More Predictable Market Ahead

Tacy CalliesGlobal Perspectives

brazilian

By Marcos Fava Neves

Market
Marcos Fava Neves

With the announcement of the 2019–20 crop in Brazil and Florida’s season over, more information is now available to see where the global orange juice market is headed.

HIGHER FLORIDA INVENTORIES
As of July, Florida had 71.6 million boxes of oranges, 200,000 boxes more than the U.S. Department of Agriculture’s June estimate. Inventories in Florida are high. According to Florida Citrus Mutual, a volume of almost 340 million gallons of frozen concentrated orange juice (FCOJ) is in stocks. This figure is almost 20 percent higher than a year ago and is enough for one year of consumption.

STRONG FORECAST FOR BRAZIL
In Brazil, the 2019–20 orange crop forecast for São Paulo and the west-southwest Minas Gerais Citrus Belt is 389 million boxes. This figure was published on May 10 by Fundecitrus in cooperation with Markestrat, FEA-RP/USP and FCAV/Unesp. The projected figure is 36 percent above the previous one of 286 million boxes and 21 percent larger than Brazil’s average crop size for the last 10 years.

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The grove yield recovery was triggered mainly by a climate that favored bloom and fruit set, which was much different from the last crop. The average yield in the 2019–20 crop season is estimated at 1,051 boxes per hectare and 2.24 boxes per tree, which represents an increase in comparison to the 756 boxes per hectare and 1.63 boxes per tree harvested in the 2018–19 crop. Bearing trees total 174 million, a 0.74 percent decrease compared to the previous inventory.

LOWER INVENTORIES IN BRAZIL
The level of inventories held by Brazilian company members of CitrusBR was 224,518 tons of FCOJ equivalent as of June 30, 2019. This volume is almost 35 percent lower than it was in June 2018, due to a smaller 2018–19 crop and a yield of 270 boxes/ton of FCOJ. The production in Brazil of the 2018–19 crop will finish at around 875 thousand tons. CitrusBR estimates 792,000 tons from its associates and another almost 83,000 from smaller companies. This production was 33 percent smaller than the 2017–18 crop.

It is a relatively small inventory. But with the expected 389 million boxes for the 2019–20 crop, the level might go up (but not too much) in June 2020, since there are no signs of recovery for global juice consumption.

PRICE PREDICTION
After a large crop normally comes a smaller crop. Citrus greening incidence and other diseases may contribute to a possible larger fruit loss. Since 94 percent of the crop is concentrated on the first and second blooms, some operational difficulties due to the concentration of the processing may also happen. My estimate is for equilibrium in prices around $2,000/ton in Europe for the next 12 months.

Due to ample supply, we will see box prices declining for farmers and more difficulties for those without contracts (spot market fruit). This is already happening in Brazil and may happen in Florida during the next season.

OPPORTUNITY IN CHINA
After spending some days in China as a speaker at the International Food and Agribusiness Forum and visiting some companies, I believe there are opportunities in China to expand the consumption of high-quality 100 percent orange juice. More work should be done.

Marcos Fava Neves is a professor of business in Brazil at the University of São Paulo and the Fundação Getulio Vargas São Paulo School of Business Administration.

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