Prices on oranges rather than on the juice that is extracted from it could spike as the flooding and wind damages from Hurricane Irma are assessed.
Attempting to determine the damage to Florida’s citrus crops on Monday is not likely to occur since recovery efforts have just begun. In Florida and Georgia, more than 6 million residents and businesses lacked power, according to poweroutage.us and utility websites. Florida is the main producer of oranges in the U.S. although California and Texas also grow them.
“Since the storm is still in Florida, commenting on the extent of the effect may be premature,” said Giacomo Santangelo, an economics professor at Fordham University in New York and Seton Hall University in South Orange, N.J. Florida is the main producer of oranges in the U.S. although California and Texas are also grow them.
The crop that could have the most damage and could affect prices nationwide is oranges, he said. By contrast, the orange juice that consumers are drinking currently are from oranges that were juiced over a year ago.
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“Orange juice processing entails storing the juice in vacuum sealed vats, necessitating the addition of ‘natural flavors and colors’ to make it more palatable,” Santangelo said. “We can expect to see an effect on orange prices sooner than juice.”
There’s more potential trouble at the grocery store, though: the commodity markets to watch are peanuts and pecans as the storm moves westward into Georgia, Santangelo said.
The orange juice futures market is reacting in a similar fashion and was trading at 151.95 cents per pound), down just two cents from Friday’s close, said Jack Scoville, a senior market analyst at the PRICE Futures Group in Chicago.
“We are holding and waiting for damage reports,” he said. “Irma is not likely to get any worse.”
Prices spiked last November and rose to 225 cents per pound because of a decline in production and worries about the damages of citrus greening, a harsh plant disease — similar to prices in January 2012 of 226 cents per pound when a freeze occurred, but the market is pricing it in the “mid price zone” currently, Scoville said.
“There is still pretty good market action, but this is not really a big move,” he said. “People are just trying to figure out what they have on their hands and are not extending the rally or willing to let it get too cheap.”
A large spike may not occur because the demand for orange juice has been waning in recent years and is no longer the “only thing you drink for breakfast anymore,” Scoville said.
While there is the potential for large crops to have been lost, there aren’t reports to back up the assumption yet, he said.
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“Until they assess the damage, we don’t want to get too far ahead,” Scoville said. “We won’t hear anything concrete for a day or two. Prices have been far worse.”
“We can expect citrus fruits such as oranges, limes, tangelos grapefruit prices to be affected, however, tomatoes are Florida’s second largest crop,” Santangelo said. “Florida is the largest producer of sugar cane in the U.S.”
The production of orange juice plays a large contributing factor to the state’s economy since Florida is the largest producer of the beverage in the U.S. and second in the world behind Brazil, since over 95% of oranges grown there are used to produce it, said the Florida Department of Citrus. The citrus harvest season begins in October and runs through June, which means torrential downpours and extensive flooding could damage the crops extensively.
The state produced 68.7 million boxes of oranges in 2016 to 2017 season, which ended in June. The industry employs over 45,000 people and contributes $8.6 billion to Florida’s coffers. Fruit production occurs in 27 counties of central and south Florida, according to the food and resource economics department of the University of Florida. Florida’s citrus bearing grove area has declined to 435,000 acres in 2016, a reduction of 42% decline from 2000.
The harvest season begins in October and consumers could see prices rise at the supermarket, said Greg McBride, chief financial analyst for Bankrate, the NewYork-based financial content company. “Central and south Florida are home to many citrus farms and producers, so the storm is likely to impact their operations and potentially disrupt the supply chain at least temporarily.”
Orange juice futures have not fared well in the aftermath of El Nino periods and have lost an average of 7.9% three months later, according to analysis conducted by S&P Dow Jones Indices.
Orange juice remains one of the worst commodities following a hurricane or an El Nino event and even six months after an El Nino event occurs, their futures decline an average of 5.6%, according to the S&P GSCI Orange Juice Index, said Jodie Gunzberg, global head of commodities and real assets at New York-based S&P Dow Jones Indices.
November orange juice futures ran from 197 to 206 cents per pound two days before Hurricane Matthew in 2016 emerged as a serious threat to the east coast of Florida, said K.C. Ma, a CFA and director of the Roland George investments program at Stetson University in Deland, Fla.
Orange juice futures prices dropped back to 197 two days after the hurricane made landfall, “at the expense of disappointing a handful of futures speculators,” he said.
Unlike the majority of other commodities, the production of frozen concentrated orange juice is nearly “concentrated” geographically around the central Florida region. Inventory for frozen orange juice is not vast, so production and prices are “invariably affected by the weather in a single location such as central Florida,” Ma said.