Bugs and Hurricanes Could Crush Florida Citrus Groves

June 5, 2014 by Marvin G. Perez and Brian K. Sullivan

After a disease-spreading bug wreaked havoc on Florida citrus groves this year, growers like Maury Boyd are seeing a new threat from the weatherman that would mean “pure hell” for orange-juice supplies.

As many as six hurricanes are forecast to develop in the Atlantic from now until November, increasing the risk of losses to Florida’s 2015 harvest, after citrus greening disease made this year’s orange crop the smallest in 29 years. Florida is the world’s largest grower after Brazil and the target for more hurricanes than any other U.S. state over the past century.

While Americans have been drinking less orange juice since the 1990s, a faster drop in supply has kept prices high as disease spread among Florida groves in the past decade. Futures are up 34 percent since October and may jump 23 percent further by yearend to $2.0175 a pound, a Bloomberg survey of analysts showed. Tight supplies will boost costs for buyers including Coca-Cola Co.’s Minute Maid and Pepsico Inc.’s Tropicana.

“This can be depressing,” said Boyd, 69, who expects a 20 percent drop in output this year on the 1,500 acres of groves his family has farmed for a century. “The disease is throwing curves at us all the time. If we have a major weather event, that’s going to become the perfect storm, just pure hell.”

As many as 13 named storm systems may develop from June 1 to Nov. 30 in the Atlantic, the National Oceanic and Atmospheric Administration forecasts. The bulk of the orange crop in Florida is harvested from October to June. From 1900 to 2010, southeast Florida was hit at least 30 times by major storms, or more than one every four years on average, compared with 20 for Louisiana, according to MDA Information Systems Inc.

Damage Risk

The U.S. hasn’t been struck by a major hurricane with winds of 111 miles per hour or more since Wilma crashed into Florida in 2005, the longest such period in modern records.

Prices will be “supported pretty well by the lack of incremental supply and the weather risk,” said Peter Sorrentino, who helps manage $3.8 billion at Huntington Asset Advisors in Cincinnati.

Even though this season’s storm forecast is below the 10- year average of 16 storms, 1992’s Hurricane Andrew “caused significant damage to southern areas of the citrus belt in what was otherwise a quiet season,” said Kyle Tapley, a meteorologist at Gaithersburg, Maryland-based MDA.

Orange juice rose 18 percent this year to $1.6395 today on ICE Futures U.S. in New York, after touching a two-year high of $1.68 on April 23 as drought in Brazil compounded concern over supply. The Standard & Poor’s GSCI gauge of 24 raw materials advanced 2.3 percent since the end of 2013, while the MSCI All- Country World Index of equities rose 3.9 percent. The Bloomberg Treasury Bond Index gained 2.8 percent.

Smaller Crop

Florida will harvest 110.3 million boxes of oranges in the season that ends Sept. 30, down 17 percent from a year earlier and the fewest since 1985, the U.S. Department of Agriculture said May 9. Each box weighs 90 pounds, or 41 kilograms.

The biggest reason for the drop is a gnat-sized insect, the Asian citrus psyllid, that was first found in Florida in 1998. The bug, which carries a bacterial disease that causes fruit to shrink and drop early, thrived in the state’s temperate climate and the sap collected from foliage. All 32 counties that produce oranges commercially are affected.

To contain the pest and limit crop losses, Boyd sprayed insecticide all year round and applied potassium salicylate to bolster the immune system of infected trees on properties he owns in Hendry, Collier, Lake and Orange counties. That nearly tripled farm-maintenance costs to about $2,100 an acre and still didn’t prevent a drop in output, which Boyd said probably will be 575,000 boxes this year, compared with 720,000 last season and peak production of 800,000 in 1999.

Drinking Less

Waning demand will limit price gains, said James Cordier, the founder of Optionsellers.com in Tampa, Florida. Americans will drink 701,000 metric tons of orange juice this year, the least since 1986, the USDA estimates. World output of 2.017 million tons will exceed demand of 1.951 million, data show.

While U.S. retail prices for orange juice are up 30 percent from a decade ago, they dropped 13 percent from a record $2.788 for 16 ounces in November 2011, based on monthly averages tracked by the Bureau of Labor Statistics.

Per-capita consumption in the $1.45 billion U.S. market dropped to 3 gallons in 2012 from 4 gallons in 2008 and 5.5 gallons in 2000, according to Ross Colbert, a global beverage- strategist at Rabobank International in New York. Shoppers are favoring lower-calorie options including diet sodas and juices or flavored waters and sports drinks, he said. Demand for bottled water has grown more than any other beverage choice in the past decade, he said.

‘Lousy Consumption’

“Prices would be substantially higher if it weren’t for the lousy consumption,” said Judy Ganes-Chase, the president of J. Ganes Consulting in Panama City, Panama.

In Brazil, which supplies about 10 percent of U.S. orange juice, growers have reduced plantings because of weak returns and crop disease. The nation’s stockpiles will drop to a four- year low of 93,000 tons by June 2015, USDA data show.

Money managers are betting tight supplies will send prices higher. As of May 27, they held a net-long position of 5,110 futures and options contracts, more than double the number at the start of the year, government data show. Global stockpiles as of Sept. 30 will drop to 453,634 tons, the lowest since 2006, according to the USDA.

“The greening problem is not going away in the U.S. or in Brazil,” said Shawn Hackett, the president of Hackett Financial Advisors in Boynton Beach, Florida. “Stockpiles are at dangerous levels, and with the hurricane season in front of us, prices have nowhere to go but higher.”