How Much Can Florida Growers Afford to Spend on Caretaking Processed Orange Groves?

Tacy CalliesEconomics

By Ariel Singerman

The decrease in prices for processed oranges this season presents growers with challenging management decisions. Last October, the Florida Department of Citrus (FDOC) projected an average 201920 price for early and mid-season oranges of $1.62 per pound solids, while for Valencia oranges the forecast was $1.78 per pound solids. Those projected prices represent a 26 percent decline for early and mid-season oranges and a 25 percent decline for Valencias, relative to their average spot prices for 2018–19, which were $2.20 and $2.38 per pound solids, respectively.

In addition, some growers have recently reported that at least some of their crop has not been contracted yet. A key question for growers then becomes: How much they can afford to spend on the caretaking of their groves? Of course, this is assuming they would be able to sell their crop. Otherwise, the answer to the question would be to spend zero dollars (or a minimum amount because spending zero dollars could severely impact future crops; even spending a minimum amount could have a significant impact on future production). To address such a question, I provide a breakeven analysis to determine the cost of production per acre growers can afford for different levels of prices.

oranges

EARLY AND MID-SEASON ORANGES
Table 1 shows the yield needed for breakeven based on different combinations of (delivered-in) prices per pound solids and cost of production per acre for early and mid-season oranges. The cells highlighted in orange denote the estimated average cultural cost of production last season and the FDOC projected price for the 2019–20 season. So, if a grower spends $1,847 per acre for the caretaking of early and mid-season oranges this season and the price is $1.62 per pound solids, the yield needed for breakeven would be 294 boxes per acre. However, as a comparison, last season the statewide average yield for early and mid-season oranges was 202 boxes per acre. Therefore, the (average) grower would need to aim at increasing production by 92 (= 294 – 202) boxes per acre, which is very unlikely to occur in the current era of HLB.

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Alternatively, the grower would need to cut back on cost. Table 1 shows the breakeven cost for 202 boxes per acre would need to be somewhere between $1,200 and $1,300. By making the specific calculations (not shown in the table), that breakeven cost of production would need to be $1,270 per acre, requiring the grower to reduce cost by $577 per acre (or 31 percent) relative to $1,847. Some growers, particularly smaller growers, may have already been spending at a lower level of cost of production. However, they might have also been obtaining a relatively lower yield per acre, so they might also need to adjust their level of caretaking.

oranges

VALENCIAS
Table 2 shows similar calculations for Valencia oranges. The combination of $1,847 as the cost of production and a price of $1.78 per pound solids would require a breakeven yield of 238 boxes per acre. But last season the statewide average yield for Valencias was 203 boxes per acre. The breakeven cost of production for such yield at a price of $1.78 per pound solids is $1,575 per acre. Thus, a grower would need to reduce cost by $272 per acre (or 15 percent) relative to $1,847. The reason for the relatively lower cutback for Valencias is due not only to the higher price but also pound solids this variety attains.

SUMMARY

The purpose of this article is to assist growers in their decision-making process for managing their costs given the expected lower spot prices for this season. Taking the estimated cost of production for last year as a basis, just to break even, an average grower would need to cut back on caretaking expenses by 31 percent and 15 percent for early and mid-season oranges and Valencias, respectively.

These calculations can also be useful for other stakeholders to realize the significant impact that lower pricing can have not only on this season but also on future seasons. After all of the efforts made industrywide to manage HLB in recent years and finally being able to put a stop to the significant decreasing trend in production, it is paradoxical that part of this season’s crop will be priced low (if priced at all).

If the U.S. Department of Agriculture approves the recent bipartisan request to increase its allocation for purchasing orange juice products for the current season, it would provide partial and temporary relief to this situation by allowing the purchase of an estimated additional 3.2 million boxes. However, some processors apparently are still bound by contracts to buy imported juice for the next few seasons, which could then lead to a further downsizing of the industry.

Ariel Singerman is an assistant professor at the University of Florida Institute of Food and Agricultural Sciences Citrus Research and Education Center in Lake Alfred.

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