Market Analysis: Citrus Industry Overview

The California Citrus Industry had been on a positive upward trend since the early 1980’s.  The Citrus Industry was one of the few commodities in the state of California which did not suffer a significant decline in prices, average grower returns, and land values during the mid 1980’s, as the state experienced one of its worst agri-recessions.  Prior to the 1990-1991 season, the California Citrus Industry had been relatively stable with strong market values for citrus groves in the general citrus producing areas of the Central San Joaquin Valley.  Growers who were able to produce quality fruit with good size realized greater returns for their produce during that time period.

Greater returns to the grower and consistent demand were reflected by an increase in overall sales activity and market values of citrus groves, especially during the 1988-89 and 1989-90 seasons.  Values were seen to be increasing over the average values in the previous years with instances of much stronger values for the above average groves in the $10,000 to $12,000+ per acre range.  Especially evident in the citrus market during that time period were the premium prices received for smaller acreage groves by adjoining landowners, for the purpose of expanding their operation. However, due to stabilized returns, few quality groves were available on the market, as operators anticipated continued profitability in the future. During this time period citrus values were seen to be increasing even for the below average and average quality groves with less desirable varieties. This is a common phenomena in a strong market where a lack in supply of quality properties exists and market demand remains high.  Marginal or less desirable groves typically achieve the greatest percentage of appreciation in an overheated market, while the superior groves are rarely exchanged. 

Over the last ten years overall bearing acreage of Navel and Valencia oranges has been relatively stable at about 108,000± acres of Navels and 67,000± acres of Valencias. Only recently have increases in non-bearing acreage occurred as more growers decided to expand their operations by planting additional groves. The significant amount of new plantings over the last few years, especially of the early varieties of citrus, may have a negative impact on the overall California Citrus Industry in the years to come.  Due to the aggressive marketing program, both domestically and abroad, especially in the Pacific Rim region, in addition to poor harvests in Florida's Valencia crops due to disease and extreme weather conditions, the California Citrus Industry remained fairly stable over the last decade with the only major fluctuations occurring during the 1990-91 season due to the devastating freeze.   Many of the younger and older groves which were affected by the December Freeze of 1990 recovered better than expected, and therefore, no long term reduction in productive capabilities occurred.

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Obviously, the 1990-91 season was characterized by a significant decline in production, due to the freeze, with both Navel and Valencia crops exhibiting a 64% reduction from the previous season.

The impact of the December Freeze on the Citrus Industry was twofold in its effect.  First, due to a significant decline in production, the industry lost valuable market share to competing fruits or substitute products.  Second, the size and quality of fruit for the following season was extremely poor due to the prior year's freeze.  The Citrus Industry therefore had to compete, in a market where they had previously lost retail shelf space, with inferior quality fruit. 

The 1991-92 Navel season was characterized by a very large crop with poor fruit quality and small fruit sizes. Marketers were asking extremely high asking prices at the beginning of the season, in an attempt to create greater overall returns. This marketing plan backfired,  primarily due to the loss of market share to competing fruits and the extremely poor quality of citrus on the market, thus, resulting in a poor season for Navel growers. A similar trend occurred in the 1991-92 Valencia season.  The Valencia crop was relatively large with poor quality fruit and small fruit size.  In addition, the Valencia season was also plagued by an abundance of competing soft fruits on the market, and extremely high shipping costs due to competition for shipping space by the soft fruit markets. Like the Navel season, the 1991-92 Valencia season was also considered very poor. 

Although the Citrus Federal Marketing Order was terminated, the 1992-93 Navel and Valencia seasons were characterized as a relatively average year. Fruit size and quality for both Navels and Valencia oranges were reported to be excellent. Hurricane damage and blossom blight in Florida's Valencia citrus groves also contributed to a better season for California Valencia growers, due to a lack of competition from that region of the country. Little competition from domestic soft fruits and strong export demand also fueled the market, resulting in higher prices paid to Valencia growers for the 1992-93 season. With regards to the 1992-93 Navel season, strong promotional programs domestically helped to boost sales for the 1992-93 crop year.  Good quality fruit and large sizes, as well as modest prices for Navel oranges helped to stabilize the market for the 1992-93 season allowing growers to achieve reasonably profitable returns. 

A smaller 1993-94 Navel crop led to expectations of higher than year-earlier fresh market prices throughout the season.  However, orange prices were lower in the first half of the season because of slow maturing fruit, relatively large volumes of fruit placed on the market at one time in the early part of the season, and a reduction in domestic demand.  In addition a pattern of severe weather in the Midwest and Northeast caused marketing and distribution problems. Quality problems in the form of  “puff increase” resulted in fewer fresh Navels with high enough quality for the export market, thus, placing more fruit on the domestic market.  Prices strengthened to a moderate level in the latter half of the season as fruit matured and quality improved.

At the end of the 1993-94 season the crop sold quickly due to moderate prices, with a large percentage going to products. The 1993-94 Valencia season was characterized by lower prices because the crop was larger with reduced quality relative to last year, and strong competition from domestic soft fruits. Premium and Export grade fruit still attracted strong prices with good movement while the lower Choice grade fruit simply stacked up on the domestic market with softening prices.

Fresh market Navel shipments slowed early in the 1994-95 season, when persistent rains hampered harvesting in the Coastal areas, as well as the Central Valley.  The adverse weather slowed shipments and firmed up orange prices in January and February when F.O.B. prices for California Navels averaged about 6% higher than the previous season.  Shipment increased and prices declined in March as the weather partially cleared.  Export demand for fresh market oranges picked up in 1994-95 from the prior season due to better quality fruit and a better size structure, which added some price support. From November, 1994, through May, 1995, fresh orange exports totaled 456,000 tons, up 10% from the previous year. The majority of the gain was due to increased shipments to Japan. The 1994-95 Valencia season was characterized by a 4% decline in overall production from last year. Smaller supplies, relatively good export demand due to good quality fruit, and less competition from other California soft fruits, strengthened grower and F.O.B. prices for Valencia oranges earlier in the season.  Due to a stable early season, tree prices averaged 7% higher than the same time period last season.  As the season progressed and supplies increased, on tree prices started to decline or soften, except for the on tree prices for export quality fruit which continued to remain strong. 

The 1995-96 Navel season was plagued by warm weather during the winter which prevented the skin on Navel oranges from toughening up, increasing fruit splitting and causing shipping problems, sending more to processing than most years. Over half the Navel crop was harvested by the first of March. Due to weather conditions the Navel crop matured about two (2) weeks later than normal, causing November, 1995, F.O.B prices to reach $22.10 per box, about 19 percent above the previous year’s price. Once the Navel oranges reached the market, however, the large crop (about 13% larger than last year) put downward pressure on prices.  The 1995-96 Valencia orange season showed a 7% increase in production from the prior year.  With this type of an increase in the fresh market crop, prices were slightly lower than the prior season.  Industry sources report that California’s domestic orange shipments for the 1995-96 season rose 4% over the same time period in the prior year, in response to higher consumer demand. Higher domestic shipments reportedly offset lower export shipments. Due to the insufficient cold weather in this winter, California was unable to produce thick skinned fruit which could ship well to the export market. Also reducing exports was low demand from Japan, a major export market, due to its sluggish economy.

Current statistical data indicates the 1996-97 Navel crop at 86 million cartons, up 13% from the prior season.  Harvest of the Navel crop progressed with quality ranging from good to excellent with very large fruit size.  Some puff and crease was reported in the latter part of the season. The 1996-97 Valencia crop was 56 million cartons, unchanged from the prior year.  Picking of Valencia oranges, mainly for export, was active throughout the season with quality reported from good to excellent. 

The 1997-98 Navel orange crop was 88.0 million cartons, up 10% from the previous season. The harvest was characterized by good quality, and large sized fruit, although prices for mid season varieties were very low, resulting in lower grower returns. The 1997-98 Valencia orange was reported at 60.0 million cartons, up 25% from the previous season. Fruit quality was reported as good to excellent.

The current market for large acreage citrus groves is dominated by investors, insurance companies, and large scale grower, packer, shippers, as these entities have the financial means of acquiring and farming larger operations. Motivation for land purchases by grower, packer, shippers, is typically control of a large volume of product to stabilize their marketing cycle. Pension fund investors and insurance companies entered into the marketplace to diversify their portfolio at a time when market values for citrus groves are more attractive in relation to other types of permanent plantings.

Unfortunately, the Central Valley Citrus industry was hit by another devastating freeze, in December, 1998. The Christmas freeze that swept through Central California was devastating to most of those in that area who depend on citrus for their livelihood, but it did not destroy the total supply of oranges, lemons, grapefruit and tangerines available to consumers.

While the lemon crop in Central California was nearly completely destroyed, that crop represents only about 15 percent of the entire crop in California and Arizona. The majority of the lemon acreage is found in the coastal and desert areas of Southern California and in Arizona.  Most of the grapefruit and seasonal specialties like tangerines growing in Central California were damaged by the freeze, although some pockets of undamaged fruit were discovered. And, like lemons, there are large growing areas in other parts of the state and in Arizona which suffered no freeze damage.

Most affected by the freeze were Navel and Valencia oranges, 85 percent of which are grown in Central California. It is impossible to predict exactly how many navels will be available this season because the industry does not know exactly what Mother Nature has in store for us. Given current conditions, however, the industry believes that at least 80 percent of both the Navel and Valencia crops in the Central California has been damaged or lost. Fruit is still available, though, from Southern California and Arizona, therefore customers will most likely have supplies of citrus throughout the season.

A similar, although apparently more severe, freeze, struck the valley in December of 1990. In the aftermath of the 1990 freeze, the market for citrus properties took a brief hiatus, as industry participants assessed their damage, and recouped from the financial disaster of the lost crop. The market emerged somewhat later, as buyers slowly began to acquire properties. As of the writing of this report, it would appear the 1998 freeze was a less severe event, although the immediate crop loss is disastrous, it does not appear we are experiencing the tree damage many growers suffered in 1990. With the exception of lemon trees, most citrus appears to have weathered this latest storm, albeit without a crop. To my knowledge, after this 1998 freeze, the market for citrus groves has effectively ceased activity. Those transactions which were underway prior to the freeze have been extinguished, as buyers and sellers attempt to determine the degree of damage, and their respective financial positions.  Some market activity is presently occurring at level consistent with post freeze sales.  While we do not see a significant impact in land values, we may safely assume marketing periods are longer as the industry recovers and stabilizes financially.

Citrus grove sales in the general producing regions of Tulare County typically range in value from a low of $5,000 per acre, to a high of  $9,000+ per acre, with the majority of sales taking place in the $6,000 to $8,000 per acre range.