In wake of freeze, higher f.o.b.s being reflected at retail
In wake of freeze, higher f.o.b.s being reflected at retail
The cold front that moved through California in mid-January has resulted in higher f.o.b. prices for many vegetables, citrus and strawberries, which are being reflected at retail across the country.
"We don't jump our prices right away," said Mark Maxwell of H.G. Hill Stores, a small chain in Nashville, TN. "We wait until our costs go up and then we do pass the increases on to our customers."
For the most part, however, Mr. Maxwell said that he cuts the percentage of the margin as prices rise. For example, if he is making 30 cents per unit markup on an item wholesaling for $1, he tries to keep the dollar amount of the markup the same as the delivered price goes up. Hence if the item is now costing him $2, he probably will sell it at $2.30, rather than going for an equal percentage increase and raising the customer price to $2.60. "And we end up selling some items at cost because they just get too high."
The week of Jan. 29, for example, he said he was selling celery at $3. "That's the most I have ever sold it for."
The H.G. Hill Stores executive said that retail prices on most of the leaf items, strawberries and citrus have increased. He said there are also virtually no ads on these items. H.G. Hill Stores sets its ads two weeks in advance, so the chain did have a 10-cent citrus ad that broke on the Friday following the freeze. "The news of the freeze had spread throughout our community, and so our customers were excited about getting citrus for 10 cents a piece. On the day of the sale, they were waiting outside our doors when we opened up to buy citrus. They killed us."
Mr. Maxwell said that the citrus, which included oranges, grapefruit, lemons, limes and tangerines, was already ordered and in the pipeline when the freeze hit, so he and his supplier were able to honor the ad. "Our supplier lost money, but there wasn't anything we could do."
Mr. Maxwell did get some extra citrus shipments from Florida to help meet the increased demand caused by his customers' growing appetite for the bargain fruit.
Blaine Wittcopp, produce supervisor for the 29-store Harding's chain in southern Michigan, said that the California weather has definitely affected supplies and prices of many different items. "We are getting limited shipments of our bagged salad items, and all the ads have been pulled from that program."
He said that f.o.b. prices have risen across the board on most vegetable items, and he has passed those price increases on to his customers. He said that both Florida and Texas are helping to fill supply gaps on citrus and the vegetable items.
The Federal-State Market News Service, as well as West Coast shippers, reported strong pricing Jan. 29 on many different vegetable items, but those prices were starting to come off just a couple of days later. For example, the f.o.b. price on cauliflower was $18-$25 on Monday, Jan. 29, but had dropped by at least $2 per carton by Wednesday, Jan. 31.
Other California f.o.b. prices the week of Jan. 29 included celery, $28-$32; broccoli crowns, $20-$24; strawberries, $18-$25; Navel oranges, $30-$32; Romaine, $10-$16; spinach, $12-$15; Iceberg lettuce, $8-$9; and red leaf lettuce, $6-$9.
One Salinas shipper who asked to remain anonymous said Jan. 31 that demand had dropped pretty quickly for a number of reasons. He said that high prices at retail had stifled demand, which caused very little price pressure. "We don't have much supplies, so we are not going to drop the prices much more," he said. "But there is no pressure out there to raise the prices either."
This long-time Salinas vegetable salesperson said that a different dynamic currently seems to be in play. He explained that the industry is still not over the spinach crisis, which has significantly cut into demand for raw lettuce items. "Sales for the salad guys are down. Usually when we are in this type of situation [of low supplies of the leaf items], the bagged guys are putting a lot of pressure on the market to fill their orders. That spills over to the commodity side and creates an upward pressure on the price. That is not happening this time. There is no pressure coming from the salad guys."
This commodity shipper said that in a typical situation, the bagged guys are trying to fill orders to maintain or grow market share almost regardless of the price they have to pay for the raw product. "That just isn't happening."
Retailers contacted by The Produce News indicated that bagged lettuce prices are not changing at retail, but the ads, which lower the per-unit cost to many customers, have ceased. At the same time, the price for the whole lettuce items is on the rise.
Another Salinas shipper representative who provided some of the prices for this article, and who also asked not to be named, said that supplies of many of the leaf items should increase over the next few weeks.
"The weather is supposed to start to heat up [in the desert], and that'll bring the crops on," he said.
Strawberry shippers are predicting the same thing. All the strawberry supplies are currently coming from Southern California, so a week or two of warm weather should increase supplies and drop the price significantly.
Celery is one item, however, for which shippers are not expecting much price relief. The celery market has been strong the past six months as supplies have not kept up with normal demand. Add the weather problems of mid- January, and the supply gap has widened.
One shipper said that celery is one of the few vegetable items with virtually no demand from the vegetable processors. Consequently, he said, acreage has dropped in recent years as many growers increased plantings of other vegetables items that give them more options.
"There just isn't that much celery out there. This is the longest good market I've ever seen and I expect it is going to continue," said the shipper, though he added that the price bump caused by the freeze has also eased.
Avocados are one crop that even though they were hit significantly by the freeze, the retail price does not appear to have increased. By some estimates, California growers have lost as much as 30 percent of their already-down crop at a time when the industry is gearing up for the biggest day of the year: Super Bowl Sunday. Yet at a Safeway supermarket in the San Francisco Bay area the week of Jan. 29, large avocados were on sale at four for $5, with four-count bags selling for less than $4.
Dave Howald of the California Avocado Commission explained that although California's own crop should be less than half of what it was in 2006, there is more than enough fruit from Chile and Mexico to make up the difference. And right now, the fruit being marketed is coming mostly from those two countries as Chile winds down its production and Mexico is in the middle of its season.
Mexico is a huge producer of avocados, and by virtually all accounts, it can send as many as needed to the U.S. market. California production will increase in the coming months, giving consumers added volume, despite the state's own supply issues.
"We don't jump our prices right away," said Mark Maxwell of H.G. Hill Stores, a small chain in Nashville, TN. "We wait until our costs go up and then we do pass the increases on to our customers."
For the most part, however, Mr. Maxwell said that he cuts the percentage of the margin as prices rise. For example, if he is making 30 cents per unit markup on an item wholesaling for $1, he tries to keep the dollar amount of the markup the same as the delivered price goes up. Hence if the item is now costing him $2, he probably will sell it at $2.30, rather than going for an equal percentage increase and raising the customer price to $2.60. "And we end up selling some items at cost because they just get too high."
The week of Jan. 29, for example, he said he was selling celery at $3. "That's the most I have ever sold it for."
The H.G. Hill Stores executive said that retail prices on most of the leaf items, strawberries and citrus have increased. He said there are also virtually no ads on these items. H.G. Hill Stores sets its ads two weeks in advance, so the chain did have a 10-cent citrus ad that broke on the Friday following the freeze. "The news of the freeze had spread throughout our community, and so our customers were excited about getting citrus for 10 cents a piece. On the day of the sale, they were waiting outside our doors when we opened up to buy citrus. They killed us."
Mr. Maxwell said that the citrus, which included oranges, grapefruit, lemons, limes and tangerines, was already ordered and in the pipeline when the freeze hit, so he and his supplier were able to honor the ad. "Our supplier lost money, but there wasn't anything we could do."
Mr. Maxwell did get some extra citrus shipments from Florida to help meet the increased demand caused by his customers' growing appetite for the bargain fruit.
Blaine Wittcopp, produce supervisor for the 29-store Harding's chain in southern Michigan, said that the California weather has definitely affected supplies and prices of many different items. "We are getting limited shipments of our bagged salad items, and all the ads have been pulled from that program."
He said that f.o.b. prices have risen across the board on most vegetable items, and he has passed those price increases on to his customers. He said that both Florida and Texas are helping to fill supply gaps on citrus and the vegetable items.
The Federal-State Market News Service, as well as West Coast shippers, reported strong pricing Jan. 29 on many different vegetable items, but those prices were starting to come off just a couple of days later. For example, the f.o.b. price on cauliflower was $18-$25 on Monday, Jan. 29, but had dropped by at least $2 per carton by Wednesday, Jan. 31.
Other California f.o.b. prices the week of Jan. 29 included celery, $28-$32; broccoli crowns, $20-$24; strawberries, $18-$25; Navel oranges, $30-$32; Romaine, $10-$16; spinach, $12-$15; Iceberg lettuce, $8-$9; and red leaf lettuce, $6-$9.
One Salinas shipper who asked to remain anonymous said Jan. 31 that demand had dropped pretty quickly for a number of reasons. He said that high prices at retail had stifled demand, which caused very little price pressure. "We don't have much supplies, so we are not going to drop the prices much more," he said. "But there is no pressure out there to raise the prices either."
This long-time Salinas vegetable salesperson said that a different dynamic currently seems to be in play. He explained that the industry is still not over the spinach crisis, which has significantly cut into demand for raw lettuce items. "Sales for the salad guys are down. Usually when we are in this type of situation [of low supplies of the leaf items], the bagged guys are putting a lot of pressure on the market to fill their orders. That spills over to the commodity side and creates an upward pressure on the price. That is not happening this time. There is no pressure coming from the salad guys."
This commodity shipper said that in a typical situation, the bagged guys are trying to fill orders to maintain or grow market share almost regardless of the price they have to pay for the raw product. "That just isn't happening."
Retailers contacted by The Produce News indicated that bagged lettuce prices are not changing at retail, but the ads, which lower the per-unit cost to many customers, have ceased. At the same time, the price for the whole lettuce items is on the rise.
Another Salinas shipper representative who provided some of the prices for this article, and who also asked not to be named, said that supplies of many of the leaf items should increase over the next few weeks.
"The weather is supposed to start to heat up [in the desert], and that'll bring the crops on," he said.
Strawberry shippers are predicting the same thing. All the strawberry supplies are currently coming from Southern California, so a week or two of warm weather should increase supplies and drop the price significantly.
Celery is one item, however, for which shippers are not expecting much price relief. The celery market has been strong the past six months as supplies have not kept up with normal demand. Add the weather problems of mid- January, and the supply gap has widened.
One shipper said that celery is one of the few vegetable items with virtually no demand from the vegetable processors. Consequently, he said, acreage has dropped in recent years as many growers increased plantings of other vegetables items that give them more options.
"There just isn't that much celery out there. This is the longest good market I've ever seen and I expect it is going to continue," said the shipper, though he added that the price bump caused by the freeze has also eased.
Avocados are one crop that even though they were hit significantly by the freeze, the retail price does not appear to have increased. By some estimates, California growers have lost as much as 30 percent of their already-down crop at a time when the industry is gearing up for the biggest day of the year: Super Bowl Sunday. Yet at a Safeway supermarket in the San Francisco Bay area the week of Jan. 29, large avocados were on sale at four for $5, with four-count bags selling for less than $4.
Dave Howald of the California Avocado Commission explained that although California's own crop should be less than half of what it was in 2006, there is more than enough fruit from Chile and Mexico to make up the difference. And right now, the fruit being marketed is coming mostly from those two countries as Chile winds down its production and Mexico is in the middle of its season.
Mexico is a huge producer of avocados, and by virtually all accounts, it can send as many as needed to the U.S. market. California production will increase in the coming months, giving consumers added volume, despite the state's own supply issues.
