While California wine country is still ablaze, the damage wrought on Florida’s orange crop is coming into view, and it does not look good at all…
Today we got the PPI from the BLS. Bottom line was that food and energy prices are rising, and rising fast.
Now, it is being reported that the Florida orange crop is set to have the lowest harvest since World War II. From Bloomberg:
Florida’s orange production will plunge 21 percent to a 71-year low after damage wrought by Hurricane Irma devastated the harvest, while output of cotton also suffered in storm-hit areas, government figures showed.
Orange growers in Florida, the largest U.S. producer, will harvest 54 million boxes in the 2017-18 marketing year, the least since 1947 — an era when citrus irrigation was rare — the U.S. Department of Agriculture said in a report Thursday. A survey of analysts conducted by Bloomberg indicated a crop of 58.2 million boxes. A box weighs 90 pounds, or 41 kilograms.
We can see this increase in the price of orange juice in the futures market:
Here is more from Bloomberg:
Irma caused an estimated $2.5 billion in damage to agriculture, the Florida Department of Agriculture and Consumer Services said Oct. 4. Preliminary estimates show $760.8 million in damage to the citrus industry. Texas’s state farm agency has yet to release a damage estimate for Harvey, which hit the Gulf Coast region in late August.
“The path of Hurricane Irma could not have been more lethal than what it was,” Florida Agriculture Commissioner Adam Putnam said Wednesday. Groves are still under water in southwest Florida and state lawmakers are calling for immediate federal aid for producers.
Typical devastation, aside from flooding, was non-ripe oranges blown off the trees, or trees uprooted, and the oranges are left to rot such as these:
Here’s a grove owner speaking to the Naples Daily News:
“The California citrus crop is smaller than it’s been in the past five or six years,” said Joel Nelsen, president of the California Citrus Mutual, which represents more than 80 percent of the state’s citrus industry. “We’re attributing that to two things: the rain in the spring knocked off a lot of blossoms and … trees are still tired from the drought.”
Still, Nelsen expects there will be enough mandarin and California navel oranges to meet demand for the winter holidays but prices will be higher due to Florida’s woes.
“The unfortunate situation in Florida has reduced what little fresh tonnage they had in terms of oranges, so our prices are going to be a little higher this year.”
And for those thinking with their wallets and making a decision to switch to grapefruits this year, something that government statisticians call “substitution”, well, that crop also lost a huge percentage in Florida:
The price of fresh grapefruit also is likely to be higher this year since Florida lost a huge percentage of the crop. While Florida ranks second in orange juice production to Brazil, the Sunshine State’s grapefruit accounts for more than half of the U.S. production, according to USDA data.
Florida’s orange crop production peaked about 15 years ago due in part to “citrus greening” disease.
And so here is a flaw to show how substitution isn’t really a fair estimate for calculating inflation in general. First and foremost, substituting one thing for another because of affordability is not maintaining the same standard of living, it is a lowering of the standard of living because one is forced to make the switch to a lesser desired product. Secondly, if most people find grapefruits to be not as sweet as oranges and therefore needing supplemental products such as sugar to counter-balance the loss of desired taste, than any substitution savings could be cancelled by the use of sugar, and depending on acquisition costs, it could actually be more expensive to switch from oranges to grapefruits with sugar.
Time will tell but the end result is the same: Higher prices are coming. This, of course, will make the Fed happy, but, what is the real devastating cost to rise at these higher prices? Inflation through destruction is never a good thing…