Brazilian drought-squeezed orange juice

Orange juice prices have soared to record highs as severe drought and widespread crop disease have crushed crops in Brazil, the world’s top exporter, leaving soft drink companies facing a “terrible” situation.

Concentrated orange juice futures traded on the Intercontinental Exchange in New York hit $4.92/pound on Friday, nearly three times higher than prices two years ago, as global supplies of the fruit slumped.

For soft drink companies, which use the futures market to try to hedge against big price swings and have to bear the higher costs, the situation is “extremely dire,” said Harry Campbell, an analyst at Expana. “I’m like, ‘we don’t even know what to do.’

In May, fundecitrus, an association of citrus growers and juice companies based in the orange-growing state of São Paulo, predicted Brazil would produce its lowest crop in 35 years, saying harvests would be down nearly 25 percent from from last year.

But now “even that rather pessimistic forecast probably won’t be realized given the conditions we’re seeing,” said Rabobank analyst Andrés Padilla.

“We’re going through the worst drought in 50 years in Brazil, so there’s been very, very little rain in the citrus belt in the last four months, which is an important period,” he said.

He added that forecasters were also predicting that the upcoming rainy season, which usually starts in late September, would come late this year.

“The lowest crop in 35 years, plus the increase in citrus greening disease, plus the drought — it’s the perfect storm,” Padilla said. “The market is really stressed.”

Twenty years ago, citrus greening—a disease spread by sap-sucking psyllid insects that turns the tree’s fruit bitter before killing it completely—began to sweep through Florida, decimating orange groves in the prime citrus region. US growth.

Now sweep Brazil. In 2023, 38 percent of oranges in Brazil showed symptoms of the disease, and the psyllid population was the highest recorded since the first reports of the disease in 2004, according to Renato Bassanezi, researcher at Fundecitrus.

Some factors, such as strengthened disease control, including more effective use of insecticides, led Fundecitrus to believe that “the rate of increase in the incidence of greening will slow,” he said.

But in many of Brazil’s orange groves, the damage is already done. Affected trees have lower yields, with productivity decreasing over time as the disease progresses. The fruits also drop prematurely and produce lower quality juice, Bassanezi said.

Brayan Palhares, a citrus grower in São Paulo state, said 2024 was the worst in terms of productivity since his father started growing oranges in 1970. On parts of his land that produced an average of 1,800 boxes per hectare in the last 10 years. , this season delivered only 470 boxes, he said, “making this year extremely difficult.”

While other countries such as Italy and Spain produce oranges, they tend to be for the fresh fruit market. Brazil is almost the only one that mainly serves the juice market.

“There is no juice in the market,” Padilla said. “That’s why we’re back at record prices.”

“For consumers, it means that an already expensive orange juice will become more expensive,” said Kees Cools, president of the International Fruit and Vegetable Juice Association (IFU), adding that there are “many healthy and tasty alternatives at affordable prices.”

However, apple juice prices are rising.

Spring freezes hampered production in Poland, Europe’s biggest producer of juice apples and a major exporter to the US, according to Expana’s Campbell. Prices are going “through the roof,” he said.

The food and beverage industry needs crop science to come up with new hybrid plants and trees resistant to extreme weather and disease, Cools said.

The IFU and others are calling for legislative changes to allow orange juice producers to use other more climate-resistant fruits, such as tangerines, without changing the name of their products.

In the meantime, however, farmers like the Palhares hope the situation will improve soon.

“We hope that next year we will not face the same problems and bring our production back to the same level as before,” he said.

Additional reporting by Tamires Vitorio in São Paulo