Lemon prices may be climbing in response to California's heatwave. ( Farm Journal )

(Bloomberg) --

The lemon slice for your iced tea is set to get more expensive, and you can blame California’s scorching weather for that.

The hot conditions that helped spark deadly wildfires in California are also taking a toll on the state’s citrus crop. While groves have largely been spared from the blaze, the sweltering heat is causing lemons to ripen prematurely, analysts at Stifel Financial Corp., including Vincent Anderson, said in a report this week. That’s sent prices surging by as much as 49 percent from a month ago.

The crop threat comes at a time when demand was already projected to outpace domestic production for at least the seventh straight year. Americans’ zest for lemons -- also used as garnish when drinking tequila or to make lemonade, marmalade and salad dressing -- has soared thanks to more consumer demand for fresh ingredients. The heat wave in California, the top U.S. grower, will likely further widen the gap between output and use.

In the year ending Sept. 30, the U.S. is forecast to produce 791,070 metric tons of lemons, with demand estimated at 1.247 million, spurring the most imports since at least the 2013-2014 growing season, government data showed last month.

As the American crop suffers, global production woes are also making supplies harder to get. That’s partly due to weather problems reducing output in Mexico -- a major exporter to the U.S. -- by as much as 20 percent from a year ago, Stifel said. Issues with Spain’s harvest and a lack of “significant” Argentine shipments “have only compounded the shortfall,” the analysts said.

“The result has been a spike in prices across the size and quality spectrum,” Stifel said. Small, so-called fancy lemons, considered a more premium product, are up 34 percent from a month ago, and large so-called choice jumped 49 percent, the analysts said in the Aug. 7 note, citing government data. In California, “we expect the heat wave to affect all lemon growers relatively equally, compared to droughts where farmers with advantaged water rights hold an edge,” they said.

By October or November, the domestic crop will be ready to harvest, and supply will get some support before the end of the year, said David Magaña, a senior horticulture analyst at Rabobank in Fresno, California. But for the next two months, he expects the shortage that began in May and June to continue.

Some relief could eventually come as suppliers plant more trees to meet rising demand. Santa Paula, California-based Limoneira Co. currently has about 8,200 acres of lemon groves and plans to add another 500 over the next two years, the company said on a June 11 call to discuss earnings. Shares of the producer have jumped more than 20 percent since July 1 as the fruit price soared.

Still, it’s going to be quite some time before that acreage bears lemons ready for the market. It takes roughly four years for new trees to start producing fruit, and yields don’t reach mature production until the fifth or sixth year, according to Rabobank.

Meanwhile, consumption is likely to stay robust.

“About six years ago, we noticed a marked trend away from processed products to fresh utilization of lemons,” Joel Nelsen, the president of California Citrus Mutual in Exeter, California, said by email. “Whereas 60 percent plus of the lemon crop used to go to fragrances and concentrate-type uses, more of it is being sold fresh as restaurants and consumers use more lemons for meals and lemonade purposes. Quite a boom.”

 

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