I don't understand why they would abandon the contracts. Contracts are made to insure supply and price for the buyer and lock in a profit (hopefully) for the grower. You sound like they owe the growers a "do over", makes the growers appear to victims and or idiots. Never contract all your production unless you are very comfortable with the terms.
The difficulty with the contracts began during 2010 when walnut prices surged higher by about 25% and remained higher than what the company or the growers considered might happen. So yes the growers are locked into contracts, however, they see that they are missing out on substantial profits seen by growers without a contract. If something is not done to respond to their concerns, they have the option of not remaining as suppliers to Diamond when their contracts do expire. So after considering the way things work in the real world, Diamond has already made one additional payment of 50 million that was not required under the contract. When growers received the payment it was not documented as to which crop year it was applied to, and somehow it led to the turmoil we see now.
When I make estimates about this effect, the shares look significantly undervalued. The worst case scenario that I can imagine, would be for the company to give in completely and move the 50 million into 2011, and then promise the growers that they will make this 50 million extra payment each and every year from now on. I am not saying I expect that to happen, but assuming a worst case just to make the calculation easier. That would increase their operating cost by 50 million, but after completion of the Pringles transaction, the earnings would still be expected to be about 2.1 per share. The current share price in my view is pricing in the worst case outcome to this situation.
I wrote more about this and submitted it to seeking alpha, but they are asking for some revisions. They may have it out later, or else I'll post more about it here.