Dec 19, 2007

Prices of Juice Apples Have Gotten Positively … Juicy

After nearly a decade of low and flat prices for juice apples, prices were sharply higher this fall, rising for the second year in a row. Apple juice concentrate, which cost as little as $4 a gallon for the Chinese version a few years ago and $6 this spring, was running about $11 in October, while European concentrate was around $15.

Phil Pitts, who runs the sales desk at the processing apple division of MACMA, said Michigan’s processors had agreed to pay Michigan growers a minimum price of $6.25 a cwt. for tree-run juice apples this fall, but that only one paid that price. Everybody else was paying more, with prices as high as $8 a cwt.

The MACMA processing apple division negotiated a minimum price of $4.25 in 2005 and boosted that by a dollar, to $5.25, in 2006. He said the additional dollar this fall means the minimum price for juice apples has risen 47 percent in two years; the $8 figure represents an increase of 88 percent, a near doubling.

USDA figures give the same message. The average juice apple price hit a rock bottom $67.90 per ton in 2005 ($3.39 a cwt.), and rose 42 percent to $96.40 per ton ($4.82 a cwt.) in 2006. 2004 saw a big tumble in prices, to $70.50 a ton from $103 in 2003. Apples at $6.25 a cwt. are $130 a ton.

In 2006, 17 percent of the U.S. apple crop went for juice, according to USDA.

Selah, Wash.-based Tree Top announced it would temporarily shut down its Cashmere, Wash., apple and pear juice plant because there wasn’t enough fruit to keep it running, according to the company.

The grower-owned cooperative said the high-quality crop for the 2007 season resulted in fewer lower-grade apples for the juice processing operation.

The Cashmere facility could reopen following the 2008 harvest, depending on the quality of the crop. The company will continue operating at its Wenatchee and Prosser plants, with the juice processing consolidated at the Prosser plant.

At the U.S. Apple Association’s annual summer conference in Chicago, the rising price of apple juice concentrate was on the agenda. Everyone was interested in the condition of the world apple crop. Eastern Europe was suffering a drought after a miserable spring, and the crop in Poland – the world’s largest apple juice concentrate producer – was down 50 percent, and production of concentrate could be down 75 percent. China, which doesn’t have official statistics, was expected to have a smaller crop than usual and would produce 15 percent to 20 percent less concentrate.

Speakers from big U.S. apple processors like Tree Top and Knouse Foods were playing their cards close to the vest, talking in general terms.

John Rice, a board member of Pennsylvania-based cooperative Knouse Foods, said that $9 to $10 juice apples would certainly do a lot for Eastern apple growers, who have historically grown apples for the processing market. The last decade of low prices encouraged a radical restructuring of the industry, as growers pulled trees and planted fresh-market varieties.

Tom Hurson and Lindsay Buckner from Tree Top in Washington said strong fresh-market apple prices were pulling apples up, putting on more pressure to keep apples out of the bottom price category of juice apples. But hail storms, stem punctures, russeting, sunburn, bruising and poor markets for some varieties make the processing and juice market an important one, even for those who grow apples aimed only at the highest fresh-market value.

Since juice apples – in fact, all non-fresh-market apples in Washington – find a residual value in processed products, Tree Top officials don’t talk price much until the annual report comes out the next year. Growers often don’t know how poorly or well they’ve done until the co-op settles things up at the end of the season.

Jim Cranney, vice president of the U.S. Apple Association, remembers the years of the big crunch on apple juice prices. The operative word was “China.”

While the rising price of juice apples is good news for U.S. growers, he said, the years before China crushed the market weren’t all rosy.

“The chart shows the influence of China – endlessly low prices,” he said. “Before that, prices were volatile.”

A return to the old days would mean years of high prices followed by years of low prices, the peaks and valleys of a commodity market.

Another speaker at the Chicago meeting was Kevin Barley, a market trader with Citi/Smith Barney who deals mainly in orange juice futures. He is chairing a committee of the Juice Products Association, looking at the potential of creating a futures market for apple juice concentrate.

“Huge volatility creates turmoil for buyers and sellers,” he said. “In an organized futures market, price can be discovered and risk can be managed. The real benefit is prices discovery. You’ll know what it is every day.”

Before apple juice concentrate contracts can be trades, contract size and other specifications would need to be developed, including standards for sugar and acid. While 70 degrees Brix is a common standard for sugar in apple juice concentrate, acid levels vary widely.

A return to price volatility would encourage formation of the futures markets.

While prices may be volatile in the future, Cranney thinks the Chinese have learned a lot about apple product marketing. As he sees it, the Chinese strategy in the mid-1990s was to grab the market.

“They didn’t offer slightly lower prices, in 10 or 20-cent increments. They came in $1 below the market, at least,” he said.

China has driven a lot of the competition away, he said, but the country is maturing. Some companies have gone private, so it’s no longer a matter of them getting rid of apples to raise currency.

“They need to make a profit. In addition, their costs are rising.”

The Chinese also have learned they can charge higher prices and still keep market share, he said.

An additional factor is food safety. China’s recent problems have probably helped U.S. apple growers because U.S. consumers have become somewhat leery of Chinese food products. Made in America has increasing value.

To sum it up, current apple juice prices are mainly a function of shorter crops in two big juice-producing areas – China and Eastern Europe (Poland and Hungary). But in Cranney’s view, the world has changed, and it’s unlikely the Chinese will ever again push apple juice concentrate to $4 a gallon.