U.S. lemon lovers tasting bitter price shock from drought
Overall food prices this year will rise 2.5 percent to 3.5 percent, up from 1.4 percent in 2013, with the California drought potentially having “large and lasting effects” on produce, dairy and eggs, the USDA said in an Aug. 25 report.
Domestic lemon production in the year ended July 31 tumbled 8.8 percent to 832,000 short tons (754,800 metric tons), while the surge in prices boosted the value of the crop by 62 percent to $647.7 million, USDA data show.
The output decline reflects smaller fruit as a result of the dry spell, said Bob Blakely, vice president for California Citrus Mutual, an industry group in Exeter. The entire state, which is the largest U.S. fruit and vegetable grower, was in drought as of Sept. 16, with more than half the area getting the worst ranking possible by the U.S. Drought Monitor.
The crop also was hit by a freeze beginning in December that damaged crops in the San Joaquin Valley, causing $24 million in lost revenue, California Citrus Mutual estimates.
Lime Boost
Lemon sales got a boost this year when the price of limes tripled by May for some buyers, after crop damage in Mexico, the biggest supplier to the U.S., left tight supplies. Some bars and restaurants began substituting lemons in drinks and menu items just before consumption was beginning its seasonal peak, said Kristy Plattner, an agricultural economist with the USDA’s Economic Research Service in Washington.
The price rally was a boon to growers. Limoneira Co. (LMNR), which farms 4,000 acres of lemons in California and Arizona, got about $24 on average for each 40-pound (18.1 kilogram) carton sold in the fiscal year that ends next month, according to Chief Executive Officer Harold Edwards. That’s up 50 percent from $16 a year earlier.
Profits Rising
About 75 percent of operating agribusiness profit will come from lemons this year, up from 42 percent last year, even as production falls shy of forecasts because of the freeze and dry weather, Edwards said. Limoneira also grows oranges, avocados and specialty citrus including mandarins and grapefruit.
The lemon rally may not last. Wholesale prices already are down in the past week as supplies from areas less-affected by drought increase, said Steve Jarzombek, vice president of produce procurement and merchandising at Roundy’s Inc. (RNDY), which operates 148 supermarkets in Wisconsin and Illinois under four brands, including Pick ’n Save and Mariano’s.
While prices were up in July and August, finding larger lemons has become easier for Milwaukee-based Roundy’s and demand is waning from the summer peak, Jarzombek said.
Cheaper Limes
The growing popularity of lemons used by consumers, restaurants and beverage makers has boosted demand to an all-time high, according to Sunkist Growers, a marketing cooperative that sells fresh fruit from thousands of California and Arizona citrus growers.
Lemon-flavoured ingredients on food-service menus climbed about 11 percent between the second quarters of 2011 and 2014, as restaurants used more in salad dressings, butters and sauces, according to Mintel Group Ltd.’s Menu Insights database.
That’s creating a higher floor for prices, said Limoneira’s Edwards. The company, which has been in business since 1893, plans to more than triple annual lemon production to 10 million cartons within eight years, he said.
“As production stabilizes and comes back into norm, we’re very, very pleased in that we’re not seeing our pricing fall as dramatically as we once thought it would,” Edwards said. “We continue to be very, very bullish on the future consumption of lemons.”
Source: bloomberg.com
