Barrons piece on orange juice -- looks like Brazilian production may finally (next year ?) take a serious hit; and eventually allow orange juice futures to recover.
Commodities Corner
Monday, July 26, 2004
Orange Crush
Disease forces culling of Brazil's orange trees
By ALASTAIR STEWART
WHEN THE ORANGE TREES STARTED yellowing on his family's small farm, Valentin Gavioli knew it was bad news. He had no idea, however, of the shock waves his discovery would send through Brazil, whose groves produce half the orange juice consumed worldwide.
Scientists soon discovered the Gavioli farm had Brazil's first case of citrus greening, a deadly bacterial disease that has wiped out millions of acres of orange groves in Thailand and parts of South Africa.
"We are going to have to rip up most of our trees. It's a disaster. There are a lot of farmers panicking right now," Gavioli says from the family's nine-hectare (22.24-acre) plantation in Taquaritinga, the heart of Sao Paulo state's world-leading orange belt.
One week after the news broke, scientists are still assessing the threat that greening poses to the orange industry and international orange-juice prices have yet to react. Brazilian industry officials, however, are bracing themselves for a long, costly -- and possibly futile -- battle against the disease.
"In the future, we will talk about the Brazilian oranges before greening and after greening," says Ademerval Garcia, president of the Brazilian Citrus Exporters Association, or Abecitrus. Citrus greening slowly strangles orange trees by hindering photosynthesis. The first symptom is a yellowing of the tree's green branches and leaves. Soon, the plant sheds leaves and fruit; the tree then yields a small, disfigured crop that's useless to the juice industry. The only option is costly: Rip up the tree and replant. And output will still plunge, as the trees need three years to mature.
Cases have been confirmed in 11 orange-producing communities in Sao Paulo. But the disease has an incubation period of about two years, so the industry must presume it has spread to all orange-producing regions of Brazil, says Abecitrus' Garcia.
Scientists are still divided over whether the disease found is the particularly virulent Asian strain, or a new American variant of unknown potency. They are also not sure about how it arrived. In any case, there is no cure for citrus greening. The only control method is eradicating infected plants, followed by a massive and sustained spraying campaign to try to prevent small insects from carrying the disease.
"The task in front of us is enormous. We will need serious government support," says Garcia. He warns the cash-strapped federal and state governments that the cost won't be small.
Oranges are big business in Brazil, employing around 400,000 people and generating $3.23 billion in revenues last year.
Citrus greening comes as Brazilian orange growers are already battling the spread of another disease, the ominously titled sudden-death virus, which has wiped out more than 2.5 million trees over the last three years.
The fight against the sudden-death virus has stretched many farmers to their financial limits. They are forced to invest in mass grafting programs as well as the installation of irrigation systems to ensure the continued survival of their plantations. The arrival of citrus greening could force many traditional farmers out of the orange business, says Valentin Gavioli.
"The level of technology, and therefore the capital, needed to produce oranges is becoming so high that only the major orange exporters will be able to afford it from now on," he says.
The local industry isn't even seeing a quick jump in orange and orange-juice prices to offset its potential losses. Frozen concentrated orange juice futures contracts at the New York Board of Trade are around 70 cents a pound, little changed from prices earlier this month.
Prices aren't rising now because the disease won't reduce the size of the current, record Sao Paulo orange crop, says Abecitrus' Garcia. Farmers are expected to harvest 345.5 million 40.8-kilogram (89.95-pound) boxes. In comparison, the top U.S. producer, Florida, is expected to grow a near-record orange crop of 242 million 90-lb. boxes, according to the U.S. Department of Agriculture. Investors are currently more worried about drooping worldwide demand due to the popularity of low-carbohydrate diets, Garcia adds.
World orange-juice prices may begin rising from next year, once losses start mounting, says Judith Ganes-Chase of New York-based J. Ganes Consulting. Ganes-Chase says the outbreak of the disease would at least stop the growth in orange-tree planting across Sao Paulo seen in recent years -- a trend which pressured international juice prices.
"This could be the necessary evil for the market to recover," she says. "It all depends on how serious the outbreak is.
ALASTAIR STEWART is a reporter for Dow Jones Commodity Newswire in Sao Paulo, Brazil.
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