By Todd Southerland, Wells Fargo Agribusiness Manager
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Production and supplies

Orange production has declined 35% over the last 15 years, largely because of disease issues throughout the state and reduced acreage levels. But Florida remains the most significant producer in the domestic orange industry and continues to hold a meaningful share of the global juice market. Despite the significant fruit drop from a warm, dry winter, Florida is expected to account for 69% of the fresh oranges produced in the U.S. in 2013. The state also accounts for 32% of global orange juice production (trailing only Brazil, which accounts for approximately 53%). If these supplies were to decline, it would be devastating to both the regional economy and to large, multinational beverage companies, three of which dominate a domestic not-from-concentrate (NFC) juice market that generates premium returns to other substitutes such as reconstituted juice. Recognizing these risks, the beverage companies are working diligently to ensure future supply stability.
U.S. Orange Juice Supplies
Florida is the primary domestic source of orange juice. It has historically processed over 95% of each year's orange crop into chilled juices, predominantly NFC orange juice and frozen concentrate (FCOJ). Because of the decline in production, a greater share of the crop is now diverted to the higher-margin NFC category at the expense of concentrate volumes. The volume of oranges processed into FCOJ in Florida has declined 49% since the turn of the century while NFC volumes are down only 17%. The shortfall in FCOJ supplies is being balanced by increasing imports, which are expected to account for 37% of total domestic consumption in 2013. The imports are mostly coming from Brazil, but Mexico and Costa Rica also represent meaningful sources of supply. The figures shown in the chart below are somewhat erratic, but the underlying trend is clear. Domestic orange juice production has declined 40% since 2002 while imports have more than doubled.
As Florida oranges are aggressively diverted to NFC channels, domestic beverage companies are getting more FCOJ from the world market to satisfy their concentrate needs. Because sourcing FCOJ from other countries allows for ingredients to be blended — which in many cases improves the flavor, color, and consistency of the juice — importing FCOJ helps these companies improve their operational flexibility and product quality. Meanwhile, ensuring that fruit availability in Florida remains adequate to meet the demands from NFC juice consumers is the priority. Some beverage companies have staked the reputation of their premium brands on sourcing Florida-only oranges, so they have a strong incentive to secure the viability of this industry.

Production risks: Impact of citrus greening

For growers, the long-term viability of Florida citrus will continue to be heavily dependent on maintaining a competitive cost structure to absorb the incremental costs associated with fruit diseases. Recognizing the changing cost structure of the industry along with the need to secure domestic fruit, beverage processors have seemingly provided the necessary financial incentives to keep many groves productive, though it is highly unlikely that significant new grove development will happen any time soon. For now, grove owners must aggressively combat and prevent the spread of diseases, reinvigorate and/or replace trees, and ultimately maximize the productive value of the groves. Over the last ten years, the average cost of production for a mature orange grove has more than doubled due to the costs of disease containment and citrus greening management, including the need for additional pesticide and nutritional treatments, tree resets, and field examinations.
The most prevalent disease affecting the Florida industry today is citrus greening, which is also known as huanglongbing or HLB. Greening is a bacterial disease that significantly reduces the production potential of a tree or grove, destroys the economic value of fruit, and can ultimately result in the death of infected trees. It is one of the most serious citrus diseases in the world, having significantly reduced citrus production in Asia, Africa, Brazil, and on the Arabian Peninsula. Greening was first detected in Florida in 2005, and since that time, it has spread through much of the state and is widely considered to be endemic in most regions. Once infected, there is no cure for greening, and citrus trees usually decline in 5 to 12 years; however, in areas of the world where greening is endemic, citrus trees may decline and die within just a few years. Greening is primarily spread by two species of psyllid insects (Asian and African). Both species of insect transport the greening pathogen from infected trees to healthy trees as they feed on the plant.
Little data exists on the statewide effect of citrus greening. The Florida Department of Citrus previously estimated that the disease would reduce Florida's orange crop by approximately 5% annually until a cure is found or disease-resistant trees are bred and widely planted, which isn't likely to happen in the near future. However, recent production figures do not support this level of attrition because many grove owners have aggressively managed the disease through tree resets and nutritional programs that are having surprisingly positive effects on tree health and efficiency. Some are optimistic about the prospects for breeding disease-resistant trees, but realistically, it will take decades for groves to be planted with new rootstock. For the time being, an aggressive approach to disease management is required, and it remains an expensive proposition for the entire industry.
Todd Southerland
Todd Southerland is an agribusiness consultant for Wells Fargo, the largest commercial agricultural lender in the United States. His responsibilities include analyzing the unique risks faced by food and agribusiness enterprises with a particular focus on protein, citrus, and sugar. Additionally, he evaluates operational and risk strategies in order to assess competitive conditions and positioning within the landscape of an increasingly global food sector.
Todd received undergraduate degrees in economics and business administration from Vanderbilt University in Nashville, Tennessee, and studied International Trade and Finance at the London School of Economics.

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Wells Fargo Agricultural Industries presents this analysis as a complimentary service to its employees and customers. It cannot guarantee the accuracy of all the sources of data. And, commodity prices are extremely volatile based on unforeseeable changes. These estimates will change with all new market changes.