Opinion: U.S. lime prices soar on Mexican supply issues
By Agronometrics CEO Colin Fain
Since the beginning of February, the United States Department of Agriculture's (USDA) Shipping Point price for seedless limes in 40lb cartons has risen from US$16.68 to US$72.43 - more than a fourfold increase. In this article we explore the story behind this dramatic and still unfolding story.
The main cause of this huge spike in price is due to production issues from Mexico, which accounts for 98% of the volume reported by the USDA. According several sources, including Mexico's Secretariat of Agriculture, Livestock, Rural Development, Fisheries and Food (SAGARPA) and the USDA, the culprits behind this radical drop in production are citrus greening disease (Huanglongbing or 'HLB') and the hurricanes that brought excesses of rain to the Michoacán and Veracruz growing areas.
This description these sources give, although accurate, doesn't shed much light on the situation and the data available about this crop is rather hard to come by. But looking back at what I could dig up I found a couple of interesting nuggets to help tell the story.
Over the last five years or so prices have hovered modestly at around US$10, accompanied by price spikes at the beginning of the year; last year prices went up to US$31, and in February of 2011 prices shot up to US$52.47. Needless to say, the prices that we are seeing this year are pretty astounding.
Whenever I have seen these kind of systematic rises in price, it usually goes hand in hand with the end of one season and the beginning of another. The USDA does a pretty good job reporting on the volumes from different origins, which gives you a decent idea of which U.S. growing areas are in season or where products from overseas are coming from.
But since almost the entire supply of limes is coming from Mexico, our view of what is going on in the markets is a bit obscured. What's more is that there are two important varieties of limes: Key limes, making up 50% of the planted area, and Persian limes, with 47% of the planted area. However, neither the USDA nor the National Market Information System (SNIIM) in Mexico differentiate between the two in their price or volume reports, which further obscures our view of what's going on.
So without much statistical foundation I will take my best shot at guessing what is happening. The latest USDA Global Agriculture Information Network (GAIN) report on Mexican citrus mentioned something that I thought was interesting. Michoacán and Colima are the largest producing areas of Key limes. Michoacán usually gets an early start producing from October to February, with Colima taking over from May to September. Although Michoacán was hit by hurricanes, the flow of limes seemed to of been uninterrupted during this period.
Colima on the other hand is the region that is most suffering from citrus greening and has seen a dramatic drop in productivity from 20 metric tons per hectare (MT/Ha) in 2010 to an expected 14.3MT/Ha this year. One relatively reasonable explanation for the drop in demand might be the mismatch between these two seasons.
On the other hand you have Persian limes, which come mostly from Veracruz, which were also affected by the hurricanes. This variety is more prevalent in the market and comprises a larger percentage of the exports. The GAIN report doesn't say much about the seasonality of this variety, but it is very plausible that a drop in production from this growing area could be having an effect.
The striking thing about this spike in price is the massive drop in volume that was reported this week. I'm not sure if I'm even exploring all the factors that could be having an effect over this price rise, but regardless of the exact cause it will be interesting to see how this phenomenon develops over the next couple of weeks.
If any readers out there have any comments or anything to add I would be very curious to get some opinions of people who are experiencing this situation and have something to add.
Colin Fain is the CEO of Agronometrics, a market intelligence platform for agricultural products that collects, standardizes and visualizes Agricultural data from around the world. For more information, you can visit his website, www.agronometrics.com.