Dramatic Weather Events Disrupt the Orange Juice Market

Tacy CalliesGlobal Perspectives

By Marcos Fava Neves

Global Perspectives

Marcos Fava Neves

The first 2017–18 U.S. Department of Agriculture forecast for Florida oranges — 54 million boxes — after Hurricane Irma was the lowest number in 70 years. Before the hurricane, we were all expecting that Florida would have more than 80 million boxes of oranges.

This possible shortage of approximately 25 million boxes will dramatically affect not-from-concentrate juice, since most of Florida’s production goes toward this product. It will be difficult for Brazil, which has a good crop, or even for Mexico, which also had hurricane problems, to adjust logistics and infrastructure to cover this shortage.

We will probably see prices going up at U.S. supermarkets, further damaging the consumption of orange juice. Irma has the potential to further destroy the orange juice chain, since it will affect consumption after affecting infrastructure. A smaller crop means less money for research and development, for marketing and for the overall chain, increasing idle capacities and bringing more inefficiency.

Weather events are always critical. Our perceptions were that the supply chain was coming along well in terms of products, with more than 80 million boxes in Florida and a very good crop in Brazil. But then, in a 2-month period (August to September) Irma pummeled Florida, another hurricane struck Mexico and a strong drought with high temperatures hit Brazil. The effects are difficult to know, but I foresee problems in the supply of oranges.

In Brazil, the first orange forecast number (released in May) was 364 million boxes, and the second one rose to 374 million boxes (on September 11). The next forecast will come in December, and we don’t know yet the effects of the drought and warm temperatures. As of this writing (October), Brazil’s orange crop is doing well with industry at full capacity. Less boxes are needed to produce a ton when compared to last year. This is because oranges are bigger, taking approximately 259 fruit to fill a box, compared to 265 fruit last year.

It is difficult to imagine what is coming. Weather events can still play a factor. I was at the Anuga trade fair in Cologne, Germany, in October. At the event, several new and innovative beverage products were launched and orange juice chain members met. The uncertainties were huge in our conversations.

My prediction is for a juice price increase in Europe due to supply issues. At least this means that farmers who have fruit will have reasonable prices, making it possible to reduce their loans and invest more in their crops to raise productivity.

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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