Market Report - Global Lemon August 2017

There’s a lot of information to process at the moment when it comes to the global lemon market. Argentina’s performance is usually key to how the oil markets balance, so when it sneezes everyone else catches a cold. There have been problems in South Africa and Italy but Spain has recorded a good season but has had a lot of demand pressure from the rest of Europe.  How does all that balance – well keep reading!

It’s good to first put some numbers into perspective. We often talk about a crop performance based on the fresh fruits, which is the primary issue, however that doesn’t always tell us the impact for the processed market as some markets process a greater percentage of their fresh fruits than others. Here’s a quick snapshot of how the Global Processed Market looks.

Argentina

Lemon Oil

Lemon Oil Citrus limon (L.) Burm. F. Harvest: May - July

We reported at the end of the first quarter than there could be some difficult times ahead for Argentinian lemon oil. The crop forecasts, growing fresh fruit demand (in export markets) and the predicted fruits available for processing would leave a hole not just in Argentina’s supply but the global lemon markets. The only question was how big that hole would be and now that we’re in July we’ve started to see these potential problems unfold.

Heavy rains and flooding at the end of last year and the beginning of 2017 have led to a 10% fall in Argentine citrus production this year according to forecasts released by Federcitrus and the USDA in April. However many are now suggesting this was underestimated and the fall will be between 20%-30%! This is disappointing news to many, especially those producers in Argentina who would have hoped to take advantage of the reopening of the Brazilian market after an 8 year absence and the end of a 16 year US ban on imports – two factors which will increase demand for fresh fruit both now and in the future. Mexico also announced in July that its doors are to be re-opened for imports.

Whilst production is likely to be down 10% on last year, it is more significantly down on a 10- year average and as such prices for fresh fruits have risen in recent weeks.

With the fresh fruit market still the most attractive avenue for most sellers in terms of revenue, it will be the processing market that suffers the most. Supplies to processors are likely to reduce between 15-20% on 2016 figures, unless of course they pay the higher prices, which will be reflected in the juice and oil price.

As this scenario has been on the cards for some months many of the major buyers have ensured they took sufficient cover. As a result, large volumes of oil have been purchased in recent weeks/months, to the point where not many producers in the region are prepared to make new offers. Those who do have surplus stocks are looking to capitalise on these market pressures, which have seen prices increase 20% in the last few weeks

Where this will end is likely to be down to how far the major end users have covered as continued pressure on demand will certainly keep prices rising.

Market prices USD 40.00 /kilo

Italy

Lemon Oil

Lemon Oil Citrus limon (L.) Burm. F. Harvest: November - January, April - July

It was supposed to be a reasonable lemon season in Italy but the harsh winter conditions had a severe negative impact. It has been a difficult few years for the Italian lemon industry, reflected in the year-on-year increase in imports to supplement the gaps in Italian production.

The 2015/16 production was poor so there was hope of some improvements for the 2016/17 campaign but this never happened. While not as bad as for other citrus fruit, the poor winter conditions destroyed an estimated 20% of the lemon fruit, which directly impacted on the volumes available for processors.

That’s two poor campaigns in a row for the Italians and with no current carry over supplies, and a long wait for the new season crop, then prices will only firm in the coming months.

Market prices Euro 36.00 /kilo

Mexico

Lemon Oil

Lemon Oil Citrus limon (L.) Harvest: August - November

There have been some significant investments in lemon plantations across Mexico in recent years and volumes are increasing.

The season runs from August to November and the 2017 season is expected to be good. The main growing area is Tamaulipas with around 10,000 hectares of plantations with each hectare yielding 15MT of fruit.

One important factor in longer term investment in Mexican lemon is that, unlike most citrus markets around the world, half of the plantations are owned by processors so there is more control over supplies and less influence from the fresh fruit market.

Further investments have taken place during the first half of 2017 with the first of the new season material expected soon.

Market prices USD 38.00 /kilo

South Africa

Lemon Oil

Lemon Oil Citrus limon (L.) Burm. F. Harvest: July - September

Fresh lemon production is predicted to increase by 15% to 355,000 MT in the 2016/17 MY, based on increases in area planted and normal rainfall levels in the main growing regions of the Eastern Cape and Limpopo. This is according to the USDA. These increases were partially offset by the mysterious fruit drop experienced in the Eastern Cape and, according to some data, will be consumed by the growing export demand for fresh fruit.

If we subtract the total amount of domestic and exported fresh fruit from total production it will once again leave only a limited amount of fruit for processing. Over the past few years this has been around 80,000 – 85,000 MT of which unofficial data suggest less than half goes for oil processing.

Currently, there is a drought in the Western Cape growing region but according to the USDA this is only expected to impact 2017/18 MY citrus production if insufficient winter rainfall is received in 2017.

After some initial delays to the start of the campaign the first new season shipments are expected from early September.  Overall we expect to see some small improvements in oil supply when compared to last year’s losses but nothing to suggest we will get back to the previous volumes of 2015/16.

Market prices N/A

Spain

Lemon Oil

Lemon Oil Citrus limon (L.) Burm. F. Harvest: November - July

The first harvest estimate for the 2017/2018 campaign by the Lemon Interprofesional Organization (AILIMPO) predicts Spanish lemon production at 1,080,000 tonnes. This is a very similar figure to that reached in the current campaign, which will come to an end in late August, with approximately 1,090,000 tonnes of lemons harvested. This is an increased output of 100,000 MT compared with the one previously cited throughout the current campaign by all the official bodies. This is due to an extended season and additional fruits per tree, with the last of the fruits collected by the end of July.

It has been a good season for the Spanish processors who have seen a constant demand for their products since the start of 2017. There had been a good balance in the market until June when as the season drew to a close, a peak in demand returned on the back of worrying news from Argentina of a troubled season ahead. This put a late surge in demand and with it prices started to increase.

It is likely that during the off season we will see prices continue to firm unless demand falls or Argentina provides a better forecast and pricing than we have seen in recent weeks.

Although the new season will start in November, it it unusual to see much oil hit the market before Christmas, which given the current global conditions, seems a very long way away!

Market prices Euro 37.00 /kilo

USA

Lemon Oil California

Lemon Oil California Citrus limon (L.) Burm. F. Harvest: May - July

Californian lemon growers have filed a suit against the US Department of Agriculture (USDA) over its recent ruling to allow lemon imports from Argentina. In a press release, the US Citrus Science Council, which represents the majority of the state’s growers, said the move exposes US citrus growers to the possible introduction of invasive pests and plant disease.

In December the USDA announced that it would end its 16-year ban on Argentinian lemon imports.

There are some reasonable grounds for this concern, not only for the obvious increase in competition but also to prevent the possible introduction of HLB (Citrus Greening) as California continues to be on high alert for the disease, which has almost decimated the Florida citrus industry in recent years.

As recently as late July did the CDFA (California Department of Food and Agriculture) confirmed the detection of Huanglongbing (HLB) in Riverside County. The disease was detected in plant material taken from a grapefruit tree in a residential neighbourhood in the city of Riverside near I-215. According to the Citrus Pest and Disease Prevention Program, the infected tree has been removed and agriculture officials are moving swiftly on mandatory surveying in an 800-metre area.

This is just one case hitting a residential area but farmers will be concerned of any threat, like imports from other countries impacting the $2.5 billion worth of citrus trees in California.

To educate residents of the threat and get their help in identifying infected trees they have launched a website and a number of small videos containing valuable information.

Production across the USA for the 2016/17 season is expected to close at the same, or similar levels to those of last year.  Today there is a lack of availability for oil with most of the traded oil being Argentinian quality.

Market prices N/A