Prices, drivers and the best in juice: Mid-year update on global processed food commodity sectors
Hello, and welcome to the latest, ‘Down to Agribusiness Podcast’ brought to you by Informa Agribusiness Intelligence - I’m Adam Sharpe. In this podcast we will be discussing the recently released Half Year Outlook report from IEG Vu, which covers a range of food commodities, and is available to download now.
I’m joined by Neil Murray, senior beverages analyst for IEG Vu, and Julian Gale, senior dried fruit, nuts, and spices analyst, to provide an update of the fruit juice and almond sectors. Let’s start with the pineapple juice concentrate market. As the half-year outlook notes, producers in Thailand are struggling to offset a large increasing production of fruit. With stagnant demand in major markets such as Europe, Neil, what was it that spurred this deep increase in production in the first place?
Well, it wasn’t so much increase in production of fruit. What happened was, the pineapple juice concentrate, otherwise known as PJC, the nitrates limit has previously been 25 PPB. In the US it has been 50 PPB. The Thai processors, with the blessing of the fruit juice association - the AIJN, successfully lobbied to get the acceptable EU maximum limit raised from 25 PPB to 50 PPB. So, what happened was all the Thai processors gleefully blended, and manufactured pineapple juice that would otherwise have been unsellable in Europe, and there was an oversupply of what is, effectively, substandard, not particularly good quality pineapple juice concentrate. The result with that was that the major European buyers told the Thais, ‘Actually, I’m terribly sorry. What we want is juice that’s made to the original 25 PPB spec.’ So, they were left with a whole lot of pineapple juice that, actually, was virtually unsellable.
So, what has this huge surplus of pineapple juice concentrate done to prices? Particularly in the opening six months of the year?
Well, the price absolutely crashed. Prices had gone up to $3,000 a ton for PJC, and at that price, basically, business in Europe stopped. The bottlers, and the blenders took it out of their mixes, the German discounters like Aldi, and Lidl physically took pineapple juice off the shelves. Nobody was really interested in it, it was just too expensive. Well, to put it another way, it was three times the price of apple juice. So, what happened was demand then dried up, and the Thais were left with nowhere to sell the pineapple juice. That coupled with the oversupply of high nitrate level juice meant there was a price crash, and it went down very rapidly to around $13, $1,400 a ton. 1,300 is about ballpark.
It has since bounced back up, because what has happened now, is that the Thai farmers, because the price is so low, and they’re getting so little money for their fruit. They’re getting about four, or five, maybe 5 and a half baht per kilo, and they’re doing what they’ve always historically done, which is said, ‘Oh well, never mind. We’ll go and plant something else that’s more lucrative.’ So, if you want a ton of good quality original low nitrate PJC, you’re looking at about $1,550 a ton FOB at the moment, and it is going to go up, because the farmers are abandoning pineapple to plant something else.
So, you think there is hope for a turnaround in the market, and, potentially, PJC prices could somehow bounce back?
Oh, they’re going to bounce back, for sure, but a turnaround in the market isn’t something that can happen very quickly. What we’re going to see now, is we’re going to see a shortage of pineapple juice, and that will drive prices up, but it takes time to revamp recipes for blends. It takes time to put pineapple juice back into blends, you have to change the labelling and everything else. It takes time to relist products in a supermarket, and this isn’t going to happen overnight. We’re not going see anything major happening, any major changes at least well into next year, and the other problem is demand has basically been killed.
There is still demand for Costa Rican juice, which is single strength, it’s not from concentrate. It’s expensive, it’s about $900 a ton FOB at the moment, which is very expensive, but this is a different variety, it’s a premium product. It’s single strength, not concentrate, and this is really for the dedicated pineapple juice freaks who would always drink the top quality juice, but as far as Thailand is concerned, it’s an irrelevance, because Thailand doesn’t produce that particular variety of pineapple, and Thailand doesn’t produce not from concentrate pineapple juice either.
Also, I understand that Costa Rica has closed several pineapple processing plants in recent weeks, what’s the story behind that, and are those closures likely to be permanent?
That’s a tricky one, because the closures have been done for two reasons. One is for environmental reasons. The farmers, and possibly the processors, we don’t know, have been planting pineapple, and harvesting pineapple in places, perhaps, where they shouldn’t. There are certain protected wetlands that are under threat, and it’s alleged that people have been planting pineapple there. There’s also an archaeological reason, there are pre-Columbian ruins and remains there which are protected. I think they’re World Heritage sites as well, and what has happened is about three, or four plants, as you say, including a Del Monte plant, have been closed pending investigation, and pending, I think, remedial action.
So, it’s not going to be permanent, but it has sent out a very clear signal to processors in Costa Rica, that if you’re thinking of doing something that’s, not shall we say, ‘Illegal,’ but, possibly unethical, than you’d better think again. This also ties in very strongly with the trend for food and beverage producers worldwide, to present themselves as ethical companies. This sort of behaviour, if it has happened, is probably not something that will continue for long.
Okay, moving on to orange juice. There appears to be higher prices on the way for FCOJ in the second half of 2017, after a few rocky years, would you say that’s a fair assessment?
Well, no, that’s not really true. What’s happening is the price is coming down at the moment. In 2016, the end of last year, the beginning of this year, prices on the back of a very poor Brazilian harvest, and very poor quality fruit with very low ratio, which made, actually, the production of not from concentrate, single strength juice particularly hard. Prices were put up by the big three Brazilian processors to the equivalent of about $3,000 a ton CFR duty unpaid Europe.
Now, this season Brazil is having, by comparison with last year, an excellent harvest. In historical terms, it’s lower than it has been in recent years, but it’s still objectively a fair, to middling harvest. So, there will be plenty of production, the Brazilians are going to crush about 360 million boxes of fruit, and orange juice will be in greater supply. So, already, the Brazilians have been cutting their prices, they’re now round about $2,300 a ton CFR duty unpaid Rotterdam. Everything will be in play in October at The Anuga Trade Show. The German discounters are concluding their contract at the moment, and we haven’t heard what the prices they’ve agreed with the Brazilians. We would expect the price to come down to $2,200 a ton, or lower.
You mentioned in the outlook report that orange juice has a bit of an image problem at the moment, could you explain what you mean by that, and what the effect has been on the market?
Well, orange juice isn’t cool anymore. It’s not particularly drunk by young people. There are myriads of other beverages that you can pour down your throat, from bottled water, which is now the soft drink of all in the United States. Energy drinks, sports drinks, juice drinks, colas, low calorie drinks, functional drinks, healthy drinks etc. Orange juice is no longer consumed really as part of a traditional breakfast. People aren’t having traditional breakfasts, they’re grabbing a coffee, and a pastry, or something on the run, and taking it into their offices, at least this is the case in the United States, and in Europe. They’re developed, mature markets, which is where most of the consumption is. We’ve noticed that the US market in particular, demand and retail sales of orange juice have been falling at a rate of around about between 6-7% quite consistently for the last five, or six years. We’ve been charting this, and what’s interesting is, if for some reason, orange juice becomes cheaper at a particular time of year, it doesn’t do anything to stimulate sales.
Conversely, if it becomes more expensive, and the price rises by 20 cents a gallon, or something like that, that actually doesn’t make the decline any worse either. The US market is really falling, the European market is stagnant, or in slight decline by 1%, or 2%, and there’s a feeling that in Europe, what will happen is the lower prices we expect may arrest this fall, but in the meantime what you are seeing, especially not from concentrate, and that’s the main market for Europe, is what’s called "shrink-flation."You’re seeing some of the major branded bottlers, and I’m thinking particularly here of Tropicana, they’re not packing the juice anymore in 1 litre containers, 1 litre tetra pak. What you’re seeing is they’re in 900, or even 850 ml packs, so they can keep the retail price, at least for the last year, unchanged, but they’re actually packing less orange juice into a pack.
So, finally, looking across the fruit juice complex, which juice has the best prospects, in terms of prices going up in the next six months?
Pineapple, for sure. Pineapple is going to go up. Apple juice is also going to go up, now that’s because the Poles are not going to be able to compete, we don’t think, with the Chinese in the critical United States market. They’ll have the European market to themselves, because Chinese juice is subject to 30% duty into Europe, but in the US market, Poland will be expensive, because the ball is entirely in the court of the apple growers, who can store their apples now in nice EU funded, and EU subsidised cold stores. They don’t have to sell the fruit if they don’t want to sell the fruit. They haven’t sold the fruit in quantity to processors at all this season, they’ve opened the doors of the cold stores and let the fruit out in dribs and drabs. This has made production very difficult, it has been stop, start. There hasn’t been a regular flow of raw material, and the farmers are demanding high prices, and they can get them.
So, Polish juice is going to be expensive next year. China, we think will realise that it no longer has a cheap competitor in the United States market, and China, we think, is going to increase its prices. So, that will be for the US. In Europe, Poland’s prices will be higher than they were in the previous season, so that’s going up. Pineapple, we’ve mentioned. Orange juice is coming down. Lemon is going to get more expensive as well, because they’ve had a bad season in Argentina which is the world’s largest producer of lemon juice, and European product is generally-, it’s hard for the Europeans to compete against low Argentine prices.
Spain might have a window this season in Europe. Italy is way too expensive. So, lemon is going to go up. Peach, we think, is going to come down, because of a very large harvest in Greece. We are unsure of what the prices are at the moment, because the Greeks, although they’re harvesting at the moment, they haven’t announced the puree prices. Grape juice may go up, we’re unsure at the moment. White grape juice will be probably cheaper than apple in the coming season. It might go up a bit, but it’s a bit too early to tell. We really need to wait for the grape harvest in Europe in a few months’ time.
Thank you very much Neil.
I’m now joined by dried fruit and nut market analyst, Julian Gale, to discuss the vibrant US almond sector, which has seen robust growth in overseas shipments this year as consumption increases both at home, and abroad. Julian, US producers seem pretty confident of a good year in terms of almond sales, how does the 2016-17 marketing year compare with last season, and recent years?
Well in fact, it’s going great guns. It’s a very successful season that we’re in at the moment. We’re at a stage now where we’ve only got one month to go of the current season, so this obviously the 2016-17 season, and the latest figures from the Almond Board of California were released this week, and they show that the total shipments, that’s domestic, and export shipments, so net shipments are already more than 16% ahead of those at the same stage last year. So, to give an actual specific figure on that, the total we’re looking at is 1.946 billion pounds of almonds shipped, and the period we’re talking about is from August last year, to the end of June this year. That obviously being the eleven months of the current season.
Now, digging further into the Almond Board of California data, I discovered that this was already higher than the end-season totals for each of the previous nine seasons. So, that means going back to, and including 2007-08. I don’t have the stats for any years prior to that, because those weren’t included in the latest Almond Board data that I got this week. That shows that things are very impressive, and that they are maintaining a good pace of sales growth. The other thing to bear in mind, of course, is that, obviously, in many of those years, the actual production may have increased as well, so what has happened is, as they’ve increased their production, they’ve still maintained the demand. So, whatever extra they produced, they’ve managed to find markets for, so it’s a very strong success story.
So, what effect has this upturn in demand had on prices?
Well in fact, actually, prices this year actually moved lower than those of 2016, and this helped to actually stimulate demand even further, but then, perversely, what has happened is, because of this continued demand, prices for almonds remain on the firm side. It also has to be born in mind that almonds are competitively priced relative to certain other tree nuts, and indeed, US almond producers are encouraged by this, they are very positive about this, and European traders who deal in almonds are positive about this. They site this as, you know, encouraging the outlook for future years, and certainly for the next twelve months, you know, the fact that the nut is competitively priced relative to these other tree nuts, and indeed, they site instances of it displacing other tree nuts in certain induces.
What are the big overseas markets for almonds from the US? Where is the consumption growth coming from, and what are the factors driving this increase in consumption?
Yes, well I think it’s probably best if I quote some statistics from the latest report in terms of the big overseas markets. We can see that the Asia Pacific region as a whole, that accounts for 27% of the total shipments so far this season, and the volume sold to that Asia Pacific region are up by 24%. Shipments to South Korea are 24% ahead so far, and those two, Taiwan are 28% up. India is currently at 33% higher than the same period last year, while China is at a more modest 5%. Western Europe, and Central, and Eastern Europe, they are also significant. They, combined, count for a share of 27%, that’s the share of the total exports done by California, and the shipments to these destinations are 10% ahead so far. Now, if I turn to the second part of your question, ‘What are the factors driving the consumption growth?’ One of the underlying things is the positive health message behind almonds, that has really, sort of, help string things along.
Another key thing related to that is it’s proving increasingly popular as a snack item. To quote some research that was done by the Almond Board of California in conjunction with Innova Market Insights, this showed that nearly 25% of global snack nut products launched in 2016 featured almonds as an ingredient. Another thing is that almonds were the number one nut in new product introductions in Europe with a 48% regional share.
Another general principle, I think, which is really helping things is, not surprisingly, in view of what I’ve already said, the marketing of almonds has been extremely effective, and a great deal of credit for that must go to the Almond Board of California. You know, they really have marketed it extremely effectively, and as I was saying earlier, almond prices are viewed as a favourable level of price against those of other tree nuts, so there is a view that they will displace other nuts for snack consumption.
Okay, with these strong underlying factors, it looks, therefore as though world demand is set to continue to grow. What do you think the result will be, in terms of production? Not just in the US, but in other producers? Do you think those countries will start to produce more as well?
Yes, it’s certainly looking very likely that that will be the case. For example, Australia started a major expansion of orchard plantings last year, and according to some recent figures, these now cover more than 35,000 hectares. Now, Select Harvests, which is a company which has orchards in Australia as well as in the US, but is a major player in Australia, and that company is a key part of Australia’s overall expansion in almonds, and it has got its own area in that country entering into production over the coming years. The company has also been investing heavily in acquisitions, and improving its productivity levels, so improving yields etc.
Also, Select Harvests, it predicts that new almond plantings in the US, Australia, and Spain will result in a 7.9% net growth per annum. We’ve also got-, Spain is a producer of almonds. Spain is also indeed an importer of US almonds. Spain is expecting a bigger crop this year. The other thing to add to all this is that, you know, although I would expect other juicing origins to boost their output. I would never see the US losing its dominant position in this global market. Particularly in view of the fact that it’s also looking to raise its production even further to meet the continual rise we’re seeing in demand.
Thank you very much Julian. You can download the IEG Vu half-year outlook report from the Episode 5 podcast page. If you have any questions, or comments about this podcast, you can also tweet using the #DowntoAgribusiness hashtag.
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