The freezing weather that devastated orange and other citrus crops in California could have a two-sided impact on one of the nation's most popular fruits: While that morning glass of OJ could soon cost less, prices will likely rise for fresh-fruit lovers.
That's because California growers, who normally sell most of their orange crop as fresh fruit, may be prompted to squeeze juice from their damaged fruit, adding to an already ample world-wide supply. Also, juice prices rose sharply earlier this year in response to bad weather and wildfires in Florida but lately have been trending lower. A shortage of store-quality fresh fruit, however, could lead to higher produce prices.
Monday, the California Farm Bureau Federation in Sacramento maintained its estimate of the freeze's damage to the state's citrus crops at $591 million. As of Sunday, growers estimated that 50% to 75% of their navel-orange crops were lost.
More than 80% of the state's orange crops are produced in the freeze-hit counties of Tulare, Fresno and Kern; about two-thirds of those are navel oranges, the crop most affected by the cold snap. There also is some concern about California's other orange variety, Valencia oranges, which are harvested in the spring and summer and are just starting to grow.
Little Action in Futures
Despite all the damage, prices of orange-juice futures didn't rise very much Monday.
Prices for the concentrated orange-juice futures contract, traded on the New York Board of Trade's New York Cotton Exchange, have risen a mere four cents since news of the freeze hit last week. Monday it settled at $1.067 a pound, up just 1.4 cents and well below the front-month contract's October highs near $1.30 a pound. New York Cotton Exchange contracts are what orange-juice companies use to set wholesale prices.
Despite the recent muted price increase, the orange-juice market recently has been bumpier than usual. The ups and downs began in October, when the U.S. Agriculture Department released a report showing a smaller-than-expected Florida crop. The report put the 1998-99 crop at 190 million 90-pound boxes of oranges, down from 1997-98's 244 million boxes. The futures market soared to its 1998 highs when the report came out.
A climbing orange-juice market prompted price increases in November by PepsiCo's Tropicana Products and by Coca-Cola Co.'s Minute Maid. Tropicana raised its wholesale prices by an average of 10%. That translates into a retail-price boost of 30 cents to 40 cents for its PurePremium product, an increase that some consumers already are seeing at their local grocery stores.
Minute Maid, meanwhile, which mixes Florida juice with juice from other sources, including Brazil, raised its Premium-product wholesale prices by 8% to 10% in early November in response to the commodity-market moves.
Change in Brazil Forecast
The market changed direction again earlier in December, when analysts began issuing estimates showing a bigger-than-expected crop from Brazil, the world's largest producer of oranges. That pushed orange-juice futures prices lower.
Juice makers vary in what they say their response to the freeze might be. Mark Gutsche, vice president of public relations and communications at Tropicana, says his firm buys some California juice, "so we will be affected to the extent that the price of the variety of juice we buy will go up." But he adds it is too early to tell if Tropicana consumers will see another price increase. He notes that the company, which buys 20% of Florida's orange crop every year, gets most of its juice from Florida. Chris Bozman, a spokeswoman for Minute Maid, says the recent freeze won't affect the company's juice prices, because the concern doesn't buy any California oranges.
The flip side of the crop damage is bad news for the fresh-fruit market. Wholesale-fruit prices already have jumped in response to the freeze, says Philip Lesser, director of economic and market research at the Florida Department of Citrus, and retail prices are likely to follow quickly.
"We saw some [wholesale-fruit] prices out of California almost triple last week," he says. "Some of the smaller-size fruit was selling in the range of $5.50 to $7 a carton. The new price is $21, all because of this freeze." A carton is 37.5 pounds of oranges.
Mr. Lesser also notes that Florida's growers aren't going to be able to fill as much of the fresh-fruit gap as some orange-lovers might hope. That's because most of Florida's crop of navel oranges already has been shipped.
Meanwhile, California growers are combing their groves Monday to see how much of the navel-orange crop they can salvage.
"The initial inspection of the fruit indicates that more of the navel oranges will be saved," says Bob Krauter, a spokesman for the California Farm Bureau Federation, adding that "the word on lemons is pretty bleak" for the San Joaquin Valley.
A Crucial Period
The next seven to 10 days are crucial for California growers such as Sunkist Growers, a cooperative in Van Nuys, Calif. This is because if the weather warms up gradually and the fruit isn't too badly damaged, it can heal itself. About half of Sunkist's navel-orange crop in the San Joaquin Valley is gone.
Damage occurs when temperatures drop to 27 degrees Fahrenheit for four hours or more. Growers run wind machines that can warm up the temperature around their trees two to four degrees, which is often enough to save their crops. Sugar in oranges and tangerines acts as a natural antifreeze, helping to save some of the crop. Still, with 65% of the state's tangerines coming from Tulare County, those crops have been affected, too.
Lemons from the San Joaquin Valley, which account for about 20% of the state's lemons, were "pretty much wiped out. There's not anything to indicate there will be much ability to salvage that fruit," says Dave Kranz, a spokesman for the California Farm Bureau. The other 80% of the state's lemons, produced on the Southern California coast in Ventura and Oxnard, have been unaffected by the recent cold weather.