In Brazil, Farmers Ripping Out Orange Trees – MoneyBeat – WSJ

In Brazil, Farmers Ripping Out Orange Trees

4:53 pm
Jun 13, 2013


By Jeffrey T. Lewis

Workers harvesting oranges at a Brazilian farm. Bloomberg News

Rising costs and low rewards have Brazil’s orange growers tearing their trees out.

Antonio Jose Magalhaes de Nelo–whose farm near the town of Cafelândia, in São Paulo state, has been producing oranges for 25 years–has uprooted more than half of his 166,000 trees this year. He said the cost of growing and harvesting a 90-pound box of the fruit is about 3 Brazilian reais ($1.40) more than what he gets paid for the box.

“This sector is impossible now. Yesterday I did the numbers and figured out I paid BRL30,000 last year to grow and sell my oranges,” said Mr. de Nelo, 55, who is switching to sugar cane.

De Nelo is one of many Brazilian orange growers who are giving up on citrus and turning to other crops, usually sugar cane. Fewer trees could mean smaller global supplies of frozen concentrate orange juice, which is traded on the ICE Futures U.S. exchange.

Brazil is the world’s largest exporter of orange juice. It shipped 1.2 million metric tons of juice in 2012, according to the U.S. Department of Agriculture, almost 12 times more than the U.S., the second-largest exporter.

While the rising costs of labor and chemicals are a factor, orange growers blame the drop in domestic prices for pushing them out of the citrus business.

The average price offered by industrial buyers in Brazil has fallen nearly 60% in a little more than six years, from BRL15.46 for a box of oranges in January 2007 to BRL6.50 in May of this year, according to the University of São Paulo’s Center for Advanced Studies on Applied Economics.

The cost of producing a bushel of oranges and delivering it to the juice makers rose to BRL14.77 for the 2013-2014 growing season, federal crop agency Conab estimates, up from BRL13.90 in 2010, when the agency first started calculating the figure.

Part of the reason prices are low is consecutive bumper crops in Brazil in the previous two growing seasons boosted world supplies and pushed prices in the world market down 31% in 2012. But growers say Citrosuco SA Agroindústria, Sucocitrico Cutrale Ltda. and Louis Dreyfus Commodities Brasil SA–the three Brazilian companies that sell 98% of the juice exports—are also setting low prices for the oranges they buy.

Together, the three companies account for about 40% of Brazilian orange production.

Citrosuco and Cutrale didn’t respond to requests for comment. Louis Dreyfus Commodities referred questions to Ibiapaba Netto, a spokesman for CitrusBR, a trade association representing the three juice exporters, who said what the growers do with their land is their own decision.

São Paulo state’s Agricultural Economy Institute, or IEA, says the number of fruit-bearing orange trees in the state, the biggest producer in Brazil, fell 8.3% to 185.5 million in 2012. That’s the second-lowest number in the past five years. That decline, though, includes trees that have been cut down due to age or disease.

”If (reports of farmers uprooting trees) are true, and if the information starts to filter out into the trading community, that’s definitely bullish” for orange-juice futures prices, said Joe Nikruto, senior commodities broker at RJ O’Brien Futures in Chicago. Frozen concentrate orange juice fell almost 2% to $1.4570 a pound in late trade Thursday.

However, declining demand for orange juice may rein in any rally in futures prices. Orange juice consumption around the world fell by 6.7% from 2003 through 2010, according to CitrusBR. In the U.S., a major consumer of orange juice, total gallons sold have fallen 14% from December 2010 to May 2013, according to Nielsen data published by the Florida Department of Citrus.


Coffee Drops as Weaker Real Prompts Brazilian Sales; Sugar Falls – Bloomberg

Arabica coffee fell for a second day in New York as the harvest advanced in Brazil, the world’s leading producer, and a weaker local currency prompted growers to sell more in the futures market. Raw sugar declined.

Dry weather allowed growers to accelerate pickings in Brazil, Rio de Janeiro-based broker Flavour Coffee said in a report e-mailed on June 6. Dryness came after “abnormal rain” in the beginning of this month, according to Sao Paulo-based weather forecaster Somar Meteorologia. The Brazilian real slid 6.2 percent against the dollar over the past month, making sales priced in the U.S. currency more attractive.

“A common theme aligning coffee and sugar is not just heavy surpluses, but also the start of the large Brazilian harvests and more recently, the weakening Brazilian currency,” Kona Haque, an analyst at Macquarie Group Ltd. in London, said in a report e-mailed today. A weaker real “may encourage further selling in coming weeks,” she said.

Arabica coffee for July delivery fell 0.3 percent to $1.266 a pound by 7:12 a.m. on ICE Futures U.S. in New York. The price slid 1.9 percent in the previous trading session. Robusta coffee for delivery in the same month retreated 0.2 percent to $1,844 a metric ton in London.

Brazil is harvesting its 2013-14 crop and production will be a record for a year in which trees enter the lower-yielding half of a two-year cycle, the government estimates. Output will be 48.6 million bags, crop-forecasting agency known as Conab said on May 14. A bag of coffee usually weighs 132 pounds.

Robusta coffee has fallen 9.3 percent in the past month as supplies improved. Prices in Vietnam, the main grower of the variety used in instant drinks and espresso, fell to 39,200 dong ($1.87) a kilogram (2.2 pounds) today, the lowest since Jan. 30, data from the Daklak Trade & Tourism Center on Bloomberg showed.

Robusta Supplies

“In robusta, supplies are improving, with Vietnamese growers likely to be scale-down sellers as Indonesian new crop arrivals start picking up,” Macquarie’s Haque said.

Raw sugar for delivery in July was down 0.1 percent at 16.42 cents a pound in New York. White, or refined, sugar for delivery in August was little changed at $481.30 a ton in London.

Cocoa for July delivery fell 0.4 percent to $2,355 a ton on ICE. Cocoa for delivery in July declined 0.3 percent to 1,559 pounds ($2,423) a ton on NSYE Liffe.

To contact the reporter on this story: Isis Almeida in Ialmeida3

To contact the editor responsible for this story: Claudia Carpenter at Ccarpenter2.