New York, Oct. 13 - U.S. consumers will have to shell out more money for their morning glass of orange juice after storms, disease and creeping urbanization sharply cut citrus output in Florida and drove juice prices to a 16-year high, industry officials and analysts said Friday.
The price of frozen concentrated orange juice, the basic ingredient for the drink, surged to its loftiest level since 1990 as the key spot FCOJ futures contract at the New York Board of Trade closed on Thursday at $1.923 per lb.
And analysts say a price of $2 is right around the corner.
The catalyst for the rally was a report by the U.S. Agriculture Department that the citrus crop in Florida, the top source for orange juice in the country, will amount to 135 million (90-lb) boxes, the lowest in 17 years.
"One would have to assume there will be upward pressure on prices," Michael Sparks, executive vice president and chief executive of the growers group Florida Citrus Mutual, told Reuters in a phone interview.
A statement by Tropicana, the top orange juice retailer in the U.S., said the small crop "confirms our concerns that significant pressure on supply and therefore costs will continue going forward." The result will provide "little relief to consumer prices."
The company, a unit of PepsiCo, typically buys 40 percent of all oranges grown in Florida. Tropicana said it has "increased its prices to retailers approximately 15 percent over the last two years."
The Florida crop was hit hard by four hurricanes which struck in 2004 and 2005. Howling winds from those storms spread the debilitating disease citrus canker, which prematurely causes fruit to drop and forces farmers to idle their land.
Industry officials said this increased the temptation among growers to sell their citrus farms to real-estate developers in Florida. The Sunshine State has increasingly drawn a large number of retirees over the last few years.
WILL BUYERS TOLERATE HIGH PRICES?
The question hounding growers and juice processors in Florida is how much more can they increase prices without consumers turning to other juice or energy drinks.
"It's got to go up, but I don't know how much they can pass on," Warren McKnight, vice president of Holly Hill Fruit Products, said in a separate interview.
Orange juice prices are already about 9.00 percent higher than a year ago, and a pressing concern for the industry over the years has been to head off any softening in retail demand.
Judy Ganes of commodity firm J. Ganes Consulting said the industry will have a difficult time foregoing a price increase because supplies of the basic ingredient to make juice are so tight.
"What choice do they have?" she asked.
Sparks said another issue that must be confronted is the probable need to import more oranges because the current crop "will not supply the 1.0 billion gallons we consume in the U.S."
Industry officials said current stocks going into the 2006/07 season are at about 50 million gallons. Ideally, they should be more than 100 million gallons.
"We're about six weeks short on supply," one official said.
The most likely source for imported oranges would be Brazil, which normally produces about 350 million boxes annually. Some 80 percent of Brazilian oranges goes to Europe, where the 15.5 percent import tariff on juice is much lower than anti-dumping duties set by Washington earlier this year of up to 60.29 percent.
"There'll have to be some imports," said McKnight.
Meanwhile, the spot November juice was down 1.80 cents at $1.9050 per lb as traders and players took profits on the recent price rise. The contract peaked early at $1.9325.