By Marcos Fava Neves
The latest announcement of Brazil’s orange production is 244 million boxes, almost 2 percent smaller than the September estimate (249 million boxes) and 0.6 percent smaller than the May number (246 million boxes). Hot weather in October and November reduced the expected yields. The crop is predicted to be 18 percent less than last season, and the smallest in 25 years.
The blossom was good, but the weather did not help. Lower production made oranges harder to find and took prices to more than $6.50 per box, a historical record. Some prices even reached more than $8.50 per box. Growers who had fruit were happy, and prices helped to pay down some of their debts.
The supply situation in Florida is also critical. According to the U.S. Department of Agriculture, Florida will have only 71 million boxes (13 percent smaller than last year) of oranges with frozen concentrated orange juice yield at 1.44 gallons per box. The risk of a winter freeze damaging the crop makes the situation more delicate.
Looking at the supply side, the problem of Brazil not having enough oranges continues and has worsened since my last column in December.
A quick review of Brazilian juice exports from January to November of 2016 shows a volume 2 percent higher than in the same period of 2015, with approximately 992,000 tons and $1.63 billion in value. Shipping increased the most (about 11 percent) to Japan, China and South Korea. The European market (the largest buyer of Brazilian juice) grew 1 percent, importing almost 651,000 tons. The United States imported from Brazil 4 percent less in 2016.
Brazil has less oranges coming in and is exporting the same amount. As a consequence, stocks are dangerously coming down. Citrus BR (Brazilian Association of Citrus Exporters) expects the volume to be 2,000 tons in July 2017; it was 352,000 tons in July 2016. Brazil may end the season without stocks, making all the storage capacity installed idle.
As a result of this situation, prices in Europe reached a value near $2,700 per ton, which is a record. The highest price was a bit more than $2,432 per ton in December 2006. Even at this price, bottlers and retailers are buying, since there is a fear of scarce products during 2017.
Retail prices of packed juices are difficult to understand. Retailers in Europe are postponing a price increase on their shelves as consumption keeps its track. But at some point, prices will have to increase to slow down consumption in order to match the short supply — or we will have to bet on a much better crop in Brazil for the 2017–18 season that could help to recover the level of stocks. This is the big question to follow for 2017.
Marcos Fava Neves is a professor at the University of São Paulo (Brazil), international adjunct professor at Purdue University (Indiana) and author of “The Future of Food Business” (World Scientific, 2014).