The Price Outlook for Florida Citrus

Thomas H. SpreenProfessor

Food and Resource EconomicsUniversity of Florida

Gainesville

Review of the 2007-08 Season

• After three consecutive crops of less than 150 million boxes, the Florida orange crop was nearly 170 million boxes in 2007-08.

• While 31.5 percent larger than the 2006-07 crop, the 2007-08 crop was still substantially smaller than all of the crops from 1994-95 through 2003-04.

• At the beginning of last season, some price easing was expected, but prices dropped dramatically.

• In this presentation, a review of the past few seasons is presented. Then a price outlook for 2008-09 is provided along with a longer-term production outlook.

• A basic paradigm of economics is that when quantity goes up, price goes down and vice-versa.

• Over the past five seasons, the industry has witnessed first OJ production declining following the hurricanes of 2004 and 2005 followed by record high prices in 2006-07.

• The 2007-08 season is perplexing in that fruit prices dropped so far from those realized in 2006-07 even though the 2007-08 crop was not large.

• What caused the steep price decline and will prices rebound in 2008-09?

U.S Retail Orange Juice Sales

Item

Volume Price

2005-06 2006-07 Change 2005-06 2006-07 Change

-million SSE gallons - -% - --$/SSE gallon -- -% -

Refrigerated 675.7 590.6 -12.6 4.80 5.83 21.5

NFC 372.4 337.9 -9.3 5.44 6.45 18.6

RECON 303.3 252.7 -16.7 4.01 4.99 24.4

FCOJ 62.1 54.8 -11.8 3.46 4.35 25.7

Shelf Stable 6.3 5.5 -12.7 5.64 6.19 9.8

TOTAL 744.2 650.8 -12.6 4.69 5.70 21.5

Season through 06/07/08 2006-07 2007-08 Change 2006-07 2007-08 Change

Refrigerated 424.5 403.1 -5.0 5.73 5.99 4.6

NFC 242.4 231.5 -4.5 6.35 6.67 5.1

RECON 182.1 171.6 -5.8 4.90 5.08 3.5

FCOJ 39.7 35.1 -11.7 4.23 4.65 10.0

Shelf Stable 3.9 3.7 -5.8 6.14 6.47 5.5

TOTAL 468.1 441.8 -5.6 5.61 5.89 5.1

Source: A.C. Nielsen

US Retail Orange Juice Value

3350

3400

3450

3500

3550

3600

3650

3700

3750

2004-05 2005-06 2006-07 2007-08

Mill

ion

$

U.S. Orange Juice Imports

Country

Season to Date (October - May)

Total OJ NFC - OJ

2006 - 07 2007 - 08 Change 2006 - 07 2007 - 08 Change

- mil. SSE gal. - - % - - mil. SSE gal. - - % -

Brazil 164.1 200.1 21.9 8.1 42.6 135.4

CBI 39.5 46.8 18.5 0.2 0.3 50.0

Mexico 64.0 75.1 17.3 2.4 2.0 -16.7

Other 5.2 6.5 25.0 -- -- --

TOTAL 272.9 328.5 20.4 20.8 44.9 115.9

• The increase in imports is due to two reasons.• First the anti-dumping suit filed against

Brazilian imports has come to a resolution.• Second, following the high prices of 2006-07,

demand in Europe has softened.• We also think OJ demand in Europe is being

affected by the influx of new dark color juices which claim cardio-vascular benefits and are being aggressively promoted in the European market.

Florida Orange Juice Availability, Movement and Inventory

Item

Season

(October – September)

Season to Date 06/28/08

(FDOC processor week 39)

2006-07 2007-08 Change 2006-07 2007-08 Change

- Million SSE gal - - % - - Million SSE gal - - % -

Beginning Inventory 446.3 363.1 -18.6 446.3 363.1 -18.6

Pack from Fruit 816.1 1,103.1 35.2 807.1 1,088.7 34.9

Imports 217.3 254.7 17.2 187.9 223.7 19.1

Availability 1,479.8 1,720.9 16.3 1,441.3 1,675.6 16.3

Movement 1,116.7 1,111.5 -0.5 865.0 818.1 -5.4

FCOJ 573.5 549.3 -4.2 445.9 397.4 -10.9

NFC 543.2 562.2 3.5 419.1 420.7 0.4

Ending Inventory 363.1 609.4 67.8 576.3 857.4 48.8

- weeks supply - - % - - weeks supply - - % -

Carryover - STD 16.9 28.5 68.6 26.0 40.9 57.3

Carryover - 13 Weeks 27.4 41.3 50.7

Carryover - 3 Years 25.0 37.2 48.8

• A consequence of first the “low carb” diet phenomenon and then short supplies resulting in much higher consumer prices is that the market for orange juice in the United States is much smaller than it was seven years ago.

• So inventory entering the 2008-09 season is high when compared to movement in 2007-08. It is not high by historical standards.

Total Florida OJ Movement

0

200

400

600

800

1000

1200

1400

1600

1800

1986-87

1987-88

1988-89

1989-90

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07M

illi

on S

SE

Gal

lon

s

Outlook for the 2008-09 Season

• The Steger forecast is 150 million boxes while the Dryfus forecast is 156 million boxes. If we average those two numbers giving 153 million boxes, then the good news is that supply in Sao Paulo plus Florida in 2008-09 will be nearly equal to that fro 2007-08.

• Tropical Storm Fay resulted in some fruit loss.• Delivered-in prices in 2007-08 averaged $1.39

per ps.

• Assuming that we do not see another price increase at retail next season, then a crop of 153 million boxes means that average delivered-in prices in 2008-09 should be about the same of those observed in 2007-08.

• I would expect that the premium for Valencias over early-mids should return so an average price of $1.40 per ps would mean $1.30 per ps for early-mids and $1.50 per ps for Valencias.

• A crop substantially larger than 153 million boxes would bring lower delivered-in prices .

Long-Run Outlook

• Citrus greening (HLB) is still in its early stages.• We hear mixed reports of success regarding

control of the disease.• Sao Paulo is also dealing with citrus greening

and other diseases including CVC.• We don’t see a major expansion in Sao Paulo

given their disease issues and the competition from sugarcane.

Projected Florida Orange Production

0

20

40

60

80

100

120

140

160

180

Mil

lion

Box

es

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

2020-21

2021-22

Projected Sao Paulo Orange Production

0

50

100

150

200

250

300

350

400

Mil

lion

Box

es

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

2020-21

2021-22

Delivered-In Prices

0.00

0.50

1.00

1.50

2.00

2.50

$/ps

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

2020-21

2021-22

Concluding Remarks

• The 2007-08 season saw big price declines at the grower and processor level while retail prices increased.

• With higher production and lower movement, juice inventories are swollen once again.

• Early crop forecasts combined with the effects of Fay suggested that the inventory situation could improve in 2008-09 supporting grower prices.

• Greening does not yet appear to be having a major effect on fruit production in Florida or Sao Paulo.

• We think, however, that the effects of greening will soon be realized with production contracting in both Florida and Sao Paulo.

• Smaller crops mean higher prices, but profitability will be affected by higher costs of production.

Thomas H. Spreen

ProfessorFood and Resource Economics

University of Florida, GainesvillePh: 352-392-1826, ext. 209E-mail: tspreen@ufl.edu