Home Brokerage Why Orange-Juice Prices Are So High Right Now

Why Orange-Juice Prices Are So High Right Now

by internationalbanker

By Cary Springfield, International Banker


The surge in prices of various essentials, such as groceries and petrol, has been painful for the average household budget the world over. And in the United States, this pain has been no better exemplified on the food front than by the skyrocketing price of orange juice, which has been on a clear upward trajectory since 2020. The last couple of years, however, have seen a dramatic acceleration in the commodity’s price, starting at around $1.05 per pound (/lb) in early-May 2021 and reaching just shy of $2.80/lb by early-May 2023—a whopping 167-percent surge, as demand has consistently outpaced rather lacklustre supply.

At the heart of this rally is the decimated supply capacity in the state of Florida, one of the world’s historically prime orange-juice-producing zones and certainly the top-producing state in the US—covering an estimated 375,000 acres, supporting more than 32,000 jobs and drawing in economic contributions of around $6.6 billion. But forecasts today anticipate Florida’s orange-juice crop harvests hitting their lowest levels since the 1930s, with the U.S. Department of Agriculture (USDA) projecting that the 2022-23 season will see Florida growers produce just 15.7 million boxes, with each box weighing 90 pounds (41 kilograms).

If realised, this would be a mighty 62-percent lower than last season’s revised final production figure, which had been the worst recorded in the post-World War II era. Twenty years ago, the figure was as high as 240 million boxes, a mammoth 15 times more than expected for this season. Moreover, the total US orange harvest is forecast to decline by 23 percent to 62 million boxes.

So, what is to blame for this dismal showing? Arguably, there have been no more impactful forces on Florida’s recent orange-juice woes than the two recent hurricanes, Ian and Nicole, which hit the state’s shores during last year’s final quarter just a few years after Hurricane Irma crushed the orange-farming industry. And much like that 2017 destruction, the recent hurricanes hit citrus groves across the state, knocking existing fruit to the ground and stripping leaves off trees to prevent the growth of any new fruit. “That was a storm for the ages,” Matt Joyner, the executive vice president and chief executive officer of Florida Citrus Mutual, told local news outlet ABC Action News. “The size, the scope of that storm, the power of it, the way it sat on top of some of the most productive citrus counties in the State of Florida, there’s no doubt that it had a tremendous impact on our crop this year.”

Indeed, the destruction of orange farms in the Sunshine State was so severe that the University of Florida (UF) recently pegged the damage to the state’s agricultural sector at $1.07 billion and to citrus growers at $247 million. The Block Grant Assistance Act of 2023 bill was thus introduced by Florida’s congressional delegation in February to ensure the USDA can provide relief to agriculture producers devastated by the Ian and Nicole hurricanes. “The loss and devastation…has forever changed communities across our state and the lives of so many Florida families and businesses,” the bill’s sponsor, U.S. Senator Rick Scott (R-FL), said. “As we work to get the citrus and agriculture community back on their feet, I won’t stop fighting to make sure that the federal government keeps showing up. Our Block Grant Assistance Act is a step in the right direction to ensure Florida’s agriculture industry gets the help they need.”

Production was hampered by other extreme weather events, not least the freezing temperatures in January 2022, which significantly squeezed supply by damaging budding trees. A menacing disease has also been tearing its way through citrus trees, severely debilitating crop yields, for over a decade. Known as Huanglongbing, or citrus greening disease, the blight has impacted virtually every Florida citrus grove for years. It is spread by the Asian citrus psyllid, an insect that infects the trees with bacteria, interferes with their circulation and cuts off key nutrients, thus causing undesirable mutations in the size, shape and taste of the fruits they produce. Their invasion can even lead to a tree’s death in just five years, meaning that Florida orange groves are undergoing nothing short of their own pandemic that is reportedly exacerbated by hurricanes carrying the insects to the state in droves.

In response, local growers have been working on solutions to combat the disease, including breeding trees more resistant to citrus greening, nutritional supplements and injections to strengthen the trees’ ability to fight the bacteria, along with methods to shield trees from the insects. “This was the season that growers were going to start implementing new greening mitigation strategies,” Shannon Shepp, executive director of the state agency Florida Department of Citrus (FDOC), told CNN in December. But the extreme weather has delayed those plans. The state has also spent millions developing cures for citrus greening and replanting already infected trees.

But despite these manful efforts, Florida’s production capacity looks set to be thoroughly debilitated for some time. “We’ve just had pressure from both sides of the spectrum, from weather-related events as well as dealing with [greening],” Marisa Zansler, director of economic and market research for the Florida Department of Citrus, told The Guardian in February. “The industry is working toward resolving a lot of these challenges and replanting, and it’s going to take some time.” And with no clear timeline on when inventories will be sufficiently replaced, orange-juice prices could remain elevated this year. Alico, one of the world’s biggest orange-juice companies, for instance, sees normal service being resumed in at least a couple of years—but, of course, another hurricane would throw that estimate well off.

In the meantime, the US will increasingly have to depend on imports from the world’s top orange-juice producer, Brazil—which accounts for around one-third of global output with around 1.157 million metric tonnes produced in the most recent season—as well as neighbouring Mexico. Indeed, with the US importing more orange juice than it has been producing domestically in recent years, many believe South America’s biggest economy could hold the key to the direction of orange-juice prices in 2023. The initial forecast for Brazil’s 2023–24 season stands at 309.34 million boxes, which, if true, would be 1.55 percent less than the previous crop. Despite higher rainfall levels reportedly being positive for the coming crop, Asian citrus psyllid populations and citrus greening incidents are also rising in Brazil. A key producing state in the country experienced torrential downpours, moreover, which damaged yields and delayed harvesting.

And with the global orange-juice market already rather tight due to lower-than-expected production and diminished inventories, prices may stay, at a minimum, at these currently elevated levels for the rest of the year. According to Rabobank, however, the demand side of the equation should not be underestimated. “A ‘weaker’ consumer in Europe and North America, already feeling the effects of inflation, could reduce OJ consumption at an even faster pace in 2H 2023 and cause the market to be more balanced—more quickly than current estimates,” the agriculture and commodities-focused bank stated in a report published on April 23. “This could bring prices to a still high, but more moderate level, compared to the record prices seen in Q1 2023. For now, the base case is for elevated prices for longer, but demand destruction at high prices is a growing risk for volume sales this year.”

Florida growers also have a resilient sense of optimism that they can reverse this trend of misfortune sooner rather than later. “Within the last 12 months, we’ve started to see some real breakthroughs in therapies that have very strong potential to…turn this decreasing production trend around,” Matt Joyner told Axios in early February, adding that new therapies are helping fruit remain longer on trees affected by greening until they ripen and that antimicrobials targeting the citrus greening disease are also ready for commercial production. And although some Florida farmers have closed their operations and sold their land, Joyner has also noted that most growers are here to stay. “By and large, the growers that are still in citrus are those diehard, multi-generation growers. Orange juice will not go away.”


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