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The Ledger - 01/19/2011

Higher farm prices in 2010-11 may not benefit citrus growers long term.


By Kevin Bouffard
THE LEDGER


BARTOW | Florida Department of Citrus officials worry the state's growers may be getting too much of a good thing if retail OJ prices rise too much following the December freezes.

 

The loss of 3 million boxes of oranges tied to the freezes has already dramatically pushed up the farm price of this season's citrus.

Juice companies will surely react to higher farm prices by increasing the retail OJ price, leading to a continuing decline in orange juice sales. The fear is that OJ could price itself off the morning breakfast table, causing U.S. consumers to permanently abandon it as in favor of cheaper alternatives.

In that case, short-term gains from the 2010-11 season could result in the growers' suffering a long-term decline.

Reports from Wednesday's Florida Citrus Commission meeting suggest Florida growers face such a gloomy cycle.

First, retail OJ sales in December fell 8 percent, said Bob Norberg, deputy executive director of research and operations.

That's actually an improvement from double-digit percentage drops in the preceding two months, he said. Still it represents the 11th straight monthly sales decline.

The decline appears to have slowed because U.S. consumers have adjusted to the shock of rising prices that began in January 2010, Norberg said.

The average OJ retail price for the four weeks ending Dec. 25 was $5.68 per gallon, 5.8 percent higher than a year earlier. But the retail price has held at that level since July, he said. The lull is not likely to continue this year.

The Citrus Department revised its orange and OJ production forecast from October, Norberg said.

At the time, the U.S. Department of Agriculture predicted a 2010-11 orange of 146 million boxes, and the Citrus Department forecast a 0.4 percent decline in OJ stocks. That suggested farm prices for Florida oranges would stabilize at a profitable level.

But the department now projects a further loss of 5 million boxes of oranges by the end of the season in June on top of the 3 million boxes the USDA took off in its Jan. 12 crop update, Norberg said.

That would take the 2010-11 orange crop down to 135 million boxes.

Juice content in the remaining oranges also will fall another 5 percent because of freeze damage, he said. That will raise the decline in 2010-11 OJ stocks from 0.4 percent to 7 percent by the end of the season.

Freeze losses have already increased farm prices for early and mid-season oranges, picked October to March, by about 20 percent since October, according to the most recent market report from Lakeland-based Florida Citrus Mutual.

The farm price for Valencia oranges also could increase that much once harvesting begins in March, Norberg said.

A smaller Brazilian orange crop will add upward momentum on farm and retail prices, he said. Brazilian OJ stocks are projected to decline 16 percent following its recently completed season, 4 percent more than projected in October.

The Coca-Cola Co. already announced up to an 8 percent price increase on Minute Maid juice products this year.

Norberg said he expects the average OJ retail price in U.S. supermarkets will increase by year's end by less than a double-digit percentage, but he declined to make a more specific forecast.

The Citrus Department will have to spend limited tax dollars more efficiently to raise OJ demand, counteracting sales declines, Norberg said.

A new marketing study shows online advertising is more effective at increasing consumer OJ demand than traditional TV advertising, Norberg told the Citrus Commission.

Overall the department's marketing programs, totaling $18.2 million in the year ending July, increased demand by 0.4 percent for every $1 million spent, he said.

But Internet marketing efforts increased demand 1.7 percent per $1 million compared to 0.3 percent for every $1 million on TV.

Internet, mobile and social media will become an increasingly larger share of the department's marketing program, he said.