Market Analysis:
Tree Fruit Industry Overview

One of the advantages of the California Tree Fruit Industry is that with highly perishable commodities, you do not have to begin a season with the leftover product that went unsold in the prior years. As a result, stone fruit producers typically have an optimistic outlook for the coming season, placing well back in their memories the profits or losses incurred in the prior years. This phenomena can also be seen in regards to the current market values for tree fruit orchards throughout the general tree fruit producing belt of the San Joaquin Valley. Market values have remained relatively stable to increasing over the last several years for tree fruit orchards, typically ranging from a low of $5,000 per acre for older less desirable producing orchards, to a high of $9,000+ per acre for younger, smaller acreage orchards with desirable varieties. Although sales activity increases, or decreases, as a result of prior year's grower returns, overall tree fruit orchard values have not experienced the dramatic fluctuations in value that other permanent plantings with non-perishable commodities have, such as almonds, raisins, and wine grapes (juice).

Historical statistical data of California Tree Fruit, as presented, illustrates the increasing acreage and production of peaches and nectarines. Overall, average, grower returns per acre, are graphically illustrated as follows;

• California Tree Fruit Industry - Graph 1

This data reveals the overall trends in acreage, production, and average grower returns for the California tree fruit industry during the 1985 through 1998 crop years. The above data illustrates the volatility in the marketplace as grower returns can fluctuate dramatically in response to weather related conditions, and consequent crop size, quality, and marketing factors. Overall, bearing acreage has increased slightly over the last several years in all categories, as shown in the following table:

• California Tree Fruit Industry - Table 1

Historically the 1990 crop year was one of the largest on record. The 1990 tree fruit season was characterized by a long bloom period, which resulted in crop with mixed maturity and a much longer than normal harvest. Although this created some problems for growers, shippers, and packers, a record of over 54 million packages of fresh fruit was shipped through marketing channels for the first time. Expectations at the beginning of the 1990 season were exceeded, with plums being shipped profitably with over 15 million packages, peach shipments over 16 million packages, nectarines over 18 million packages, and pear shipments of 4,400 cars.Clingstone peach production also exceeded the 1989 crop year, with over 505,000 tons produced for the 1990 crop year.

Although total production was up from the 1989 crop year, the overall returns to the grower increased significantly during the 1990 season, primarily due to a very strong and relatively consistent market demand, for both fresh and canned tree fruit. The historically high prices of 1990 for peaches and nectarines, created an increase in overall sales activity, and, thus, in market values of tree fruit orchards in 1990 and the early 1991 season.

Unfortunately, the 1991 tree fruit season was characterized by average to strong market prices for early and late season tree fruit, while the mid-season varieties attracted low market prices due to an over-supply of fruit. After a controversial, highly publicized election, the plum marketing order was not renewed for the 1991 crop year, and 1991 plums went to market with no quality or size controls. Plums suffered the greatest losses in this market, with some growers and packers contending this was a direct result of the lack of a marketing order, and consequent flooding of the market with small sized, off quality fruit.

The 1992 fruit season also opened into a depressed market, exacerbated by erratic weather (a 40 degree swing in temperature within one week!), with resultant low prices for fruit. Once again, plums suffered the brunt, with some small size cartons sold in the early to mid season market at prices of $2.00 to $3.00, well below the cost of production. As the season progressed, however, demand strengthened somewhat. A new California Plum Marketing Agreement was gaining acceptance in the industry, with hopes this agreement would help to stabilize market conditions. The rebound in market activity, however, was too late for many growers, who had suffered substantial losses in the depressed early/mid season markets. Consequently, demand for tree fruit orchards softened significantly in the later half of the 1992 season, and beginning of 1993. Typically, the general market for tree fruit orchards is characterized by several typical market phenomena. Especially evident in the tree fruit market is the premium prices received for orchards by adjoining landowners for the purpose of expanding their operation. As in most agricultural markets, location, especially in respect to the buyer's existing holdings, and soils, and water conditions are primary determinants of value. Varieties also play a unique role in this industry, as the stone fruit market is recognized as a very volatile market with preferences continually changing as new varieties are introduced, gain popularity, and then fade away as newer ones are introduced. Varietal preferences are shown to move in response to prior years' performance. Within the market environment prevailing over the 1991 and 1992 seasons, both grower and packer profitability suffered significantly from the sluggish demand for California summer fruits, cooling demand for additional orchard acreage acquisitions.

The 1993 season was characterized by abundant winter rains and although chilling hours were considered to be adequate, they were still below normal. The bloom started early, but was prolonged by unseasonably cold weather, creating problems with sets and sizing. It became apparent, however, that although crop numbers were on the tree, crop quality was not up to typical California standards. Cull-outs were high and pack-outs were low, and as the season progressed, this became the rule rather than the exception.

Although prices were adequate, there was insufficient volume to support early season retail advertising. Although later varieties of peaches and nectarines came closer to meeting expectations, the total crop still ended 6% to 7% lower than pre-season estimates. Although final production estimates for peach, plum, and nectarine crops declined for the 1993 season in relation to 1992, overall average grower returns per acre was up slightly in all categories, with the exception of clingstone peaches.

The 1994 season was characterized by extremely low grower returns in the early season, especially in the peach market. Yellow peaches and nectarines also suffered from a declining market as consumers' preferences continued to move towards red colored stone fruit. The plum market remained relatively stable through the 1994 season, with good quality fruit only receiving average returns. Overall, the 1994 season, like the 1992 season, was considered a major disappointment, with many tree fruit growers suffering from marginal returns. Prices for Freestone Peaches in 1994 declined 28% from the prior 1993 season, with Clingstone Peaches declining 17%, Nectarines declining 44%, and Plums declining 37%. Production for peaches, plums, and nectarines increased in 1994, similar to the levels seen in 1992. Upward pressures on supply, combined with increasing competition in the marketplace with other summer fruits, resulted in the dramatic declines in overall grower returns for the 1994 season.

The 1995 season appeared to be ahead of schedule, as warm weather combined with above average rainfall, resulting in an early bloom period. Continual rainfall caused some problems with fungus and brown rot, affecting the quality and condition of this year’s fruit. Hail damage in March reportedly affected 40% of the plum crop and blemished the remaining 60%. Poor weather conditions damaged much of the tree fruit for the 1995 season, reducing overall supply and quality of fruit. Tree fruit packers were especially hard hit by lower production during the 1995 season, as a result of lower volumes of product packed through their facilities. Although prices strengthened for most varieties of tree fruit, low production and poor quality fruit yielded a relatively poor year for growers.

Although the 1996 season was characterized by insufficient chilling hours, the bloom was surprisingly uniform and in most cases, orchards set sufficient crops. Mild spring weather caused little problems in the way of hail or inclement weather. Quality was excellent for the 1996 season for peaches, plums and nectarines with less than 1% of the pack being utility grade for peaches and nectarines, and less than 4% for plums. With reduced competition from the southern states due to weather related damage, marketing was brisk through the early season. Ultimately, both peaches and nectarines set new seasonal records with over 19.5 million peaches and 19.6 million nectarines packed. Of greater significance, not only was the overall production of peaches and nectarines at record levels but also at record values. The strong 1996 season translated into an increase in orchard sales activity, as growers flush with above average returns looked to expand their operations.

The 1997 crop year indicates an overall decline in average grower returns for freestone peaches, nectarines, and plums, with only cling peaches showing an overall increase from the above average 1996 crop year. The overall decline in these fruit types was primarily due to a softening in market prices for peaches, plums, and nectarines, especially for mid season varieties, which were the hardest hit. Although overall production increased from 1996 to 1997, the decline in market prices reduced overall average grower returns. Abundant supplies, coupled with production from all sections of the United States of peaches and large crops of melons, table grapes, and other fresh fruits, caused uncertainty among growers and shippers, thus, lowering expectations. By the time the season was completed, California peaches and nectarines were once again reached record production, with peaches exceeding 19.8 million boxes, nectarines over 20.5 million boxes, and plums at its second highest reported level at 17.3 million boxes. The grand total of 58 million boxes was moved to the market place but oftentimes at prices below those needed for an adequate return by the California growers. Despite lower grower returns, market values and marketing activity remained strong for tree fruit orchards. Orchards with desirable varieties and rootstocks, fertile soils, and relatively inexpensive water supplies, are consistently selling for premium prices in the market place.

After the record crops of 1997, the 1998 season began in similar fashion with chilling hours between November through February well below normal. The El Nino effect provided heavier than normal rainfall and warmer temperatures which caused the bloom in some varieties to be ahead of normal. The cold, wet, spring which followed, combined with hail damage in March and April, delayed harvest up to one week. The hail damage in March and April caused a reduction in the plum crop from 15 to 20 percent, with little effect on the peach and nectarines crops. Another significant hail storm occurred in June which damaged the plum, peach and nectarines crops. 1998 was characterized by poor quality tree fruit primarily due to abnormal rainfall and abnormal timing, with the incidence of brown rot, very high. Overall the 1998 season may be characterized as an average year with overall average grower returns up slightly from 1997, but still significantly lower than the above average 1996 season. Market values and marketing activity still remained strong for tree fruit orchards through the 1998 season and continuing into 1999. Despite only an average year, no decline in overall market values for tree fruit orchards is apparent in the market place.

Tree fruit orchard sales in the general producing regions of Fresno and Tulare Counties typically range in value from a low of $5,000 per acre, to a high of $10,000+ per acre, with the majority of sales taking place in the $6,000 to $8,000 per acre range. As a fresh fruit market, the California Tree Fruit Industry with its highly perishable commodities, does not incur the volatility in land values, as other non perishable commodities, such as almond orchards, wine grape vineyards, raisin vineyards, etc.