In a conference call discussing the third quarter results, president and CEO Harold Edwards also said he anticipated much stronger lemon pricing next year, higher fresh utilization, and greater imports from Argentina.
Here is a summary of some of his expectations for 2019:
Fewer California coastal lemons, higher pricing
Edwards said the summer heatwave had a widespread impact on agricultural production in California, but he expected the shortfall to be reflected in the prices.
“In the coastal region which is where the impact of the heat was most severely felt, we feel the impact on next year’s crop could be somewhere on the magnitude of a 20% reduction in fruit,” he said.
“Typically when we see these kinds of reductions which typically you see associated with colder temperatures, you see dramatic increases in pricing due to the shortage of fruit in the market at that time. So, what we’d anticipate next year would be a shorter crop, but offset by much higher pricing going into next year.”
He also believed the heat would also affect production in other areas of the state, although volumes from the company’s Arizona operations are expected to be up year-on-year.
“So, when you put the combination of all of those together, we’re not sure what the total impact of the total year will be,” he said.
But he added that the company will have “much stronger production” coming in from its Chilean operations, and overall he expected 2019 would a “great year” for Limoneira.
Higher fresh utilization
Asked how the company would approach the lemon market next year, Edwards said a higher proportion of fruit would likely be sold on the fresh market.
“My expectation is that you’ll see the fresh utilization increase nicely as a result of in a short market we typically have a much greater opportunity to sell our lower grade fruit into the market at pretty good pricing,” he said.
“So are our choice grade and our standard grades which sometimes can get built up in a seasonal timeframe when there’s an abundant fruit in the marketplace. In a short environment that fruit sells itself very nicely.”
Edwards also said he had just returned from Asia Fruit Logistica where he met with many of Limoneira’s overseas customers, and he said that export demand remains “very, very robust”.
“We continue to operate in a demand exceed supply situation. And as a result we’ve stayed away from making long-term commitments in terms of pricing or supply agreements at this point just because we do believe that it will be a shorter crop next year and we believe that they’ll be a greater opportunity to see strong pricing, and so we’ll be more – operating more on a spot basis next year,” he said.
South American imports set to increase
This season saw Argentina’s return to the U.S. lemon market after an 18-year hiatus, and Edwards said Limoneira handled around 40% of the total volume imported from the South American country.
“I think by most people’s assessment the season – the shipping season of the Argentine fruit blended very nicely with the California fruit that it was competing with or at least being complemented — complementary to,” he said.
“And we saw very little market disruption from the importation of that fruit.”
He therefore expected Argentine shippers would have a “much more enthusiastic appetite” to ship aggressively into the U.S. market next year.
“I think that will also be the experience from Chilean producers as well as from Mexican producers as their various windows of market opportunity do open up into what it looks like its going to be a shorter California crop not only in the coast but also of the desert production and up in the San Joaquin Valley,” he said.
Edwards also said the company’s recent acquisitions in Chile – including the purchase of a citrus ranch in La Serena in July – are “perfected suited” for the impact of smaller volumes.
“The impact on the imported Chilean products should be significant, and those lemons will be coming into we believe a much higher pricing environment due to the shorter California crop at that time,” he said.
Reduced avocado crop
While Limoneira has been expecting a 10 million pound avocado crop prior to the start of the 2018 season, a big wind event at the beginning of the year and the extreme heat in July have pushed that number down, with expectations now for around 6.3 million pounds.
2019 will be an off-bearing year, so a decline from this year was already expected prior to the heatwave.
“Next year is a smaller crop, and it looks like the impact of the heat next year was severe so that it should be a – we anticipate a much smaller avocado crop next year,” he said.
He expected the company’s crop insurance would help to mitigate much of the financial impact.
The executive also mentioned that California avocados tended to not benefit as greatly as lemons in terms of pricing from a shorter crop.
“Unfortunately the thing that makes avocados more challenging is very different than lemons is lemons don’t have an immediate substitute of alternative supplies from other production areas like Mexico or Chile, or Argentina or South Africa,” he said.
“And so as a result when there is a shortage it shorts the market which had a very strong impact on the price. Avocados as a California producer have already an alternative source of supply from Mexico and in some cases from Peru or from Chile.
“So when – in this condition when California has a shorter crop and comes to the market with less fruit, we can’t anticipate that strong uptick in pricing like we can in lemons because there is an alternative source of supply which tends to just fill that space in the marketplace and you don’t see the material impact on the pricing.”