actually delivered.  Conversely, if the moisture content is below the 20% standard, then the pounds of nuts paid for will be greater than the pounds of nuts actually delivered.  If the SK/DIS recovery is above the 30% standard, then the number of pounds paid for will be greater than the actual pounds delivered.  Conversely, if the SK/DIS recovery is below the 30% standard, then the number of pounds paid for will be less than the actual pounds delivered.  Transfer of ownership for the nuts from the Partnership to the purchaser is at the time of delivery to the purchaser’s processing plant.

On June 1, 2006, the Partnership executed a contract with Mauna Loa for the annual delivery of approximately 6.3 million pounds of wet-in-shell nuts, effective January 1, 2006 and expiring December 31, 2011.  The contract provided for a nut price of $0.74 per WIS pound in 2006 and $0.75 per WIS SK/DIS pound in 2007.  The purchase price increases annually by $0.01 per WIS SK/DIS pound, except 2008, until it reaches $0.78 per WIS SK/DIS pound in 2011.  On July 9, 2008 an addendum to the June 1, 2006 nut purchase contract was executed with Mauna Loa for the delivery of an additional 9.0 million field pounds of nuts during the period July 21, 2008 through June 30, 2009 at a purchase price of $0.60 per pound on a WIS SK/DIS basis.  The addendum provided for an additional 3.0 million pounds to be delivered if mutually agreed on the same basis as the additional 9.0 million pounds.  On November 3, 200,8 it was agreed that any additional pounds over the 9.0 million pounds delivered until December 31, 2008, would have a nut purchase price of $0.63 instead of $0.60 per pound on a WIS SK/DIS basis.  On March 23, 2009, the parties executed an amendment to the June 1, 2006 contract for the delivery of an

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additional 9.0 to 15.0 million wet-in-shell pounds at a purchase price of $0.63 per pound on a WIS SK/DIS basis for nuts delivered through December 31, 2009. On December 22, 2009, the Partnership and Mauna Loa executed an addendum to the June 1, 2006 nut purchase contract which provides that all of the macadamia nuts harvested by the Partnership, estimated to be between 19 to 21 million wet-in-shell pounds, in 2010 and 2011 will be sold to Mauna Loa at a nut purchase price of $0.73 per pound on a WIS SK/DIS basis.

On December 16, 2004, the Partnership executed a nut purchase contract with Hamakua for the annual delivery of 6.0 million wet-in-shell pounds, effective January 1, 2007, and with 2.0 million field pounds expiring in each year ending December 31, 2008, December 31, 2010, and December 31, 2012, respectively. The contract provided for a minimum price of $0.75 per WIS pound and a maximum price of $0.95 per WIS SK/DIS. The pricing formula included a fixed component of $0.85 per WIS pound and a second component based on Hamakua’s average selling price for bulk kernel.  In February 2007, the contract was amended to allow the Partnership, at its option, to have Hamakua process macadamia nuts into kernel for a fee in lieu of selling the nuts to Hamakua.  The Partnership exercised this option solely for the calendar year 2007.  The contract required Hamakua to purchase approximately 6.0 million field pounds of nuts during 2008, approximately 4.0 million field pounds of nuts per annum in the years 2009-2010, and 2.0 million field pounds of nuts per annum in the years 2011-2012.  Hamakua refused to accept delivery of any macadamia nuts during 2008 and 2009.  The Hamakua nut purchase contract was terminated in connection with the settlement of litigation brought by the Partnership against Hamakua which resulted in the Partnership receiving a settlement payment of $324,000 during the first quarter of 2009.  This nut purchase agreement was terminated on June 10, 2009.

On January 5, 2006, the Partnership executed a nut purchase contract with Island Princess for the annual delivery of approximately 2.0 million field pounds, effective January 1, 2007 and expiring on December 31, 2011.  The nut price was determined every six months by mutual agreement based on the prevailing market price for kernel from Hawaii and Australia.  The effective price for January – June 2007 was $0.608 and July – December 2007 was $0.494 per WIS SK/DIS pound.  The effective price for January – June 2008 was $0.494 and July – December 2008 was $0.55, per WIS SK/DIS pound.  This nut purchase agreement was terminated October 31, 2008 by mutual agreement.

On January 6, 2006, the Partnership executed a nut purchase contract with MacFarms for the annual delivery of 5.0 to 6.0 million field pounds per annum, effective January 1, 2007 and expiring on December 31, 2011.  The nut price was determined every six months by mutual agreement based on the prevailing market price for kernel from Hawaii and Australia.  The effective price for January – June 2007 was $0.608 and July – December 2007 was $0.494, per WIS SK/DIS pound.  The effective price for January – June 2008 was $0.494 and July – December 2008 was $0.55, per WIS SK/DIS pound.  The effective price for January – June 2009 was $0.615 and July – December 2009 was $0.63 per WIS SK/DIS pound. In connection with the orchard purchased from J.W.A. Buyers in April 2006, the Partnership agreed to sell approximately 100,000 field pounds harvested from this orchard to MacFarms for $0.98 per WIS SK/DIS pound through January 6, 2007.  The Partnership terminated this nut purchase contract on December 22, 2009 due to the failure of MacFarms to perform its obligations under the Agreement.

Competition.  In addition to the State of Hawaii, mature macadamia nut orchards are located in Australia, Africa, and Central/South America.  For the 2009 crop, Hawaii supplied 19% of the world crop, and Australia, the world’s largest producer, supplied 37%.  The Partnership supplies about 30% of the Hawaii crop from orchards it owns or leases and the orchards it farms for others supply about 15% of the Hawaii crop to processors on Hawaii.    All of the Partnership’s production has historically only been sold to Hawaii processors as shipping the crop to processors outside of Hawaii has not been required nor cost effective.  The processors have the ability to purchase nuts from other local farmers and kernel from local and foreign processors to satisfy their requirements.  Nuts that are not purchased by the local processors would need to be processed into kernel for future sale or sold to a foreign buyer.  This was the case in 2007 and 2008 when the Partnership was not able to sell all of its production and had unsold nuts held in inventory and nuts it had processed into kernel, which the Partnership eventually sold or inventoried for future sale.

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Macadamia Farming Segment

The Partnership farms 4,190 tree acres of macadamia orchards, which it owns or leases, as well as macadamia orchards owned by other growers (approximately 1,980 acres during 2009, and 2,008 acres in 2008 and 2007) under farming contracts.

All orchards are located in three separate regions on the island of Hawaii (“Keaau”, “Ka’u” and “Mauna Kea”).  Because each region has different terrain and weather conditions, farming methods vary somewhat among the three locations.

Farming Contracts.  The Partnership currently provides services under approximately fifteen farming contracts.  Services under these contracts include cultivation, weed and pest control, fertilization, pruning and hedging, replanting, harvesting, and husking.  The farming contracts provide for the Partnership to be reimbursed for all direct farming costs, collect a pro-rata share of indirect costs and overheads, and charge a fee for these services, either as a fixed fee per acre farmed, or as a percent of reimbursed costs, ranging from 5% to 20%.  Approximately 115 acres are farmed under year-to-year contracts, contracts for approximately 70 acres expire June 30, 2013, contracts for approximately 635 acres expire June 30, 2016, contracts for approximately 410 acres expire July 31, 2029, contracts for approximately 280 acres expire June 30, 2033, and contracts for approximately 470 acres expire September 30, 2080.  Each owner is responsible for the sale of the nuts from their orchards and the Partnership will arrange for the nuts to be delivered to the purchaser of the nuts at the owner’s cost.

Orchard Maintenance.  Maintenance of an orchard is essential to macadamia nut farming.  Pruning and hedging of trees is necessary to allow space for mechanical harvesting and cultivating equipment to operate safely and efficiently and to remove dead branches.  Where mechanical equipment is used, the orchard floor must be maintained in a condition that will permit its operation.  Soil and gravel are used to repair mud holes and other surface irregularities caused by soil erosion from heavy rain and by farming equipment.  Pruning and surface maintenance are usually performed between harvest seasons.

Orchard management also requires the proper selection and application of fertilizers, pesticides (to control rodents, insects and fungi) and herbicides (to control weeds).  Insects, rodents and fungi, as well as wild pigs, if not controlled, can cause losses to nut production.

Harvesting.  The harvest period begins in the late summer and runs through the following spring.  Mature nuts fall from the trees and are harvested using mechanized harvesting equipment when the orchard floor is level enough to permit its use.  Nuts are harvested by hand when the orchard floor is too uneven to permit mechanical harvesting, when the nut drop is very light and when nuts remain on the ground after mechanical harvesting.  At Keaau, Ka’u and Mauna Kea, seasonal labor for hand harvesting and other operations is generally available from nearby Hilo, adjacent communities and foreign labor sources.

Mechanical harvesting is less costly than hand harvesting, however, mechanical harvesting is possible only where the orchard floor is relatively flat.  Approximately 70% of the orchards in Ka’u, 59% in Keaau and 94% in Mauna Kea are mechanically harvested.  The remaining acres are too uneven for mechanical harvesting and must be harvested by hand.

During the harvest season, the nuts are collected every six to ten weeks depending upon conditions.  Nut quality deteriorates if they remain on the ground too long.  The harvested nuts are then transported to husking facilities, which are located in Ka’u and Keaau.  The Keaau husking facility is owned and operated by Mauna Loa and the Ka’u husking facility is owned and operated by the Partnership.  Nuts harvested in the Mauna Kea region are transported to the husking facility in Keaau.  At the husking facility, the outer husk is removed and the nuts, still in their shell, are weighed and sampled to determine moisture content.  Kernel quality is determined from samples taken.  The final adjustments under the nut purchase contracts are made to determine the appropriate payment for the nuts.  Title to the nuts passes to the buyer after delivery to the buyer’s processing plant.  Further processing of the nuts is done by the buyers at this time.

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Stabilization Payments

In December 1986, the Partnership leased a 266-acre orchard that was several years younger than other orchards of the Partnership.  Because of the relative immaturity of the newer orchard, its productivity (and therefore its cash flow) was expected to be correspondingly lower for the first several years than for the other older orchards.

Accordingly, the lessor of this orchard Ka’u Agribusiness Company, Inc. (“KACI”), agreed to make cash stabilization payments to the Partnership for each year through 1993 in which the cash flow (as defined) from this orchard fell short of the target cash flow level, which approximated $507,000.  Stabilization payments for any given year were limited to the lesser of the amount of the shortfall or a maximum payment amount.  For the years from 1987 through 1993, inclusive, the Partnership received a total of $1,628,000 (including a 4% Hawaii general excise tax) in stabilization payments under this agreement.

The Partnership accounted for stabilization payments (net of the 4% Hawaii general excise tax) as a reduction in the cost basis of the orchards acquired.  As such, these payments are being reflected in the Partnership’s net income ratably through 2019 as a reduction to the depreciation expense reported for this orchard.

In return, the Partnership is obligated to pay the lessor (the Olson Trust which purchased KACI’s interest) 100% of any year’s cash flow from this orchard in excess of the target cash flow as additional percentage rent until the aggregate amount of the additional percentage rent paid equals 150% of the total amount of stabilization payments previously received. Thereafter, the Partnership is obligated to pay the seller 50% of this orchard’s cash flow in excess of the target cash flow as additional incentive rent.  No additional rent was due in 2009, 2008 or 2007.

Loan Agreement.

On June 30, 2009, the Partnership and the General Partner entered into a Third Amended and Restated Credit Agreement with American Ag Credit, PCA. This agreement superseded the Second Amended and Restated Credit Agreement dated July 8, 2008, as amended and restated.  The agreement provides for a revolving line of credit in the maximum amount of $5.0 million which expires on June 29, 2010.  There was no balance on the revolving line of credit as of December 31, 2009 and the Partnership had $5.0 million available to draw.  Advances under the revolving credit facility bear interest at the base rate unless the Partnership elects to convert the rate to a fixed rate in accordance with the provisions above.  At December 31, 2009, interest on revolving advances was 4.25% per annum.  The agreement also provides for a 10-year, $4.0 million term loan which matures on May 1, 2010.  The $400,000 balance of the term loan as of December 31, 2009 was paid off on January 15, 2010.  When paid off $230,000 of the term loan bore interest at a fixed rate of 6.87% per annum and $170,000 of the term loan bore interest at 3.0%, equal to LIBOR plus 2.75%.

Also on June 30, 2009, the Partnership executed a $600,000 four year term loan with American AgCredit, PCA maturing on June 29, 2013 requiring equal monthly payments with a fixed interest rate of 7.5% per annum.  As of December 31, 2009, the balance on this term loan was $525,000.  On January 15, 2010, the Partnership paid off this term loan.

The loans are secured by all personal property assets of the Partnership and all of the real property owned by the Partnership.  Subject to certain exceptions, the loan agreement restricts the Partnership’s ability to change its capital structure, to make certain investments, loans or advances, to incur indebtedness, create liens, sell assets, or take certain other actions.  The Partnership is also prohibited from making any

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payments or other distributions in respect of any Partnership interest in the Partnership or to acquire a Partnership interest or to make any payments or contributions to any partner except for reasonably equivalent value.  The Partnership is required to maintain its tangible net worth as of the last day of each fiscal quarter, commencing June 30, 2009 at $41,068,000, which shall be increased dollar for dollar by the amount of positive consolidated net income achieved by the Partnership commencing January 1, 2009 and thereafter.  The Partnership is required to have consolidated EBITDA of not less than $1.5 million at the end of each quarter on a rolling four quarter period commencing as of September 30, 2009.  The Partnership may not terminate the Addendum to the Purchase Contract with Mauna Loa prior to June 30, 2010, without the prior written consent of the Lender.  As of December 31, 2009, the Partnership was in compliance with this loan agreement.

On March 11, 2010, the Partnership executed a commitment letter with American AgCredit, PCA (“Lender”) agreeing to an extension and amendment of the Revolving Line of Credit Facility (“Line-of-Credit”).  The extension of the LOC will be effect June 29, 2010 for a two-year period in the amount of $3.5 million.  The commitment by Lender may be withdrawn if (i) a condition described in the commitment letter cannot be satisfied, (ii) the Partnership failed to perform any material obligations under the commitment letter, (iii) there is filed against the Partnership or any member thereof, a petition in bankruptcy or insolvency or for reorganization or the appointment of a receiver, trustee or liquidator, (iv) a change that has occurred that has a Material Adverse Effect on the financial condition of the Partnership, or (v) the macadamia orchards owned by the Partnership have suffered any material damage or destruction and the same is not restored to the satisfaction of Lender prior to Closing Date, and that lender has terminated its commitment hereunder by reason thereof.  The Partnership is required to provide year end and interim financial information, pro-forma financial information, all public filings and disclosures evidence of receipt of all necessary government approvals, required certifications and such legal opinions as may be reasonably required by Lender.  The Partnership will be required to maintain a four quarter EBITDA of not less that $1.5 million for the four quarters ended June 30, 2010 and thereafter, and to maintain a minimum tangible net worth amount of $41.0 million that shall be increased dollar for dollar by the amount of positive consolidated net income achieved by the Partnership, beginning January 1, 2009 and thereafter.  The Partnership believes that it will be able to satisfy all of the conditions set forth by Lender.  For further information, see Note 7 to the Consolidated Financial Statements of the Partnership.

Employees.  As of December 31, 2009, the Partnership employed 249 people, of which 170 were seasonal employees.  Of the total, 21 are in farming supervision and management, 214 in production, maintenance and agricultural operations, and 14 in accounting and administration.

With the May 2000 acquisition, the Partnership agreed to the assumption of two bargaining agreements with the ILWU Local 142.  These agreements cover all production, maintenance and agricultural employees of the Ka’u Orchard Division, the Keaau Orchard Division and the Mauna Kea Orchard Division.  These labor contracts became effective May 1, 1997 and expired on April 30, 2002, but were extended until April 30, 2005.  The parties agreed to a three-year contract, which expired on April 30, 2008 and was extended for a 60-day period.  On June 30, 2008 the parties agreed to a one-year contract and on May 27, 2009 the parties agreed to a two-year contract which is effective May 27, 2009 through May 31, 2011. Although, the Partnership believes that relations with its employees and the ILWU are generally very good, there is no assurance that the Partnership will be able to extend this agreement on terms satisfactory to it when the current agreement expires.

Item 1A.  Risk Factors

Before deciding to purchase, hold or sell our units, you should carefully consider the risks described below in addition to the other cautionary statements and risks described elsewhere, and the other information contained, in this Annual Report on Form 10-K.  The risks and uncertainties described below are not the only ones we face.  Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business.  If any of these known or unknown risks or uncertainties actually occurs with material adverse effects on the Partnership, our business, financial condition and results of operations could be seriously harmed.

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As discussed below, macadamia nut trees are subject to damage or destruction from diseases, pests, floods, droughts, windstorms, hurricanes, volcanic activity and other natural causes. Partnership tree replacements for all orchards from all causes were 0.4% in 2009, 0.1% in 2008, and 0.4% in 2007. Both crop and tree insurance are in place to help protect the Partnership against significant and catastrophic losses.

Diseases and Pests.  Macadamia trees are susceptible to various diseases and pests which can affect the health of the trees and resultant nut production.  There are several types of fungal diseases, which can affect flower and nut development.  One of these is Phytophthora capsici, which affects the macadamia flowers and developing nuts, and another, Botrytis cinerea, causes senescence of the macadamia blossom before pollination is completed.  These types of fungal disease are generally controllable with fungicides.  Historically, these fungi have infested the reproductive plant parts at orchards located in Keaau and Mauna Kea during periods of persistent inclement weather.

Tree losses may occur due to a problem known as “Macadamia Quick Decline” (“MQD”).  Research at the University of Hawaii indicates that this affliction is due to Phytophthora capsici which is associated with high moisture and poor drainage conditions.  Both the Keaau and Mauna Kea Orchards are areas with high moisture conditions, and may be more susceptible to the MQD problem.  Afflicted trees in these regions are replaced with cultivars that are intolerant to MQD.  The Partnership’s Keaau orchards experienced tree replacement of 0.9% in 2009, 0.2% in 2008 and 1.1% in 2007.

Macadamia trees and production may also be affected by insects and other pests.  The Southern Green Stink Bug disfigures the mature kernel and contributes to a historical loss of nuts of 1.2%.  Two natural enemies, a wasp and a fly, effectively keep nut losses at acceptable levels.  An insect known as the Koa Seed Worm (“KSW”) causes fully sized nuts to fall that have not completed kernel development.  The affect of the KSW contribute to an average loss of nuts of 4.0%.  The Tropical Nut Borer Beetle (“TNB”) bores through the mature macadamia shell and feeds on the kernel.  Nut damage caused by the TNB resulted in about 0.2% loss in 2009.  Damages caused by each insect may fluctuate when unfavorable environmental conditions affect the natural enemy population.

Natural enemies are relied upon to manage insects that contribute to nut loss.  Without these natural enemies, greater losses are possible.  Pesticides may be available to manage these economic insect pests when treatment costs and nut loss justify its use, and when its use does not disrupt the natural enemy population.

Honey bees are placed in the orchards to supplement other insect pollinators during the flower season.  In late 2008, the Hawaii Department of Agriculture identified the Varroa mite on feral honey bees near the port of Hilo, Hawaii.  This mite is an ectoparasite that attaches to the body of honey bees and weakens it which can result in destroying bee hives and colonies.  The apiaries that place hives in the macadamia nut orchards must manage this pest with miticide to maintain healthy bee colonies and avoid the development of pest resistance to the miticide.

Rainstorms and Floods.  The Partnership’s orchards are located in areas on the island of Hawaii that are susceptible to heavy rainstorms.  In November 2000, the Ka’u region was affected by flooding.  This flooding resulted in some nut loss and expected 2000 harvesting being deferred to 2001.  Since the flood in 2000 heavy rain in the Ka’u region has not produced flooding of any consequence.

Windstorms.  Some of the Partnership’s orchards are located in areas on the island of Hawaii that are susceptible to windstorms.  Twenty-five major windstorms have occurred on the island of Hawaii since 1961, and four of those caused material losses to Partnership orchards.  Most of the Partnership’s orchards are surrounded by windbreak trees, which provide limited protection.  Younger trees that have not developed extensive root systems are particularly vulnerable to windstorms.

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Insurance.  The Partnership obtains tree insurance each year under a federally subsidized program.  The tree insurance for 2010 provides coverage up to a maximum of approximately $12.3 million against catastrophic loss of trees due to wind, fire or volcanic activity.  Crop insurance was purchased for the 2009-2010 crop year and provides coverage up to a maximum of approximately $9.3 million against loss of nuts due to wind, fire, volcanic activity, earthquake, adverse weather, wildlife damage and failure of irrigation water supplies.

Volcanoes.  The Partnership’s orchards are located on the island of Hawaii, where there are two active volcanoes.  To date, no lava flows from either volcano have affected or threatened the orchards.

Rainfall.  The productivity of orchards depends in large part on moisture conditions.  Inadequate rainfall can reduce nut yields significantly, while excessive rain without adequate drainage can foster disease and hamper harvesting operations.  While rainfall at the orchards located in the Keaau and Mauna Kea areas has generally been adequate, the orchards located in the Ka’u area generally receive less rainfall and, as a result, a portion of the Ka’u orchards is presently irrigated.  Irrigation can mitigate the effects of a drought, but it cannot completely protect a macadamia nut crop from the effect of a drought.  Recorded rainfall at each of the three locations of the Partnership’s orchards for the past five years is shown below:

During 2009, the Ka’u, Keaau and Mauna Kea areas recorded 100%, 110% and 120%, respectively, of the normal average annual rainfall in their area of the island.

Water Supply for Irrigation.  With the May 2000 acquisition of the farming business, the Partnership acquired an irrigation well (the “Sisal Well”), which supplies water to the Partnership’s orchards in Ka’u which were purchased in June 1986 and 1989.  The Sisal Well is situated on land owned by Mauna Kea Agribusiness Company, Inc. (“MKACI”).  On May 1, 2000, the Partnership entered into a license agreement with MKACI, which allows the Partnership necessary access to maintain and operate the Sisal Well, as well as the use of roads to access, maintain and operate the Partnership’s macadamia orchards.  Annual rent for the license agreement is One Dollar.  The license agreement terminates on the earlier of the termination of the May 1, 2000 lease between Partnership and KACI, or June 30, 2045.

Prior to the May 2000 acquisition, the Partnership and KACI were parties to a water agreement to which KACI agreed to supply water to those portions of the June 1986 Orchards and October 1986 Orchards located at Ka’u and which had been irrigated historically.

If the amount of water provided by the Sisal Well becomes insufficient to irrigate the above named orchards, the Partnership may consider increasing the capacity of the Sisal Well, drilling an alternative well into the historical source which provides water to the Sisal Well or obtaining water from other sources.

On a historical basis, the quantity of water available from the Sisal Well has been generally sufficient to irrigate these orchards in accordance with prudent farming practices.  The irrigated portion of the Ka’u II Orchards is expected to need greater quantities of water as the orchards mature.  The Partnership anticipates that the amount of water available from the Sisal well will be generally sufficient, assuming average levels of rainfall, to irrigate the irrigated orchards in accordance with prudent farming practices for the next several years.  If no irrigation water is available to the Irrigated Orchards, then, based on historical average rainfall levels, diminished yields of macadamia nut production can be expected.

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Employees.  Our farming operations require a large number of workers, many on a seasonal basis.  The labor market on the island of Hawaii is very competitive and most of our employees are unionized under contracts which expire in May 2011.  In previous years, we have obtained the services of foreign workers, which we have not continued.  In the event that we are not able to obtain and retain both permanent and seasonal workers to conduct our farming operations, or in the event that we are not able to maintain satisfactory relationships with our unionized workers, our financial results could be negatively impacted.

Key Personnel.  Certain key personnel are critical to our business.  Our future operating results depend substantially upon the continued service of our key personnel.  Our future operating results also depend in significant part upon our ability to attract and retain qualified management, technical and support personnel.  We cannot ensure success in attracting or retaining qualified personnel.  There may be only a limited number of persons with the requisite skills and relevant industry experience to serve in those positions and it may become increasingly difficult for us to hire personnel over time.  Our business, financial condition and results of operations could be materially adversely affected by the loss of any of our key employees, by the failure of any key employee to perform in his or her current position, or by our inability to attract and retain skilled employees.

Environmental.  Various federal, state, and local environmental laws, ordinances and regulations regulate our properties and our farming operations and could make us liable for costs of removing or cleaning up hazardous or toxic substances on, under, or in property that we currently own, lease or that we previously owned or leased or upon which we currently or previously conducted farming operations.  These laws could impose liabilities without regard to whether we knew of, or were responsible for, the presence of hazardous or toxic substances.  The presence of hazardous or toxic substances, or the failure to properly clean up such substances when present, could jeopardize our ability to use or sell certain real property, use it as collateral or result in fines or clean up costs.  Future environmental laws could impact our farming operations or increase our cost of goods.

Market and customers.  A decline in worldwide macadamia nut prices may adversely affect the price the Partnership may be able to obtain under future nut purchase contracts.  There are a limited number of customers available to purchase the Partnership’s nut production.  As of December 22, 2009, the Partnership has one nut purchase contract calling for the purchase of all of its production, approximately 19 to 21 million wet-in-shell pounds during calendar years 2010 and 2011.  If the Partnership’s customer is unable to perform under the contract or if their purchase of product should change from Hawaii-based to foreign sourced kernel, it would have a material adverse impact on our business as there are virtually no replacement customers for the Partnership’s production.  As the Partnership has a sole customer for all of its production, that customer has the ability to negatively impact the financial condition of the Partnership if it did not pay or negotiate an extension or new contract at the termination of the current contract.  From the Partnership’s inception in 1986 through 2006 Mauna Loa was the Partnership’s sole customer.   The nut purchase contract requires the buyer to make nut payments in accordance with Hershey’s standard payment terms.  During certain parts of the year, if payments are not received, as the contract require, available cash resources could be depleted.

Nut Purchase Agreements.  The Partnership had three contracts in 2009.  The terms of the contracts varied from two to six years, contained fixed and market determined prices and 30-day payment terms.  The Partnership relies upon the financial ability of the buyers of the Partnership’s nuts to abide by the payment terms of the nut purchase agreements.  If any or all of the buyers were unable to pay for the macadamia nuts delivered by the Partnership to them it could result in the Partnership’s available cash resources being depleted.  If any or all buyers were late in payment the Partnership would stop the delivery of macadamia nuts to the buyer.  The Partnership would need to negotiate a nut purchase agreement with another buyer which might not be at the same terms or price.  It is also possible that the Partnership might not be able to find a buyer for the nuts.

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In 2008 and 2009 Hamakua refused to accept delivery of macadamia nuts from the Partnership as required by the nut purchase agreement. The Hamakua nut purchase contract was terminated in connection with the settlement of litigation brought by the Partnership against Hamakua which resulted in the Partnership receiving a settlement payment of $324,000 in the first quarter of 2009.  The nut purchase agreement was terminated on June 10, 2009.

The Partnership terminated its nut purchase contract with MacFarms on December 22, 2009 due to the failure of MacFarms to perform its obligations under the Agreement.

On July 9, 2008, the Partnership and Mauna Loa agreed to an addendum to their nut purchase agreement where Mauna Loa agreed to purchase an additional 9.0 million to 12.0 million field pounds of macadamia nuts during the period July 21, 2008 through June 30, 2009.  The Partnership and Mauna Loa agreed to an addendum to their nut purchase agreement where Mauna Loa agreed to purchase an additional 9.0 to 15.0 million field pounds of macadamia nuts during the period July 1, 2009 through June 30, 2010.  On December 22, 2009 the Partnership and Mauna Loa executed an addendum to the June 1, 2006 nut purchase contract which provides that all of the macadamia nuts harvested by the Partnership, estimated to be between 19 to 21 million wet-in-shell pounds, in 2010 and 2011 will be sold to Mauna Loa.

As of December 31, 2009 the Partnership had only one nut purchase contract under which it will sell it’s entire production for the calendar years 2010 and 2011.  The agreement is a fixed price contract.  Fixed price contracts can be disadvantageous because the Partnership may not be able to pass on unexpected cost increases as they arise but, they provide protection against adverse decline in market prices.

The Partnership’s ability to renew its credit agreements is highly dependent upon the existence of its nut purchase agreements with Mauna Loa.  Accordingly, the cancellation of the nut purchase agreement with Mauna Loa in the future would significantly affect the Partnership’s ability to secure the necessary funds to finance its current working capital needs.

Loan Agreement Restrictions.  The Partnership relies on external loan financing, currently being provided by a Credit Agreement with American Ag Credit Capital Markets through a revolving line of credit and a term note.  This loan contains various terms and conditions, including financial ratios, covenants and is secured by all of the real personal property of the Partnership and fee property assets.  The term loan was scheduled to mature in May 2010; however, the Partnership paid off the loan on January 15, 2010.  The revolving line of credit matures on June 29, 2010.  This Credit Agreement prohibits distributions to partners without prior consent of the lender.  On multiple occasions during the last several years, the Partnership has failed to comply with various covenants or financial ratios under its loan agreements, but has been able to obtain waivers or modifications of the agreement to avoid a default.  If the Partnership is unable to meet the terms and conditions of its lending arrangements or is unable to obtain waivers or modifications of such lending arrangements, it could be in default of its loan agreements and in which event the lenders would be able to accelerate the obligations and realize on the collateral securing the indebtedness.  There is no assurance that the Partnership will be able to comply with or obtain waivers of covenants and conditions in the future.  Furthermore, Partners will not receive distributions while they are prohibited by the Partnership’s borrowing arrangements unless approved by the lender.

Significant influence over our affairs may be exercised by principal Class “A” unit holders.  As of March 11, 2010, the significant Class “A” unit holders are Fred and Mary Wilkie Ebrahimi (approximately 38.5% beneficial ownership).  Effective October 1, 2009 Bradford C. Nelson was elected as a director of the Partnership.  Mr. Nelson has been Chief Financial Officer of Seemorgh Investments, Inc., a company owned by Mr. Fred Ebrahimi, since January 2007 and has served as an officer and director of a group of companies in the United States of American, Europe and Asia owned by the Ebrahimi family since 2002.

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Holders of Class “A” units of the Partnership have limited voting rights.  Our unit holders have limited voting rights on matter affecting the Partnership’s business, which may have a negative effect on the price at which the Partnership’s units trade.  In particular, the unit holders did not elect the directors of the general partner.  Furthermore, if unit holders are not satisfied with the performance of the directors they may find it difficult to remove any or all of the directors as the Partnership Agreement requires a vote of at least 66 2/3% of the outstanding units to remove the General Partner.

Tax risks to Class “A” unit holders.  The anticipated after-tax benefit of an investment in the Partnership’s units depends largely on the treatment of the Partnership as a partnership for federal income tax purposes, as well as the Partnership not being subject to a material amount of entity-level taxation by individual states.  If the Partnership were to be treated as a corporation for federal income tax purposes or become subject to additional amounts of entity-level taxation for state tax purposes, then the Partnership’s cash available for distribution to unit holders could materially decline.

The tax liability of unit holders could exceed their distributions or proceeds from sales of Class “A” units.  Because the unit holders will generally be treated as partners to whom the Partnership will allocate taxable income, which can differ in amount than the cash distributed, the unit holders will be required to pay any federal income tax and, in some cases, state and local income taxes on their allocable share of the Partnership’s income.

Tax gain or loss on the disposition of the Partnership’s Class “A” units could be more or less than expected.  If a unit holder disposes of his units, the unit holder will recognize a gain or loss equal to the difference between the amount realized and the unit holder’s tax basis.  Because distributions in excess of a unit holder’s allocable share of the Partnership’s net taxable income decrease the unit holder’s tax basis in the unit holder’s units, the amount, if any, of such prior excess distributions with respect to the units sold will, in effect, become taxable income, if the units sold are at a price greater than the unit holder’s tax basis, even if the price received is less than the unit holder’s original cost.

As a result of investing in the Partnership’s Class “A” units, a unit holder may become subject to state and local taxes and return filing requirements in the states where the Partnership owns property and conducts business.

Ownership of the Partnership’s Class “A” units raises issues for tax-exempt entities and other investors.

Item 1B.  Unresolved staff comments.  None

Available Information.  The Partnership files annual, quarterly and current reports and other information with the Commission.  These filings are available free of charge through the Partnership’s Internet website at www.mlmacadamia.com as soon as reasonably practicable after the Partnership electronically files such material with, or furnishes it to, the Commission.  The Partnership’s corporate governance guidelines, board committee charters and code of conduct are also available on the website, free of charge.  Any unit holder, who so requests may obtain a printed copy of these documents from the Partnership, by contacting the Partnership at 808-969-8057, or in writing at 26-238 Hawaii Belt Road, Hilo, Hawaii 96720.

ITEM 2.  PROPERTIES

Location.  The Partnership owns or leases approximately 4,190 tree acres of macadamia orchards on the island of Hawaii.  The orchards are located in three areas: Ka’u, Keaau and Mauna Kea.  The Ka’u area is located in the south part of the island about fifty miles from Hilo.  The Keaau area is located six miles south of Hilo on the east side of the island, and the Mauna Kea area is located three miles north of Hilo on the east side of the island.

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The majority of macadamia nut trees grown in the State of Hawaii are grown on the island of Hawaii in volcanic soil that permits drainage during heavy rainfall.  While the orchards are located approximately within a 50-mile radius, the climate and other conditions that affect the growing of macadamia nuts are different.  These differences are the result of prevailing wind patterns and island topography, which produce a variety of microclimates throughout the island.

Age and Density.  The productivity of macadamia nut orchards depends on several factors including, among others, the age of the trees, the number of trees planted per acre, soil condition, climate, rainfall and/or irrigation.  Assuming adequate moisture, the most significant characteristic affecting yields is maturity.  The trees in a macadamia nut orchard generally begin to produce nuts at a commercially acceptable level at around nine years of age.  Thereafter, nut yields increase gradually until the trees reach maturity at approximately 15 years of age, after which the nut yield remains relatively constant except for variances produced by rainfall, cultivation practices, pest infestation and disease.

Macadamia orchards normally reach peak production after fifteen to eighteen years of age.  All of the 4,190 tree acres of macadamia orchards owned or leased by the Partnership are over twenty years of age.  Up to 2% of trees are lost to various causes each year and are replaced as determined by management.

Rainfall.  Macadamia trees grow best in climates with substantial and evenly distributed rainfall (or equivalent irrigation) and in soil that provides good drainage.  Inadequate rainfall can significantly reduce nut yields, while excessive rain without adequate drainage can impede healthy tree growth, promote the growth of harmful fungal diseases and produce mud holes that require repair of the orchard floor.

At Keaau, normal rainfall is adequate without irrigation, and the volcanic soil provides good drainage.  However, short droughts and occasional flooding have occurred.  At Mauna Kea, normal rainfall is adequate without irrigation and the volcanic soil provides adequate drainage.  In the event of a very long drought, production at Keaau and Mauna Kea might be affected.  At Ka’u, located on the drier side of the island, the rainfall averages are substantially less than at Keaau, particularly at the lower elevations.  Approximately 652 acres at the lower elevations of Ka’u are irrigated to provide for additional water when required.  Under extremely dry conditions at Ka’u, such as a prolonged drought, irrigation is not sufficient, and production will be adversely affected.

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Orchards.  The following table lists each of the orchards, the year acquired, tree acres, tenure, and lease rents:

(1)   Lease of land only; trees may be removed at termination of lease.

(2)   Lease of land only; lessor may purchase trees from lessee at any time after June 30, 2019 for fair market value.  The minimum lease payments will be adjusted to a fair market lease rate in 2019 and 2029.  At the end of the lease term, the lessor will be required to repurchase the trees at fair market value if they do not offer to extend the leases at the then current fair market lease rate.  If the Partnership does not accept the offer to extend the lease, the lease will expire and the lessor will not be required to repurchase the trees which will then revert to them.  In all circumstances, the ownership of trees will revert to the lessor after 99 years.

(3)   Lease of land; trees revert to lessor upon termination of lease.

(4)   Additional rental payment if USDA farm price for nuts is greater than $0.50 per pound ($521 for each $0.01)

(5)   Additional rental payment if USDA farm price for nuts is greater than $0.20 per pound ($291 for each $0.01)

(6)   Additional rental payment if USDA farm price for nuts is greater than $0.65 per pound ($376 for each $0.01)

(7)   Additional rental payment if USDA farm price for nuts is greater than $0.70 per pound ($30 to $265 for each $0.01)

(8)   Additional rental payment if USDA farm price for nuts is greater than $0.72 per pound ($265 for each $0.01)

In addition to the minimum annual lease payment amount, all the leases require the Partnership to pay various expenses with respect to the leased premises as well as an additional rental payment based on the USDA farm price per pound of macadamia nuts sold in Hawaii.

With respect to the Ka’u Green Shoe I Orchard, the lease requires the Partnership to pay the Olson Trust, the seller and lessor, additional rent equal to 100% of any year’s cash flow generated by such orchard in excess of a target level of $507,000 until the aggregate amount paid equals 150% of the aggregate amount of the stabilization payments previously received by the Partnership.  Thereafter, the Partnership is required, with respect to any year prior to the expiration of the lease, to pay as additional rent, 50% of the cash flow generated by such orchard for such year in excess of a target level of $507,000 of cash flow.  For additional information, see “Stabilization Payments” on page 6.

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ITEM 3.  LEGAL PROCEEDINGS AND SETTLEMENT

Certain claims have been filed against the Partnership arising out of our business actions.  In the opinion of management such claims would not have a material adverse effect upon our results of operations or financial position.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders.

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PART II

ITEM 5.  MARKET FOR REGISTRANT’S CLASS A UNITS AND RELATED UNITHOLDER MATTERS

The Partnership’s Class A Depositary Units are listed for trading on the OTC (symbol = NNUT).  There were 3,616 registered holders of Class A Depositary Units on December 31, 2009.

Distributions declared and high and low sales prices of the Class A Depositary Units, based on New York Stock Exchange (“NYSE”) daily composite transactions through November 24, 2008, are shown.  Distributions declared and high and low bid prices on the OTC on and after November 25, 2008, are shown in the table below:

The bid quotations on the over-the-counter market reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

Stock Performance Chart

The following chart compares the Partnership’s total return to (i) the Russell 2000 (a small business index) and (ii) a peer group index composed of publicly traded limited partnerships with either similar capitalization or in commodity based markets (other than gas and oil) or both.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among ML Macadamia Orchards, LP., The Russell 2000 Index

And A Peer Group

* $100 invested on 12/31/04 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.

The peer group index is composed of the following issuers Cedar Fair LP, Plum Creek Timber Company, Pope Resources Depositary Receipts of Limited Partner Units, and Terra Nitrogen Company LP.

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Restrictions on Cash Distributions

Cash distributions to partners are prohibited under the Partnership’s Credit Agreement with American AgCredit Capital Markets, unless approved by the lender.

ITEM 6.  SELECTED FINANCIAL DATA

(In thousands, except per pound and per unit data)

(1)          See “Statements of Cash Flows” in the consolidated financial statements for method of calculation.

(2)          See Footnote 5 in the notes to consolidated financial statements for method of calculation.

(3)          7,500,000 Class A Units were authorized, issued and outstanding for all periods presented.

In 2007, the Partnership was unable to sell all of its production which materially affects the comparability of the financial data for 2007 with the other years as set forth in the table above.  Refer to Item 7. Management’s Discussion and Analysis of the Financial Condition and Results of Operations, Owned-Orchard Segment — Nut Revenue ,and Owned-Orchard Segment — Cost of Goods Sold.

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Contractual obligations as of December 31, 2009 for the Partnership are detailed in the following:

Payments Due by Period

This discussion should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this report.

Results of operations — 2009, 2008 and 2007

Owned-Orchard Segment - Production and Yields

Production and yield data for the nine orchards are summarized below (expressed in field pounds):

The Partnership reports on a calendar year basis, though the natural crop year generally begins in August and runs through April.

Production in 2009 was 4.8% lower than 2008 and 3.8% higher than 2007.  Production in 2008 was 8.8% higher than 2007 and 2% higher than 2006. Significant factors affecting the crop were as follows:

1.  Adequate rainfall during the spring and summer of 2006 provided for a return to normal production in the spring of 2007.  Good rainfall distribution between October 2006 and April 2007 had a positive effect on the fall 2007 nut production.

2.  Adequate moisture distributed in the summer and fall of 2007 supported the late nut-sets in June and July of 2007 that lead to a normal spring 2008 production.  Cool night temperatures in the fall of 2007 stimulated early flower and nut-set development that continued through mid-summer 2008.  This event was supported by equally good rainfall distribution, soil moisture and nut production.

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3.  An extended flowering period in the late spring and early summer of 2006 contributed to above average production in the spring of 2007 at Keaau.  Flowers that normally bloom in mid-to-late December did not develop until early February 2007.  This late development had a negative impact on the fall 2007 nut production and affected the production in the spring 2008.  This late flower development and nut-set contributed to above normal production in spring 2008.  Heavy rains from late January to mid-February 2008 affected flower pollination and nut-set.  This combined with a flower season that ended early in April 2008 contributed to lower than expected nut production in the fall of 2008.

4.  Nut delivery limitations by Hamakua, which was under agreement to contract process nut production into roasted kernels for the Partnership, contributed to reduced harvesting activity and lower than expected nut production in the fall of 2007.

5.  The abbreviated flower season in 2008 substantially reduced nut production in spring 2009.  Inclement weather at Keaau in February 2009 to April 2009 contributed to poor pollination and nut-set that resulted in a fall of 2009 production that was 4% less than the fall of 2008 production, and is expected to impact the spring 2010 nut production.

The Ka’u Green Shoe I orchard and the Mauna Kea orchard are fully mature.  As a result, the yields from these orchards are expected to produce on average with the Partnership’s mature orchards.  At full maturity under favorable growing conditions, a macadamia orchard can produce between 4,500 and 7,500 WIS pounds of macadamia nuts per acre each year at Ka’u and between 2,500 and 6,000 WIS pounds of macadamia nuts per acre each year at Keaau and Mauna Kea.

Owned-Orchard Segment - Nut Revenue

Macadamia nut revenues depend on the number of producing acres, yield per acre and the nut purchase price.  The following table presents the comparison of revenues for the years ended December 31, 2009, 2008 and 2007 (in 000’s except per pound information):

Macadamia Nut Sales For the year

Ended December 31, 2009, 2008 and 2007

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The information in the foregoing chart for 2007 is not directly comparable in all circumstances to the information for 2008 and 2009.  To prevent its unsold production from deteriorating, in 2007, the Partnership engaged a processor to process approximately 5,584,000 pounds of nuts so that these nuts could be maintained in inventory by the Partnership for subsequent sale.  In 2008, approximately $2,000,000 of these nuts were sold.  Thus, although the production of field pounds in 2007 was only approximately 9% less than 2008, this event significantly reduced total nut sales in 2007 and increased the total nut sales in 2008.  In previous years, the Partnership sold all of its nuts to processors in the year in which they were produced.  Approximately 453,000 pounds of kernel inventory were sold in 2008 compared to 116,000 pounds in 2007.  In 2009, approximately 72,500 pounds of kernel inventory were sold and approximately 52,000 pounds of kernel inventory were determined to be unsalable and were written off.

Owned-Orchard Segment - Cost of Goods Sold

Agricultural unit costs depend on the operating expenses required to maintain the orchards and to harvest the crop as well as on the quantity of nuts actually harvested.

The Partnership’s unit costs (expressed in dollars per WIS SK/DIS pound) are calculated by dividing all agricultural costs for each orchard (including lease rent, property tax, tree insurance and depreciation) by the number of pounds of macadamia nuts produced by that orchard and are summarized below ($/lb.):

Cost of goods sold was $159,000 lower in 2009 than 2008. Cost of goods sold was $1.4 million higher in 2008 than 2007 and cost of goods sold was $1.6 million lower in 2007 than 2006.  The cost per pound in 2009 was 4.0% higher than 2008. The cost per pound in 2008 was 18.0% lower than 2007, and the cost per pound in 2007 was 10.8% higher than 2006. The lower cost of goods sold in 2009 compared to 2008 is the result of lower production and no nut-in-shell cost of sale in 2009.  The higher cost of goods sold in 2008 as compared to 2007 are primarily the result of the Partnership selling all of the 2008 production compared to 2007 when 5.9 million field pounds were processed into kernel; the increase in production by 1.8 million field pounds and the $104,000 write off of tree inventory in 2008 compared to no tree inventory write off in 2007. The lower cost of goods sold in 2007 was not indicative of the actual production costs as 5.9 million field pounds were processed into kernel that was sold or inventoried by the Partnership as nut-in-shell.  The kernel and nut-in-shell were included as inventory at December 31, 2007.  Additionally, 1.3 million fewer field pounds were produced in 2007 compared to 2006.  The absolute farming costs for 2007 were $294,000 lower (not including the additional cost of processing related to kernel production from WIS nuts) when compared to 2006 which was a result of lower cultivation, harvesting, rent and depreciation offset by higher crop and tree insurance costs.  The lower cost per pound in 2008 is a result of higher production and higher recovery under the terms of the nut purchase agreements.  The lower cost of goods in 2007 is a result fewer sold macadamia nuts compared to 2006.  The higher cost per pound in 2007 is a result of lower production, lower recovery under the terms of the nut purchase contracts and the write down to market of the inventory of kernel and nut-in-shell owned by the Partnership at December 31, 2007.  The inventory write down to the lower of cost or market was $945,000 in 2007.

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Farming Segment - Farming Service Revenue

As a result of the acquisition of the farming operation in 2000, the Partnership acquired approximately twenty farming contracts (now fifteen contracts) to farm macadamia orchards owned by other growers. These contracts cover macadamia orchards in the same three locations on the island of Hawaii where the Partnership owns orchards.  The farming contracts provide for the Partnership to be reimbursed for all direct farming costs (cultivation, irrigation and harvesting), collect a pro-rata share of indirect costs and overheads, and charge a management fee or fixed fee.  The management fee is based on the number of acres farmed or on a percentage of total costs billed.  Revenues from farming services were $4.3 million in 2009, $4.1 million in 2008, and $3.8 million in 2007. The 2009 farming service revenues were $100,000 higher compared to 2008.  The 2008 farming service revenues were $300,000 higher compared to 2007.  The Partnership farms approximately 1,980 acres under farming contracts. Approximately 115 acres are year-to-year contracts, contracts for approximately 70 acres expire June 30, 2013, contracts for approximately 635 acres expire June 30, 2016, contracts for approximately 410 acres expire July 31, 2029, contracts for approximately 280 acres expire June 30, 2033, and contracts for approximately 470 acres expire September 30, 2080.

Farming Segment - Cost of Services Sold

The cost of services sold relating to the farming contracts was $3.8 million in 2009, $3.8 million in 2008, and $3.4 million in 2007.  These costs were all reimbursed to the Partnership under the terms of the farming contracts.

General and Administrative Costs

General and administrative expenses are comprised of pro-rata management costs, accounting and reporting costs, directors’ fees, office expenses, legal expenses and liability insurance.

General and administrative costs for 2009 were $17,000 higher than 2008.  General and administrative costs for 2008 were $653,000 lower than for 2007 which is attributed to lower legal and accounting costs related to the termination of the effort to acquire MacFarms.

Interest Income and Expense

The Partnership recorded interest expense of $98,000 in 2009, $289,000 in 2008, and $179,000 in 2007.  The interest relates to (1) the long-term loan used to acquire the farming operations, (2) capitalized equipment leases, (3) an equipment financing loan, (4) interest expense on a revolving line of credit and (5) insurance financing costs. The decrease in interest expense in 2009 compared with 2008 is attributable to lower outstanding balance on the revolving line of credit in 2009.

The Partnership funds its working capital needs through funds on hand and, when needed, from short-term borrowings, generating interest expense in the process.  Net interest income or expense, therefore, is partly a function of any balance carried over from the prior year, the amount and timing of cash generated and distributions paid to investors in the current year, as well as the current level of interest rates.  Interest was earned in the amount of $5,000 in 2009, $14,000 in 2008, and $49,000 in 2007.

Other Income

Other income of $498,000 was recorded in 2009 and includes $157,000 in crop insurance proceeds, $317,000, net of general excise tax, in proceeds from the settlement with Hamakua Macadamia Nut Company, Inc., $17,000 in distributions from American AgCredit, PCA and $7,000 from the gain on sale of farm equipment. Other income of $896,000 was recorded in 2008 of which $883,000 was from crop insurance and $13,000 from a distribution from American AgCredit. Other income of $13,000 was recorded in 2007 for a distribution from American AgCredit.

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Inflation and Taxes

In general, prices paid to macadamia nut farmers fluctuate independently of inflation.  Macadamia nut prices are influenced strongly by prices for finished macadamia products, which depend on competition and consumer acceptance.  Farming costs, particularly labor and materials, and general and administrative costs do generally reflect inflationary trends.

The Partnership is subject to a gross income tax as a result of its election to continue to be taxed as a partnership rather than to be taxed as a corporation, as allowed by the Taxpayer Relief Act of 1997.  This tax is calculated at 3.5% on partnership gross income (net revenues less cost of goods sold) beginning in 1998.  The gross income tax expense (benefit) was $62,000 in 2009, $49,000 in 2008 and ($43,000) in 2007.

Liquidity and Capital Resources

The Partnership recorded net income of $195,000 and had cash flows from operations of $2.6 million during 2009 and had working capital of $2.6 million at December 31, 2009.  Net cash provided by operations was $2.6 million in 2009 compared to net cash provided by operations of $2.8 million in 2008.  The decrease of $200,000 is the net result of less crop insurance proceeds, less interest paid and the settlement proceeds received from Hamakua Macadamia Nut Company, Inc. in 2009. The Partnership recorded net income of $68,000 and had cash flows from operations of $2.8 million during 2008 and had working capital of $1.1 million at December 31, 2008.  Net cash provided by operations was $2.8 million in 2008 compared to $3.9 million net cash used in 2007.  The significant increase of $6.5 million is a result of more pounds of nuts sold, a higher selling price per pound for the nuts sold, fewer pounds of nuts processed into kernel from WIS nuts, sales of the nut-in-shell inventory and sales of a majority of the kernel inventory.

At December 31, 2009 the Partnership’s working capital was $2.6 million and its current ratio was 2.45 to 1, compared to working capital of $1.1 million and a current ratio of 1.44 to 1 at December 31, 2008 and negative working capital of $199,000 and a current ratio of 0.96 to 1 at December 31, 2007.

In 2009, the increase in working capital compared to 2008 was primarily due to the reduction of short-term borrowing, crop insurance receipt and the settlement received from Hamakua Macadamia Nut Corporation.  In 2008, the increase in working capital compared to 2007 was the result of higher revenue, lower general and administrative costs, and higher other income offset by higher costs of goods sold, higher interest cost and higher income tax.   The Partnership was in compliance with the terms and conditions of the Credit Agreement at December 31, 2007 except for the restricted payment covenant, minimum tangible net worth covenant, and the debt coverage ratio covenant.  On March 14, 2008, the lender provided a waiver and amendment to the loan covenants for the year ended December 2007.  Effective March 14, 2008, the amended agreement reduced the maximum borrowing on the revolving line of credit from $5.0 million to $4.5 million, established a quarterly covenant based upon EBITDA, prohibited declaration and payment of further restricted payments in 2008, established a minimum tangible net worth of $41.0 million effective December 31, 2008 and required the Partnership to provide additional security in the form of a mortgage or deed of trust on real property.  On July 8, 2008, the Partnership executed a Second Amended and Restated Credit Agreement with American AgCredit Capital Markets.  The Second Amended and Restated Credit Agreement increased the maximum borrowing on the revolving line of credit from $4.5 million to $6.0 million, and allowed no payments of distributions to partners through June 30, 2009.  On June 30, 2009, the Partnership executed a Third Amended and Restated Credit Agreement with American AgCredit, PCA which replaced the prior credit agreement and provides the Partnership with a $5.0 million revolving line of credit.  The new Agreement continues the terms and conditions of the Second Amended and Restated Credit Agreement with the exception of changes to the minimum tangible net worth and minimum consolidated EBITDA financial covenants.  The minimum tangible net worth amount is required to be $41,068,000 and shall be increased dollar for dollar by the amounts of positive consolidated net income of the Partnership beginning the first day of fiscal year 2009 and thereafter.  The Partnership is required to have consolidated EBITDA of not less than $1.5 million at the end of each quarter on a rolling four quarter period commencing as of September 30, 2009.

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On March 11, 2010, the Partnership executed a commitment letter with American AgCredit, PCA (“Lender”) agreeing to an extension and amendment of the Revolving Line of Credit Facility (“Line-of-Credit”).  The extension of the LOC will be effect June 29, 2010 for a two-year period in the amount of $3.5 million.  The commitment by Lender may be withdrawn if (i) a condition described in the commitment letter cannot be satisfied, (ii) the Partnership fails to perform any material obligations under the commitment letter, (iii) there is filed against the Partnership or any member thereof, a petition in bankruptcy or insolvency or for reorganization or the appointment of a receiver, trustee or liquidator, (iv) a change that has occurred that has a Material Adverse Effect on the financial condition of the Partnership, or (v) the macadamia orchards owned by the Partnership have suffered any material damage or destruction and the same is not restored to the satisfaction of Lender prior to Closing Date, and that lender has terminated its commitment hereunder by reason thereof.  The Partnership is required to provide year end and interim financial information, pro-forma financial information, all public filings and disclosures evidence of receipt of all necessary government approvals, required certifications and such legal opinions as may be reasonably required by Lender.  The Partnership will be required to maintain a four quarter EBITDA of not less that $1.5 million for the four quarters ended June 30, 2010 and thereafter, and to maintain a minimum tangible net worth amount of $41.0 million that shall be increased dollar for dollar by the amount of positive consolidated net income achieved by the Partnership, beginning January 1, 2009 and thereafter.  The Partnership believes that it will be able to satisfy all of the conditions set forth by Lender.  For further information see “Description of Business” “Loan Agreement”.

Capital expenditures in 2009, 2008 and 2007 were $694,000, $125,000, and $226,000, respectively.  The increase in 2009 was attributed to the acquisition of more farming equipment and vehicles than 2008. The decrease in 2008 was attributed to the acquisition of less farming equipment, vehicles and computers than 2007.  Capital expenditures planned for 2010 are about $350,000 for normal replacement of farming equipment, and are expected to be financed internally.

Macadamia nut farming is seasonal, with production peaking late in the fall.  However, farming operations continue year round. As a result, additional working capital is required for much of the year. The Partnership meets its working capital needs with cash on hand, and when necessary, through short-term borrowings under a $5.0 million revolving line of credit. The line of credit was obtained on May 2, 2000 and expires June 29, 2010.  At December 31, 2009, the Partnership had a cash balance of $1.2 million and no drawings on the line of credit.  At December 31, 2008, the Partnership had a cash balance of $207,000 and line of credit drawings outstanding of $900,000.

As a Limited Partnership, we expect to pay regular cash distributions to the Partnership’s unit holders if the cash flow from operations, as defined in the Management Agreement, exceeds the operating and capital resource needs of the Partnership, as determined by management and the terms of our borrowing agreements permit us to do so.  Cash distributions would be paid from operating cash flow and / or other resources.  In December 2007, the Partnership declared a distribution of $0.03 per Class A unit (a total of $225,000), which was paid February 15, 2008 to the unit holders of record as of December 31, 2007.  No subsequent distributions have been made because of borrowing agreement restrictions.

It is the opinion of management that the Partnership has adequate cash on hand and borrowing capacity available to meet anticipated working capital needs for operations as presently conducted.

Critical Accounting Policies and Estimates

Management has identified the following critical accounting policies that affect the Partnership’s more significant judgments and estimates used in the preparation of the Partnership’s consolidated financial statements.  The preparation of the Partnership’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Partnership’s

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management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities.  On an on-going basis, management evaluates those estimates, including those related to asset impairment, accruals for self-insurance, compensation and related benefits, revenue recognition, allowance for doubtful accounts, contingencies and litigation.  The Partnership states these accounting policies in the notes to the consolidated financial statements and in relevant sections in this discussion and analysis.  These estimates are based on the information that is currently available to the Partnership and on various other assumptions that management believes to be reasonable under the circumstances.  Actual results could materially differ from those estimates.

The Partnership believes that the following critical accounting policies affect significant judgments and estimates used in the preparation of the consolidated financial statements:

The Partnership maintains an accrual for workers’ compensation claims to the extent that the Partnership’s current insurance policies will not cover such claims.  This accrual is included in other accrued liabilities in the accompanying consolidated balance sheets.  Management determines the adequacy of the accrual by periodically evaluating the historical experience and projected trends related to outstanding and potential workers’ compensation claims.  If such information indicates that the accrual is over or understated, the Partnership will adjust the assumptions utilized in the methodologies and reduce or provide for additional accrual as appropriate.

Retirement and Severance Benefits:  The Partnership sponsors a non-contributory defined benefit pension plan for regular union employees and a severance plan for intermittent union employees.  Several statistical and other factors which attempt to anticipate future events are used in calculating the expense and liabilities related to these plans.  These factors include assumptions about the discount rate, expected return on plan assets, withdrawal and mortality rates and the rate of increase in compensation levels.  The actuarial assumptions used by the Partnership may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter mortality of participants.  These differences may impact the amount of retirement and severance benefit expense recorded by the Partnership in future periods.

The Partnership reviews long-lived assets held and used, or held for sale for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.  If an evaluation is required, the estimated undiscounted future cash flows associated with the asset are compared to the asset’s carrying amount to determine if an impairment charge is required.  All long-lived assets for which management has committed to a plan of disposal are reported at the lower of carrying amount or fair value.  Changes in projected cash flows generated by an asset based on new events or circumstances may indicate a change in fair value and require a new evaluation of recoverability of the asset.

The Partnership reviews the inventory held at year end and values it based on the lower of average cost or market.

The Partnership recognizes revenue under all of its fixed price contracts using the best information available to the Partnership at the time it files its quarterly and annual consolidated financial statements.  Additional information can be found in section (c) under the heading Nut Purchase Contracts on page 3.

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ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Partnership is exposed to market risks resulting from changes in interest rates.  The interest rates on the Partnership’s Credit Agreement, which are based on LIBOR (Farm Credit Discount Note Rate and the Farm Credit Medium Term Note Rate), are adjusted periodically based on the Partnership’s election to fix interest rates for periods ranging from between three months and five years.  As of December 31, 2009, a one percent increase or decrease in the applicable rate under the Credit agreement would result in an interest expense fluctuation of approximately $1,000 per annum.  The exposure to the interest rate market risk was eliminated on January 15, 2010 when the Partnership paid off the debt.

From time to time, the Partnership is exposed to market risks resulting from changes in the market price of macadamia kernel if it does not have nut purchase contracts or if those contracts set the purchase price based upon a market rate.  The exposure to the market price risk was eliminated on December 22, 2009 (for the period January 1, 2010 through December 31, 2011) when the Partnership executed an amendment to its Nut Purchase Agreement with Mauna Loa, whereby all the Partnership’s nuts will be sold to Mauna Loa for the calendar years 2010 and 2011 at a fixed price.

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ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS

Index to Consolidated Financial Statements

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners

ML Macadamia Orchards, L.P.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, partners’ capital, and cash flows, present fairly, in all material respects, the financial position of ML Macadamia Orchards, L.P. and its subsidiary (the “Partnership”) at December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.  These consolidated financial statements are the responsibility of the Partnership’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.  We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as, evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

/s/ Accuity LLP

Honolulu, Hawaii

March 16, 2010

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ML Macadamia Orchards, L.P.

Consolidated Balance Sheets

(in thousands)

See accompanying notes to consolidated financial statements.

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ML Macadamia Orchards, L.P.

Consolidated Income Statements

(in thousands, except per unit data)

See accompanying notes to consolidated financial statements.

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ML Macadamia Orchards, L.P.

Consolidated Statements of Partners’ Capital

(in thousands)

See accompanying notes to consolidated financial statements.

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ML Macadamia Orchards, L.P.

Consolidated Statements of Cash Flows

(in thousands)