Wells Fargo analyst: drought makes citrus growers look hard at their future

The current drought in California is forcing growers to take a hard look at their permanent plantings such as citrus trees, says Matt Dusi, analyst for Wells Fargo Commercial Banking.

Dusi said that the high cost of water will lead to “tough decisions” for the 2021-22 citrus outlook in California and Arizona.

“Farmers will need to evaluate the economics of each block, including those that have marginal yield, acreage with a variety that is not in high demand, acreage that has a higher revenue potential with another crop, and/or another variety of the same crop,” he said. 
Dusi said he sees a few trends in the fresh citrus market. For one thing, producers continue to develop new products to entice consumers. 

“We think that will continue,” he said. “We saw a big splash with Sumos recently, and packing houses are taking note, offering up additional options for consumers – Gold Nuggets, blood oranges, cara caras, and heirloom varieties.”

Meanwhile, he said that while the marketing departments are working hard on the specialty items, growers and packers are fine-tuning their acreage to have the right mix of mandarins in the ground to produce steady volumes for the longest season to meet demand.

“Lemon demand has been growing over time, and we are seeing more lemon acreage on the horizon,” he said. “The industry is buzzing about the seedless lemon, and we will see how that is accepted in the market as larger volumes come online.”

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Over the past 20 years, Dusi said that a couple of key acreage trends have been the rise of tangerine acreage and the decline of valencia orange acreage.

“Snack size easy-peel tangerines have experienced dramatic growth as consumers have embraced the category, which hits on many factors that consumers seek – healthy, convenient, snacking — and in the COVID environment, vitamin C and natural barrier,” Dusi said. 
“On the flip side, valencia production has been cut nearly in half as consumers moved away from the juice category.”

While consumers were looking for more juice oranges to boost their vitamin C during the pandemic, Dusi said the “story was already written.” 

California valencia acreage was removed, so the juice that consumers flocked to was either from Florida, or, most likely, Brazil and Mexico, he said. 

Dusi said longer-term acreage trends, as informed by the California Department of Food and Agriculture’s Citrus Acreage Report, show that increased volumes of lemons and mandarins will be coming online from 2022 to 2025. Specifically, lemon bearing acreage is on the increase in Tulare and Ventura counties, with mandarins growing in Tulare and Kern counties.

“Growth in the specialty varieties excites me most – cara caras, blood oranges, Sumos, and heirloom varieties,” Dusi said. 

“Consumers have been gravitating to new and unique product offerings and appear willing to spend more money on higher quality and more unique items.”

Producers with these unique varieties have done well, but on smaller volumes, Dusi said. 

“It will be interesting to see if demand for these products has been sufficient to get additional acres in the ground and enough to move the needle on store shelves over the next 10 years,” he said.