Orange oil is extracted by simple pressure from the outer coloured part of the Citrus sinensis' peel. Oranges are widely cultivated in tropical and subtropical climates for the sweet fruit and commercially for essential oil extraction.
Orange oil is a by-product of the juice industry. Oil is cold pressed from the peel of the fruit, after juice extraction and is widely used across the flavour and fragrance industry. Sweet orange (citrus sinensis) is around 90% d’limonene, a product used across many more industries. Approximately 40% of global oranges are processed for juice and oil with 60% solely used as a fresh fruit for consumption.
Brazil has the largest production of fresh oranges and also it processes more orange than any other country making it the largest producer of orange oil and d’limonene (orange terpenes) in the world. Harvesting can be almost 12 months of the year due to the widespread distribution of plantations, however it is unusual for any significant production during February – April. Therefore we usually consider May - December as a typical harvesting period.
Brazilian oranges make up for around 34% of the world market – approximately 17 million tons+/- from a global estimate of 50 million tons +/- of fresh fruit. The Brazilian state of São Paulo contributes around 80% of the country’s production figures.
It's been a challenging time of late for the world's largest producing country and they're forecasting a sharp reduction of 18.3% in the total 2016/17 crop. To read more about today's conditions click here.
You may have recently read in our Market reports details of the challenges faced by the industry due to Citrus Greening. Click here for more details of the global impact of this wide spreading disease.
The main citrus areas in Florida may well be around 6,500 km away but the impact of Hurricane Irma’s destruction didn’t do the Brazilian ‘recovery’ any favours. The recovery process was always going to be an uphill battle to try and get the market somewhere close to being more satisfied with supply but half way through the season this is looking more and more unlikely. The volume of oil that Irma probably took out of the market is a drop in the ocean versus the amount Brazil produces but you can see from the charts that it leaves another hurdle to climb, widening the deficit between historical average years and this year’s expected production volumes.
Brazil’s production forecasts are set to be mightily improved on last year but total production (Brazil and Florida combined) still falls well short of the 14-year average by as much as 15,000 MT of oil or, if it’s easier to understand, that’s somewhere between 30-35% of what would be classed as ‘normal’ in any given year. Bringing the market back to a reasonable balance this season was already going to be a challenge but those extra losses from Florida now make that challenge even greater. If we take Florida’s losses to be closer to that 50% droppage forecast by the USDA, its oil output will be reduced by around 3,500 MT making the gap between this year’s total production and that 14 year average now closer to 20,000 MT. This is a huge number, which represents around 8 months production! According to one major producer in Brazil, this season’s oranges are already 70% squeezed and whatever is left to pick is delayed due to excess rains. In their opinion, buyers should buy at today’s price levels but they recognise that such advice is likely to fall on deaf ears, as many buyers are still of the belief that prices should fall. Whether they do or not is beyond our control but when you look at the facts the pipelines are still relatively dry, the major producers are well behind on their shipments, prices are still firm and statistically we are up to 20,000 MT short of oil to make up a normal year. As there was no oil, only backlogs, prior to this season’s start it would be fair to assume that it will take at least another good season like this one from Brazil in 2018/19 to get the market back close to being balanced. Then and only then could we envisage some softening in prices. That said, we all know that often the obvious supply and demand maths don’t reflect prices, we can only use this as a guide and try to make smart decisions. Forgive the pessimism in all of this but sometimes we need a reality check. People are asking daily when will prices come down but for that there is no simple answer. Price is driven by many market dynamics, one of which is the supply situation. All I can say, having looked into the detail of the supply, is that I cannot see any factors during this season as to why supplies will improve enough to allow any softening in price, only the opposite. Expect continued pressure on prices until the figures start to suggest the market is re-balancing. In reality this will not happen this season (ending June 2018) and will probably carry through to the 2018/19 season.
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