1. Supply and Market Dynamics Of The Citrus Business
Allen Morris, Morris Agribusiness Services, LLC February 19, 2019

2. Citrus Definitions
In Florida, a field box of oranges is a standard unit of measurement and weighs 90 pounds. It contains about oranges and produces about 5.7 – 6.0 gallons of single strength juice. Citrus fruit is now handled in bulk bins and trailers, thus the term “box” is a statistical measure only
In most other countries, fruit for processing is measured in metric tons

3. Citrus Definitions
Pounds of solids are a measure of the soluble sugar solids in juice. Fruit in Florida, and bulk juice are often priced per pound of solids.
Oranges generally produce 6 – 6.5 pounds of solids per 90-pound field box.

4. Orange Processing Seasons
Florida: October through May
Brazil: May through January
Mexico: November into April

5. Citrus Greening Also called Huanglongbing, or HLB
A bacterial disease affecting citrus that first reduces fruit yields, then kills the tree
Also reduces Brix in fruit, which it has in Florida
Discovered In Brazil in 2004, Florida in 2005, and Mexico in 2009
--- Three regions that produce over 90% of the world’s orange juice
It is spread by an insect called the Asian citrus psyllid when it feeds on the leaves of infected trees

6. Citrus Greening
Greening infection has spread from 1.6% of Florida’s citrus trees in 2008 to 100% currently
Greening only infects 17% of the citrus trees in Brazil and none of the citrus trees in Mexico
It is a major reason that Florida’s orange crop has declined from 242 million boxes the year before greening was discovered in Florida to a projected 77 million boxes this season
Since 2007, The Florida Citrus Industry, state and federal governments have invested almost $200 million in over 200 research projects to find a cure for greening
A cure has been found, but the trees are not yet past regulatory clearance

7. Cost of Producing Juice Oranges in Florida Before and After Greening
Before greening, 2003/04 season: $.83 per pound solids
After greening, current (2018/19) season: $2.24 per pound solids
Current costs if there was no greening: $1.16 per pound solids

8. Average Prices Paid By Florida Citrus Processors For Juice Oranges
Season Price In $ Per Pound Solids
2017/ *
2016/
2015/
*Impact of Hurricane Irma’s reduction in orange production
Source: Florida Citrus Processors Association

9. The World

10. Five Countries/Regions Consume 87% of the World’s Orange Juice5%
Source: Markestrat

11. World Orange Production Shares – Although 118 Countries Grow 1
World Orange Production Shares – Although 118 Countries Grow 1.7 Billion 90-Lb. Boxes, the Largest 5 are 57% of World Production
24%
43% 5%
12%
10% 6%
Source: Food and Agriculture Organization of the United Nations

12. Orange Juice Production Is More Geographically Limited in Scope Than Many Other Commodities
Temperatures below 27o F. can damage fruit and trees
Quality juice oranges require humid climate with warm nights and frequent summer rains
Country must have economic infrastructure to support commercial-scale agribusiness
For OJ that’s only Florida, Brazil, and Mexico

13. Brazil, Florida & Mexico Are Over 90% Of World Orange Juice Production

14. Five Season Averages of Brix In Oranges Produced in Brazil, Mexico, and Florida
Average Range
Brazil –11.8
Mexico
Florida

15. Brix Levels in Florida Oranges
Season
Brix
12.75
12.56
12.45
12.63
12.30
12.09
12.06
11.66
11.13
* Hurricane Irma
11.56
10.74*
Source: Florida Department of Agriculture and Consumer Services

16. The U.S.

17. The US Retail Orange Juice Market Consists of the Nielsen and Non-Nielsen Markets
The Nielsen market consists of retail food stores with annual sales of $2 MM or more, drug stores with annual sales of $1 MM or more, mass merchandisers like Walmart and Target, club stores like Sam’s, Dollar stores, and the military. The best data are available for this market
The Non-Nielsen market consists of convenience stores, food service, and orange juice consumed in blends and drinks

18. 53%

19. Product Forms In The Retail Orange Juice Market
After juice extraction, the stream of pulpy juice goes through a finisher (screen) where the pulp, membrane, and seeds are removed, and along with the peel, diverted for use as by-products
At this stage, the juice is made into either bulk frozen concentrated orange juice (bulk FCOJ) or not-from-concentrate (NFC)
Juice made into bulk FCOJ is sent to an evaporator where vacuum and heat (up to 220 degrees F.) are used to remove excess water in order to obtain a base concentrate of 65 brix
--- Seven-to-one ratio to single strength juice

20. Retail Orange Juice Market Product Forms
Bulk FCOJ is stored at 15 degrees F. or lower in stainless steel tanks or 55 gallon drums until it is packaged and sold
Bulk FCOJ is packaged into either retail FCOJ or reconstituted ready-to-serve
Retail FCOJ is reduced to 42 brix (four-to-one ratio to single strength juice), flavor oils and essences are added, and it is packaged for sale. The consumer adds water to make ready-to-serve juice

21. Retail Orange Juice Market Product Forms
Reconstituted ready-to-serve is made by adding water and flavor oils and essences to bulk FCOJ to reduce it to 11.8 brix, when it is packaged for sale
Juice made into NFC is pasteurized, then chilled and packaged, or stored in large stainless steel tanks or frozen in 55 gallon drums for future packaging and sale

22. Product Form Shares of the U.S. Retail Nielsen Orange Juice Market
35%

23. NFC Largest Segment Even Though Highest-Priced Most Recent 5-Year Average OJ Market Prices
Source: A.C. Nielsen

24. U.S. Orange Production Shares by State
Texas & Arizona 1%
California 39%
Florida 60%
Source: USDA, Florida Agricultural Statistics Service

25. Orange Production For The Fresh Market In The USA
Florida 7%
Texas & Arizona 3%
California 90%

26. Oranges Processed Into Juice
California & Texas 8%
Florida 92%

27. Percent of U.S. Orange Juice Production By State
California & Texas 6%
Florida 94%

28. Impact of HLB On Florida Orange Production 2001/02 – 2018/19E
-70%
Source: National Agricultural Statistics Service

29. Orange Prices are a Larger Share of Retail OJ Prices Than Wheat is for Bread, or Sweeteners Are for Soft Drinks
Juice orange prices represent 33 percent of retail orange juice prices
Wheat accounts for seven percent of bread prices
Sweeteners account for only four percent of soft drink prices
The result is that retail orange juice brands must change their selling prices in response to changes in juice orange prices
The correlation between changes in retail orange juice prices and changes in juice orange prices is 86 percent

30. The Orange Juice Price Determination Process
Florida
Trees
New
Plantings
Juice
Production
Fruit
Production
Fresh
Fruit
World Market
Price
Determination
Fruit
Production
Fresh
Fruit
Juice
Production
Sao Paulo
Trees
New
Plantings

31. OJ Price Determination in the World Market
In the world market, OJ is priced in US dollars until it enters the country of destination
Changes in foreign currency exchange rates to the US dollar have the effect of OJ price changes
Weaker foreign currency has the effect of a price increase
Stronger foreign currency has the effect of a price decrease

32. The Orange Juice Price Determination Process
Short-term changes
--- Within-year or year-to-year changes in price
Long-term cycles
--- Changes in price levels or trends for a number
of years

33. Short-Term Changes
Result of crop fluctuations
--- Usually weather-related
Result of short-term demand fluctuations
--- Changes in consumer incomes, consumer trial of a new substitute being introduced, etc.

34. Short-Term Changes
Orange juice processors and marketers balance their inventories/supplies with demand by changing prices
Price changes during a season may be required

35. Long-Term Cycles
Changes in price levels due to an imbalance in citrus production capacity and demand
Can be caused by oversupply, such as in the late 1990s early 2000s
Can be caused by reduced demand relative to supply such as happening now

36. Long-Term Cycles
An imbalance in citrus production capacity and demand will be corrected by price
Low prices will lead to reduced new plantings and increased consumption
High prices will lead to increased new plantings and reduced consumption

37. Historical Florida Citrus Price Cycles: 1960s and 1970s
1962 freeze reduced supply and led to high prices and increased plantings
--- By 1970, largest citrus tree inventory in history
--- Brazil emerged as a supplier
Increased supply and the resulting lower prices led to substantial market growth in the 1970s
market grew 68%

38. Historical Florida Citrus Price Cycles: 1980s and 1990s
Between 1980 and 1984 freezes cut Florida orange production in half
--- Prices skyrocketed
Higher prices led to increased plantings
By the mid-1990’s supply had increased to a level that pushed prices at or below break-even costs
1980’s High $1.69 Low $.98
1990’s High $1.07 Low $.68

39. 2000s
Canker eradication program, HLB, and an a-typically high-priced real estate market drastically reduced Florida production
--- Prices again increased dramatically
Declining orange juice demand and world orange production creating greater price uncertainty
Orange prices per pound solids since HLB was found in Florida in 2005: High $3.01; Low $1.06

40. Imbalance in Citrus Production Capacity and Demand Will be Corrected by Price
The market seeks an equilibrium between supply and demand where the price generates a competitive return on investment
That return must be at a level that provides the incentive for producers to commit the capital and take the risk to grow citrus

41. Orange Production in Mexico, Florida, and Brazil
(Millions of Boxes)
Season Mexico
Florida
Brazil
242
290
170
360
134
320
147
420
390
105 97
309 82
301 69
245
45*
385
* Impact of Hurricane Irma. The season is profited by the USDA to be 77 million boxes
Sources: USDA, National Agricultural Statistics Service; USDA, Foreign Agricultural Service

42. Thank you! 42