Captain, We Have a Problem: the Juice Stocks!

Kelsey FryEconomics, Global Perspectives

By Marcos Fava Neves 

Global Perspectives

Marcos Fava Neves

The new figures from the U.S. Department of Agriculture released in March showed a small drop in the Florida orange estimate from 70 million to 67 million boxes. In February, the Brazilian orange estimate announced by Fundecitrus stayed the same, at approximately 244 million boxes.

Oranges in Brazil currently contain a lot of water, with almost 290 boxes needed to produce a ton of orange juice. A few years ago, it only took 250 boxes.

These current supply numbers don’t change my last critical analysis of the market. At least the numbers did not drop even more, which could have happened if the weather was not favorable in Florida and Brazil.

CitrusBR (Brazilian juice industry association) announced the level of stocks held by the Brazilian companies, and as predicted, they’ve dropped consistently. On December 31, 2016, they held 497 tons in their facilities (around 32 percent less than the amount held in 2015).

CitrusBR’s prediction for June 30, 2017 is that Brazil will have only 70,000 tons, a number 80 percent smaller than in June 2016. Global demand for exported juice is approximately 90,000 to 100,000 tons per month, so the stocks will be enough for only three weeks. This puts a lot of pressure on the Brazilian 2017–18 crop, which will be announced on May 10.

Companies are starting to buy fruit from the 2017–18 season in Brazil at a price of around R (Brazilian real) $18 per 40.8 kilogram box, which is less than what was received in the 2016–17 season. Another issue bringing negative impact to Brazil is the valuation of the real. The valuation was an average of U.S. $1 (U.S. dollar) = R $3.40 (Brazilian real); it is now approximately U.S. $1 = R $3.10, and more than 90 percent of Brazil’s juice is exported.

On the demand side, we went backward. U.S. consumption data shows an 8 percent decrease compared to the last period. This is sad news for our industry. When considering the strength of the U.S. market, 8 percent is huge.

Prices of frozen concentrated orange juice at the New York Stock Exchange declined from the record of almost U.S. $2.26 per pound in November 2016 to around U.S. $1.70. We must remember that since the level of contracts consistently fell in the last 10 years, there is more price volatility, since a smaller amount of exchange transactions can produce larger variations. Some analysts predict prices from U.S. $1.85 to U.S. $2.00 as average in 2017.

Prices in the physical market in Europe are still high, due to the situation of smaller stocks and to the huge dependence of this business on a very good crop in Brazil. Any issue that the weather may bring to the Brazilian crop at this very delicate moment will produce a lot of stress in the market.

Captain, we have a problem. In June, we will not have fuel anymore, and if consistent fuel doesn’t come from Brazil, we will crash. I’ve never seen this in 20 years!

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).      

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