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| 8-3-09
The Florida citrus industry's long nightmare - a seven-season decline in U.S. orange juice sales - may be over, and not a moment too soon.
Like the "green shoots" of rising economic indicators that have some predicting an end to the nation's worst recession since the 1930s, some citrus people see hopeful signs at the end of a tough 2008-09 season that augur better times ahead.
"Everything I hear is positive for the future," said Kyle Story, executive vice president of his family's citrus business, which owned 1,500 acres and managed another 3,500 in Polk, Highlands, Hardee, and Hillsborough counties during this past season. "I think we're headed in the right direction. In the recent past, we haven't felt that way."
The biggest surprise came at the end of the 2008-09 season. Retail OJ prices have declined since February - from an average $5.69 per gallon to $5.50 in June - sending seasonal sales into positive territory for the first time since 2001-02. The Florida citrus season begins in October.
The 0.3 percent gain as of July 4 is slight but welcome given the past seven seasons, said Bob Norberg, an economist and deputy executive director of research and operations at the Florida Department of Citrus in Lakeland. He predicted domestic OJ sales will grow by about 1 percent for the season ending Sept. 30 as retail prices continue to decline for the rest of the year.
In the fall, Norberg and other industry economists had predicted the recession would send domestic OJ sales down for an eighth straight season by as much as 3 percent.
Unfortunately the OJ sales surge came too late to affect 2008-09 farm prices. Overall, citrus growers struggled to break even as the average farm price for oranges slumped from the past two seasons, said Norberg and Mike Sparks, CEO of Lakeland-based Florida Citrus Mutual, the state's largest growers' representative.
"Who got squeezed was the Florida citrus grower," Sparks said. "I think the best you could call the 2008-09 season is disappointing."
By the time sales started to tick up in March, growers had made contracts with Florida processors, who buy 95 percent of the state's oranges, for virtually the entire crop, Sparks said. Because processors held near-record OJ inventories at the time, they weren't inclined to pay much for the 2008-09 crop.
Even a 4.8 percent drop in the 2008-09 orange crop to 162.1 million boxes was not enough to boost seasonal farm prices because of near-record OJ inventories held by processors. The 2008-09 grapefruit crop finished at 21.7 million boxes, down 18.4 percent from the previous season; tangerines at 3.9 million boxes, down 29 percent, and tangelos at 1.15 million boxes, down 23 percent.
Norberg estimates orange growers earned an average $1.18 per pound solids on early and mid-season varieties, harvested from October through March, and $1.31 on Valencia oranges, picked March through June. Early-mid oranges accounted for 52 percent of the 2008-09 crop.
Juice processors pay growers based on pound solids, the amount of juice with a specific sugar content squeezed from the fruit.
Assuming the current industry average of $1.25 per pound solids for grove caretaking costs, Florida orange growers lost money on early-mids and saw a modest profit on Valencias.
PERILS OF CASH MARKET
But the averages obscure a bigger divide in the complicated economics of growing citrus.
"The past season was good if you were on a long-term contract," said James Shinn, a Polk City-based grower with 1,000 acres in Polk and Indian River counties. "If you were on the cash market, you were in trouble. The cash market was way below production costs, no question."
Growers sold 53 percent of early-mids and 57 percent of Valencias through a long-term contract with a processor, Norberg said. Such contracts generally cover three to five seasons.
Growers benefit from long-term contracts because they guarantee a minimum, or floor, price for the contracted amount of oranges, which could be in thousands or millions of boxes. The floor price is generally above the cost of production, sometimes significantly higher.
Processors benefit because the contracts guarantee a minimum supply of oranges at a set price.
Because of limited production, smaller growers (200 acres or less) usually can't get a long-term contract. They sell their fruit either on the cash market - a contract for that season's anticipated harvest - or through a cooperative, a collection of small, medium and large (more than 1,000 acres) growers.
The two largest juice orange cooperatives are Florida's Natural Growers in Lake Wales and Winter Haven-based Florida Orange Marketers Inc., which has a contract with Minute Maid, a Coca Cola juice brand. They don't report their returns to growers until the fall.
Norberg estimated 22 percent of 2008-09 oranges were sold through cooperatives at $1.26 for early-mids and $1.37 for Valencias, based on historical averages.
The cash market for citrus poses the greatest risk because, even more than the stock market, it swings wildly based on current conditions, including processors' OJ inventories, that season's crop size and retail sales.
The "perfect storm" for low prices came in 2008-09, Sparks said, because of high OJ inventories, an orange crop slightly higher than preseason estimates and falling sales for the first six months.
Rising production costs added to Florida citrus growers' woes, Sparks and others lamented.
Heading that list was a doubling of fertilizer prices from $300 per ton to more than $600 last season, several growers reported.
"If you were on the cash market, you had to look at cutting back on fertilizers," said Scott Young, an Alturas grower with 400 acres in Polk, all under a cooperative.
Many growers face a 50 percent increase in grove caretaking costs if they take all the measures recommended to control the spread of citrus greening, a fatal bacterial disease sweeping unchecked across Florida, Sparks said.
"(Cash market) fruit prices this year weren't even at break-even levels," he said. "Growers without a long-term contract probably lost money."
REASON FOR OPTIMISM
But the seeds of a turnaround began sprouting by the summer.
The late-season OJ sales surge means OJ inventories that were building at the beginning of the season will end the season at 626 million gallons by Sept. 30, essentially flat compared to a year earlier, Norberg said. But at higher sales levels, that represents just a 28-week supply compared with 30 weeks a year ago.
Norberg projected retail OJ prices would continue to fall to as low as $5.25 per gallon, a 13 percent drop from the peak of $6.03 in June 2007.
"We should see an increase in (sales) volume of 3 to 4 percent next season easily," he said.
Prices for fertilizer and other agricultural chemicals, closely related to oil prices, have also come down, growers reported.
And many citrus people are looking for a smaller crop next season as greening, urban development and other factors continue to shrink the state's grove acreage. An orange crop of 140 million to 150 million boxes in 2009-10 appears to be the early consensus.
Several growers reported getting offers of $1.25 per pound solids for next season's Valencias, an 11 percent increase from the past season's cash price of $1.13.
"I'm very optimistic for next season," Shinn said. "I think cash prices will be at break-even or better."
For many growers, it's become a question of survival.
"We cannot sustain the industry at these (farm) prices. They need to be higher," Norberg said.
Read the original article on The Ledger.