December 2018 Outlook for FCOJ in 2019/20 The Orange Juice Market Moves Towards Balance RaboResearch Food & Agribusiness far.rabobank.com Andrés Padilla Senior Analyst Beverages +55 11 5503 7000 Contents Global supply will grow in 2019/20 1 Demand is declining, with 100-percent juice softness 2 Summary The supply/demand balance is back in surplus in 2019/20 4 In 2019/20, global orange juice supply should rebound, with better conditions in São Paulo and stability in production elsewhere. Meanwhile, demand is expected to continue declining in developed markets, while emerging markets will be unable to make up for the lost volume. Global buyers will continue demanding and paying more for premium not-from-concentrate (NFC) variants, but the rebound in Florida s crop during 2018/19 is likely to impact some of the US demand for imported NFC. Frozen-concentrated orange juice (FCOJ) demand will continue to weaken in Europe and the US, as retail data shows the overall juice market continues to decline, led by 100-percent juice products. As a result, our outlook for 2019/20 is for a more balanced market, after a recovery of the crop in São Paulo and continuing declines in global demand. Global supply will grow in 2019/20 A rebound in Brazilian output is likely The 2017/18 orange crop in São Paulo (ending in December 2018) turned out to be considerably smaller than initially expected, at an estimated 275m boxes. Compared to the 2016/17 bumper crop of 398m boxes, orange production shrank by 31 percent, mainly due to a very uneven flowering and erratic weather. Juice yields were very encouraging at the beginning of the season, but gradually worsened as rains increased from September 2018 onwards. Rabobank estimates total juice production of FCOJ equivalent at 875,000 tonnes in Brazil during 2018/19, a decline of around 34 percent compared to 2017/18. Looking ahead to next year s crop (2019/20), early signs point to a larger crop in São Paulo and western Minas Gerais. The flowering was excellent, and the weather pattern during the third and fourth quarters of 2018 has been favourable for fruit-setting. Although it is too early for a firm projection, and changing weather can always have a significant impact during the fruit s formation period, a larger crop seems possible for next season (2019/20). Rabobank expects production in São Paulo to reach 290m to 330m boxes in 2019/20. With an estimated yield of 275 90lb boxes of fruit per tonne of FCOJ, output from Brazil could rebound to around 1m tonnes in 2019/20, after a small crop in 2018/19. 1/5 RaboResearch Outlook for FCOJ in 2019/20 December 2018
After sharp contraction, Florida s harvest recovers temporarily The latest estimate by the USDA for the current 2018/19 season indicates that orange production in Florida should rebound to 77m boxes. This marks a significant recovery from the 45m boxes produced in 2017/18, which was the smallest harvest since 1945. Last year s crop had been severely affected by Hurricane Irma (September 2017), which played a significant part in damaging groves through flooding, and strong winds in western and central Florida. The current recovery has been aided by ideal weather conditions and the efforts of farmers to quickly recover their groves. However, the rebound in 2018/19 does not suggest that the recovery will continue in coming seasons, as greening remains widespread and investments in new groves have been limited. Considering the overall health of trees and the lower probabilities of two consecutive seasons with ideal weather for the groves, it is likely that Florida s production will at best achieve the same output in 2019/20 as in 2018/19. The working assumption at this stage is for a crop of 70m to 80m boxes in Florida in 2019/20, after the recovery seen in the current season (2018/19). However, there are significant risks to this outlook if weather does not cooperate, as the health of the trees will continue to deteriorate gradually through widespread greening-infection rates that lead to high fruit droppage and lost production. Global supply will recover in 2019/20 Current market dynamics point to a recovery in global supply during 2019/20, as São Paulo is expected to see a larger crop, and Florida will probably remain around the current levels of 70m to 80m boxes. Moderate growth is expected from both Mexico and the EU, but the impact for the world market will be limited. As usual, what happens with Brazil and Florida will be key. As a result, the recovery in global output will reflect improving conditions in Brazil during 2019/20. Rabobank projects that global supply, in FCOJ equivalent terms, will increase by around 10 percent and total 1.6m tonnes next season (2019/20) (see Figure 1). Figure 1: Global supply in FCOJ equivalent terms, 2013/14-2019/20f million tonnes (FCOJ equivalent) 1.0 0.5 0.0 1.8 1.9 1.7 1.6 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19e 2019/20f Brazil US Other Source: USDA, Rabobank 2018 Demand is declining, with 100-percent juice softness The overall juice category will see further declines The long-term trend of declining demand continues to affect the orange juice sector and the wider juice category in mature regions like western Europe and North America. These markets are still the largest consumers of industrialised orange juice by far, representing over 70 percent of global volume. Consumers continue to move toward lower-calorie alternatives and are further diversifying their soft-drink consumption. Traditional sectors like orange juice continue to face an uphill battle 2/5 RaboResearch Outlook for FCOJ in 2019/20 December 2018
to turn around a decline that has been ongoing for 15 years now, as younger consumers are not engaging with the juice category in the same way that previous generations did. According to GlobalData, consumption of the entire juice category is expected to decline in North America by an additional 5 percent in volume from 2018 to 2020, with the majority of that decline occurring in 100-percent juice products. In western Europe, the 100-percent juice sub-segment should decline by a further 3 percent in volume terms, but the decline in 100-percent juice and lower-juice-content products is expected to be more homogenous than in North America. Figure 2 presents the trends in North America and western Europe for all sub-segments of the juice category from 2010 to 2020. The 100-percent juice sub-segment is expected to lose the most by 2020 in both regions, and lower-juice-content segments like nectars (25 percent to 99 percent) and juice drinks (1 percent to 25 percent) are not making up for the lost volume in premium juices. Figure 2: Juice sector trends in North America and western Europe, 2010-2020f North American juice consumption Western European juice consumption 10 8 billion litres 5 8.3 7.5 5.5 5.7 6.0 5.3 billion litres 4 6.5 3.3 3.0 5.6 2.9 2.8 5.1 2.7 1.7 1.8 0 2010 2015 2020f 0 2010 2015 2020f 100% juice Nectars Juice drinks 100% juice Nectars Juice drinks Source: GlobalData, Rabobank 2018 Orange juice demand will decline further in 2019/20 Against the backdrop of a challenging environment for the overall juice sector in North America and the EU global demand for orange juice is expected to decline by 3 percent in 2019/20. The EU accounts for 40 percent of demand, while the US represents 33 percent so over 70 percent of global demand for FCOJ and NFC depends on mature markets combined. With demand failing to grow rapidly enough in emerging markets, the overall demand for orange juice is expected to continue declining in 2019/20. Rabobank projects that total demand will decline gradually, to just under 1.6m tonnes (FCOJ equivalent) in 2019/20 (see Figure 3). Figure 3: FCOJ equivalent demand will decline by 3 percent in 2019/20 million tonnes (FCOJ equivalent) 1.0 0.5 1.8 1.7 1.6 1.6 0.0 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19e 2019/20f EU US Other 3/5 RaboResearch Outlook for FCOJ in 2019/20 December 2018
The supply/demand balance is back in surplus in 2019/20 Supply will exceed demand in 2019/20 Rabobank projects a return to a surplus situation in 2019/20, given the current outlook for supply and demand. If the crop in São Paulo bounces back (as early signs suggest), and if production in Florida and elsewhere remains largely flat in comparison to 2018/19, global supply is expected to exceed demand by some 60,000 tonnes. This would represent the second time in the past seven crop years in which a surplus occurs in the supply/demand balance (see Figure 4). A positive year for the supply/demand balance allows global stocks to recover and makes the market more balanced. Figure 4: The global supply/demand balance will turn positive in 2019/20 thousand tonnes (supply/demand) 2,200 1,900 1,600 1,300 1,000 2013/14 2014/15 2015/16 2016/17 2017/18e 2018/19f 2019/20f 400 200 - -200-400 thousand tonnes (balance) Balance Supply Demand The stocks-to-consumption ratio is set to rise in 2019/20 With supply forecast to exceed demand in 2019/20, stocks are likely to see a moderate recovery, after a small crop in 2018/19 that will push the stocks-to-consumption ratio below 15 percent. Rabobank forecasts the stocks-to-consumption ratio to move higher in 2019/20, to around 18 percent, considering a positive supply/demand balance of around 60,000 tonnes in 2019/20 (see Figure 5). Figure 5: The stocks-to-consumption ratio will recover slightly in 2019/20 2,800 40% USD/tonne (CFR Rotterdam) 2,100 1,400 700-39% 36% 22% 20% 14% 18% 7% 2013/14 2014/15 2015/16 2016/17 2017/18f 2018/19f 2019/20f 30% 20% 10% 0% Stocks/consumption Average price (EU) As a result of a higher stocks-to-consumption ratio in 2019/20, FCOJ prices are set to see some pressure and hover around the USD 1,900/tonne to USD 2,200/tonne mark in 2019/20. These projections are subject to the confirmation of the outlook for supply and demand, as presented above, and may be revised as the season develops. 4/5 RaboResearch Outlook for FCOJ in 2019/20 December 2018
Imprint RaboResearch Food & Agribusiness far.rabobank.com Andrés Padilla Senior Analyst Beverages andres.padilla@rabobank.com +55 11 5503 7000 2018 All rights reserved This document is meant exclusively for you and does not carry any right of publication or disclosure other than to Coöperatieve Rabobank U.A. ( Rabobank ), registered in Amsterdam. Neither this document nor any of its contents may be distributed, reproduced, or used for any other purpose without the prior written consent of Rabobank. The information in this document reflects prevailing market conditions and our judgement as of this date, all of which may be subject to change. This document is based on public information. The information and opinions contained in this document have been compiled or derived from sources believed to be reliable; however, Rabobank does not guarantee the correctness or completeness of this document, and does not accept any liability in this respect. The information and opinions contained in this document are indicative and for discussion purposes only. No rights may be derived from any potential offers, transactions, commercial ideas, et cetera contained in this document. This document does not constitute an offer, invitation, or recommendation. This document shall not form the basis of, or cannot be relied upon in connection with, any contract or commitment whatsoever. The information in this document is not intended, and may not be understood, as an advice (including, without limitation, an advice within the meaning of article 1:1 and article 4:23 of the Dutch Financial Supervision Act). This document is governed by Dutch law. The competent court in Amsterdam, the Netherlands has exclusive jurisdiction to settle any dispute which may arise out of, or in connection with, this document and/or any discussions or negotiations based on it. This report has been published in line with Rabobank s long-term commitment to international food and agribusiness. It is one of a series of publications undertaken by the global department of RaboResearch Food & Agribusiness. 5/5 RaboResearch Outlook for FCOJ in 2019/20 December 2018