Higher retail prices sent U.S. orange juice sales down 3.5 percent in November, but unlike in the past, Dan Gunter seemed unconcerned.

"It's all about building value," Gunter, the executive director of the Florida Department of Citrus, said Wednesday. "We're interested in the total revenue to the industry. The higher returns to growers is what we're ultimately interested in."

Gunter can afford to react indifferently to the normally bad news about falling juice sales because this season the state's commercial citrus growers stand to make a lot of money by it. That's according to an economic model developed by Mark Brown, a Citrus Department economist.

Brown discussed what his model projects for the 2005-06 citrus season at Wednesday's meeting of the Florida Citrus Commission, the department's governing body.

The model showed growers will see at least a 32 percent increase in the farm price for juice oranges compared with the 2004-05 season.

It also projected just a 5 percent decrease on the pessimistic side -- and perhaps an 8 percent increase optimistically -- from last season's record-breaking farm price on grapefruit for juice.

Brown projects 97 percent of this season's Florida oranges, annually the state's largest citrus crop, and 56 percent of grapefruit will go to juice.

The higher profits will come at the expense of consumers, who will see an increase of 20 cents per gallon in orange juice and about 10 cents per gallon in grapefruit juice, according to Brown's projections.

Gunter and other citrus industry officials had bemoaned falling OJ sales, which declined by an average of 3 percent for three straight seasons before leveling off at less than 1 percent last season.

Those falling sales came while Florida orange growers were producing near record crops, which sent OJ inventories held by Florida citrus processors to record levels. All three factors combined to send citrus farm prices to the lowest levels in decades.

The 2004 hurricanes and this year's Hurricane Wilma turned those industry economics upside down.

Last year's storms destroyed more than 30 percent of the 2004-05 orange crop and more than 70 percent of the grapefruit crop, by most industry estimates. Wilma blew off 15 percent of the state's oranges and a third of its grapefruit, according to the U.S. Department of Agriculture.

The fruit shortage sent OJ inventories held by Florida processors to a 25-week supply at the beginning of the current season, down from 29 weeks at the beginning of the 2003-04 season. Brown projected a drop to 20 weeks, perhaps as low as 18 weeks, at the end of this season.

The state's crop shortfall combined with an 18 percent decline in OJ inventories held by processors in Brazil, the world's largest orange juice producer, to send the farm prices for Florida oranges so high, Brown said.

Despite steep declines in sales of Florida grapefruit juice for the past decade, the hurricane-related crop shortage this season and last also has sent inventories down and farm prices up.

Florida processors began this season with a 26-week supply, down from 30 weeks two years ago. Brown projected that would fall to almost 21 weeks at the end of the 2005-06 season.

The farm price of grapefruit for juice tripled last season compared to previous seasons, when many growers sold at a loss.

The market trends mean Florida growers can expect to earn more than $1 billion for the 200506 citrus crop, up 41 percent from $742.3 million in 2004-05. It's the highest crop value since the 1999-2000 season, the last time it exceeded $1 billion.

Beyond this season, the citrus industry faces more troubling long-term trends in the U.S. beverage market, said Bob Norberg, the Citrus Department's director of market and economic research.

Domestic OJ sales fell 3.5 percent to 2.2 million gallons in the four weeks ending Nov. 26, according to ACNielsen, a Chicagobased marketing firm. U.S. sales fell 1.4 percent for the 52-week period to that date.

Grapefruit juice sales declined 21 percent during the recent four-week period and 28 percent during the 52-week span, the statistic show.

Gunter and Norberg attributed the declining sales to the retail price increases since the 2004 hurricanes.

The price increases are contributing to a longer-term trend away from 100 percent OJ products to blended drinks and "light" juices with lower orange juice content, Norberg said. They already amount to about 50 percent of the juice drink category and have increased at percentages up to 57 percent during the 52-week period.

"I think we're getting more pressure from these blends because they're seemingly value priced," Norberg said.

By Kevin Bouffard
The Ledger

Source: theLedger