Strong avocado market continues with no letup in sight
The market price on avocados remains very strong and with no appreciable change in the volume expected that situation is likely to remain throughout the summer.
In some ways it seems as if the scenario is a simple case of demand exceeds supply, but there are numerous underlying factors at play that make it difficult to predict just what direction the market will go. But what does seem certain is, that for the most part, it will remain relatively high until the new crop for Mexico begins in earnest sometime in September.
Crunching the numbers, Rob Wedin, vice president of fresh sales and marketing for Calavo Growers Inc. in Santa Paula, CA, said a clear picture of decreased supply emerges. "In the fiscal year [which began Nov. 1, 2016], this is week 29 and we [U.S. in total] have had 12 percent less fruit than a year ago."
He noted this is the first time in the past decade that aggregate supplies of avocados marketed in the United States have declined for an extended period of time. He said demand and supplies have been growing at a rate of about 15 percent per year in those 10 years. In the past, when the growth rate of supplies was in the 10-12 percent range, the market has strengthened; when increased supplies are up in the 20 percent range, a weak market prevails.
So in that way, the market, which has been hovering around $50 per carton for the best fruit in the most optimum sizes, would seem logical.
On the other hand, $50 is a very strong market and the volume is not low. The numbers show that from late April through late May, about 45 million pounds of avocados were marketed in the United States each week.
"What is in interesting is that the price has held even though we have seen pretty high volume," said Dana Thomas, president of Index Fresh Inc. in Bloomington, CA.
Thomas said that level of volume should continue through June and July. He noted that in one early May week, aggregate volume from Mexico, California and Chile hit the 45 million-pound mark, with Mexico chipping in the lion's share at 31 million pounds. Mexico's volume is expected to decline a bit, though California should remain fairly steady at 10 million to 11 million pounds per week through June. Chile is out of the picture, but Peru has started shipping to the United States and should make up the decrease in volume from Mexico and Chile.
While the volume from these countries is interchangeable, the source of the volume is an important factor in the market price. Wedin reported a three-tier market, with California fruit commanding the highest price followed by Mexico and then Peru.
It has been well reported that California's crop this year, which probably won't hit 200 million pounds, is only half the size of its 2016 volume. California has built an excellent reputation over the past 40 years and there are many retailers, especially in the Golden State, that prefer the fruit and will pay a premium for it.
On May 22, Wedin said a carton of 48 size California avocados was commanding $54. The same sized fruit from Mexico had an f.o.b. price of $48, while the first fruit from Peru was at $42 delivered.
The wide disparity might not hold as Peru gets further into its season and the quality improves. Some of the early fruit was no doubt shipped because of the high market and the demand for it.
Wedin said Peru will likely send more fruit to the United States than last year because it has a bigger crop and the strong market is very enticing. He noted that the exchange rate for the dollar is favorable over that of the euro, so some Peruvian shippers will chase the money.
However, Peru has built quite a following in Europe over the last couple of years and they are not going to abandon that market, according to the Calavo executive.
Thomas said several years ago Peru did stumble as it was first entering the U.S. market and did have some quality issues. He said that is no longer the case and he expects very good fruit from that South American source to help keep the United States in avocados throughout the summer.
One very important factor when looking at the next several months is Mexico's volume. Mexico's shipments have been in decline but a late-May forecast from an official estimator said there was still a lot of 2016-17 fruit on the trees. It is always hard to predict Mexico's volume, as the number of groves is very high.
What seems certain is that Mexico's 2017-18 crop is once again robust with early predictions putting it at about 15 percent greater than this past year. Will that be enough of an increase in supplies to keep up with what has seemingly become insatiable desire by U.S. consumers? Only time will tell.