1. The Price Outlook for Florida Citrus Thomas H. Spreen Professor Food and Resource Economics University of Florida Gainesville

2. Review of the 2007-08 Season After three consecutive crops of less than 150 million boxes, the Florida orange crop was nearly 170 million boxes in 2007-08. While 31.5 percent larger than the 2006-07 crop, the 2007-08 crop was still substantially smaller than all of the crops from 1994-95 through 2003- 04. At the beginning of last season, some price easing was expected, but prices dropped dramatically.

3. In this presentation, a review of the past few seasons is presented. Then a price outlook for 2008-09 is provided along with a longer-term production outlook. A basic paradigm of economics is that when quantity goes up, price goes down and vice- versa. Over the past five seasons, the industry has witnessed first OJ production declining following the hurricanes of 2004 and 2005 followed by record high prices in 2006-07.

4. The 2007-08 season is perplexing in that fruit prices dropped so far from those realized in 2006-07 even though the 2007-08 crop was not large. What caused the steep price decline and will prices rebound in 2008-09?

5. U.S Retail Orange Juice Sales Item VolumePrice 2005-062006-07Change2005-062006-07Change -million SSE gallons --% ---$/SSE gallon ---% - Refrigerated 675.7590.6-12.64.805.8321.5 NFC 372.4337.9-9.35.446.4518.6 RECON 303.3252.7-16.74.014.9924.4 FCOJ 62.154.8-11.83.464.3525.7 Shelf Stable 6.35.5-12.75.646.199.8 TOTAL 744.2650.8-12.64.695.7021.5 Season through 06/07/082006-072007-08Change2006-072007-08Change Refrigerated 424.5403.1-5.05.735.994.6 NFC 242.4231.5-4.56.356.675.1 RECON 182.1171.6-5.84.905.083.5 FCOJ 39.735.1-11.74.234.6510.0 Shelf Stable 3.93.7-5.86.146.475.5 TOTAL 468.1441.8-5.65.615.895.1 Source: A.C. Nielsen

6. US Retail Orange Juice Value

7. U.S. Orange Juice Imports Country Season to Date (October - May) Total OJNFC - OJ 2006 - 072007 - 08Change2006 - 072007 - 08Change - mil. SSE gal. -- % -- mil. SSE gal. -- % - Brazil164.1200.121.98.142.6135.4 CBI39.546.818.50.20.350.0 Mexico64.075.117.32.42.0-16.7 Other5.26.525.0-- TOTAL272.9328.520.420.844.9115.9

8. The increase in imports is due to two reasons. First the anti-dumping suit filed against Brazilian imports has come to a resolution. Second, following the high prices of 2006-07, demand in Europe has softened. We also think OJ demand in Europe is being affected by the influx of new dark color juices which claim cardio-vascular benefits and are being aggressively promoted in the European market.

9. Florida Orange Juice Availability, Movement and Inventory Item Season (October – September) Season to Date 06/28/08 (FDOC processor week 39) 2006-072007-08Change2006-072007-08Change - Million SSE gal -- % -- Million SSE gal -- % - Beginning Inventory446.3363.1-18.6446.3363.1-18.6 Pack from Fruit816.11,103.135.2807.11,088.734.9 Imports217.3254.717.2187.9223.719.1 Availability1,479.81,720.916.31,441.31,675.616.3 Movement1,116.71,111.5-0.5865.0818.1-5.4 FCOJ573.5549.3-4.2445.9397.4-10.9 NFC543.2562.23.5419.1420.70.4 Ending Inventory363.1609.467.8576.3857.448.8 - weeks supply -- % -- weeks supply -- % - Carryover - STD16.928.568.626.040.957.3 Carryover - 13 Weeks27.441.350.7 Carryover - 3 Years25.037.248.8

10. A consequence of first the “low carb” diet phenomenon and then short supplies resulting in much higher consumer prices is that the market for orange juice in the United States is much smaller than it was seven years ago. So inventory entering the 2008-09 season is high when compared to movement in 2007- 08. It is not high by historical standards.

11. Total Florida OJ Movement

12. Outlook for the 2008-09 Season The Steger forecast is 150 million boxes while the Dryfus forecast is 156 million boxes. If we average those two numbers giving 153 million boxes, then the good news is that supply in Sao Paulo plus Florida in 2008-09 will be nearly equal to that fro 2007-08. Tropical Storm Fay resulted in some fruit loss. Delivered-in prices in 2007-08 averaged $1.39 per ps.

13. Assuming that we do not see another price increase at retail next season, then a crop of 153 million boxes means that average delivered-in prices in 2008-09 should be about the same of those observed in 2007-08. I would expect that the premium for Valencias over early-mids should return so an average price of $1.40 per ps would mean $1.30 per ps for early-mids and $1.50 per ps for Valencias. A crop substantially larger than 153 million boxes would bring lower delivered-in prices.

14. Long-Run Outlook Citrus greening (HLB) is still in its early stages. We hear mixed reports of success regarding control of the disease. Sao Paulo is also dealing with citrus greening and other diseases including CVC. We don’t see a major expansion in Sao Paulo given their disease issues and the competition from sugarcane.

15. Projected Florida Orange Production

16. Projected Sao Paulo Orange Production

17. Delivered-In Prices

18. Concluding Remarks The 2007-08 season saw big price declines at the grower and processor level while retail prices increased. With higher production and lower movement, juice inventories are swollen once again. Early crop forecasts combined with the effects of Fay suggested that the inventory situation could improve in 2008-09 supporting grower prices.

19. Greening does not yet appear to be having a major effect on fruit production in Florida or Sao Paulo. We think, however, that the effects of greening will soon be realized with production contracting in both Florida and Sao Paulo. Smaller crops mean higher prices, but profitability will be affected by higher costs of production.

20. Thomas H. Spreen Professor Food and Resource Economics University of Florida, Gainesville Ph: 352-392-1826, ext. 209 E-mail: tspreen@ufl.edutspreen@ufl.edu