The Wall Street Journal

October 13, 2004

U.S. BUSINESS NEWS
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Juice Makers Face
Increased Costs
From Hurricanes

By CHAD TERHUNE
Staff Reporter of THE WALL STREET JOURNAL
October 13, 2004; Page A2

Leading juice makers Tropicana and Minute Maid will face higher costs because of severe hurricane damage to the Florida orange crop, but laggard consumer demand and a huge inventory of breakfast juice will make it difficult for the companies to raise retail prices.

The Agriculture Department estimated yesterday that Florida will produce 176 million boxes of oranges, down 27% from 242 million boxes last season. That would be the smallest crop in a decade. Production of ready-to-serve orange juice will fall 29% to 1.03 billion gallons from last season.

Florida produces about 75% of U.S. oranges and accounts for about 40% of the world orange-juice supply. Hurricanes Charley, Frances and Jeanne knocked fruit off trees and flooded groves across much of the state.

Grapefruit fared even worse: An estimated 63% of the crop was lost, making this season likely to be the worst since 1938. Fresh grapefruit may be hard to find in U.S. stores since much of it will likely be exported to Japan and Europe, where strong demand has driven up prices.

Tropicana, a unit of PepsiCo Inc., Purchase, N.Y., said early indications suggest it probably will need to raise prices as a result of the damage. Ray Crockett, a spokesman for Coca-Cola Co.'s Minute Maid unit, said, "We are monitoring the situation, but we don't expect any impact" on supply or pricing at this time.

Florida citrus officials said a surplus inventory of orange juice, driven up by weak demand in recent years, along with an increase in Brazilian imports, should keep U.S. retail prices from rising significantly. Juice inventories are 36% higher than two years ago, officials say, and Brazil, the world's leading supplier of orange juice, is expected to roughly double exports to the U.S. to about 500 million gallons this season. "We will see some price increases but not to the point consumers will walk away from a purchase," said Dan Gunter, executive director of the Florida Department of Citrus.

Tropicana, Minute Maid and citrus growers all are trying to reverse a slide in orange-juice sales, driven by consumer concerns over calories and carbohydrates. Sales of chilled orange juice fell 3.1% by volume in the 52 weeks ended Sept. 5, according to Information Resources Inc. Pricing was weak, too, with sales off 4.6% to $2.65 billion over the same period in supermarkets and other stores excluding Wal-Mart Stores Inc.

Tom Spreen, chairman of the food and resource economics department at the University of Florida, of Gainesville, said any increase in retail prices may be constrained because juice makers "are worried about demand, too. They don't want to stick a big price increase out there."

For those farmers still with oranges to sell, the hurricane damage isn't all bad. Mr. Spreen expects Florida growers to get about 90 cents a pound for oranges delivered to processors in the October-through-June season, up from about 65 cents last season. Commodity futures on frozen orange-juice concentrate have risen about 30% since Aug. 1.

Federal disaster-relief payments have begun reaching growers who suffered considerable damage, and the loss of citrus trees statewide was less than initially feared. "The industry overall from a financial standpoint is going to benefit from this," Mr. Spreen said. "You needed something to correct the oversupply problem, and normally freezes accomplish that. Excessive inventories are a price killer."

While Florida growers were battered by hurricanes, ideal growing conditions across much of the nation's midsection are generating record crops of corn, soybeans and cotton. That should help cool food-price inflation, which heated up this year after slumbering for a decade. The USDA said corn production will reach a record 11.6 billion bushels, and soybeans, the nation's No. 2 crop, will total a record 3.11 billion bushels. The forecasted harvest for soybeans would be 27% bigger than last year's drought-stunted crop.

The nation's cotton crop is expected to be a record at 21.5 million 480-pound bales. Good growing conditions in Texas more than offset hurricane losses in Alabama and Georgia.

--Scott Kilman contributed to this article.

Write to Chad Terhune at chad.terhune@wsj.com1

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