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The US avocado market in volatile times

Rabobank analyses the likely impact of Covid-19 on the US avocado market in the coming months

The US avocado market in volatile times

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Rabobank has developed a proprietary analytical tool to estimate weekly avocado shipments and avocado prices in the US. Analyst David Magaña looks ahead at what lies in store for the US market for the rest of 2020 and into 2021.

Avocado consumption in the US has steadily grown over the last several years, making it one of the most beloved fruits in the US. Industry players are diversifying Hass-producing regions, keeping traditional origins such as California, Mexico, and Chile and expanding in producing/exporting countries like Peru and Colombia, to be able to meet the growing year-round demand for the creamy fruit.

After an extraordinary 2019 season, the outlook for 2020 and beyond is set to be equally exciting, with California production back on track, Peru continuing at a fast-growing pace, and Mexico leading the pack with steady supplies. The US market will be demanding close to 3bn lbs of avocados per year in the near future.

At Rabobank, we have developed a proprietary analytical tool to estimate weekly avocado shipments and avocado prices in the US. Under standard economic assumptions, we expect prices to remain steady, including some seasonal variation in 2020 and Q1 2021.

One of the most popular fruits in the US

Avocado per capita consumption in the US has grown at a compound annual growth rate of 8 per cent during the last decade, to above 8lbs per person per year, making avocados one of the fastest-growing items in the fruit space in terms of consumption.

Avocados check the important boxes of taste, healthfulness, and tremendous versatility. Broadly known as a heart-healthy super fruit, avocados have high monounsaturated fat and dietary fibre levels. Eaten in salads, guacamole, avocado toast, sandwiches, omelettes, dips, salsas, tacos, burritos, smoothies, and all the way to ice cream and other desserts, avocado is a new American favourite flavour.

Despite the continuous growth in avocado availability over the last decade, prices have also consistently increased for every week of the year, which suggests the existence of a strongly expanding year-round consumer demand that is heavily reliant on imports.

Over the last decade, Mexico has been the dominant provider of avocados in the US market, followed by California, and during the last few years, shipments from Peru have sharply increased. Chile, once a relevant avocado supplier to the US market, has diversified its exports, focusing on European and Asian markets. Colombia is the newcomer in the space, with exports that will gain relevance in the next few years.

During 2019, production out of California was abnormally low, as a heatwave decimated bloom and eventually impacted yields. Given the late start of the California harvest, the industry relied heavily on shipments out of Mexico during Q1 2019. Later in the summer, shipments from Mexico declined considerably.

Lighter-than-normal California shipments, combined with increased shipments from Peru, were not enough to meet the growing demand, and prices rose steeply to multi-year highs. Average avocado prices during June 2019 are the highest on recent record in the US during that time of the year.

Out of all the Hass avocado shipments to the US market during 2019, 82 per cent originated in Mexico, 9 per cent in California, 7 per cent in Peru, and the rest came from Chile, Colombia, and other sources. During June 2019, 39 per cent of the avocado shipments were from Mexico, 33 per cent from Peru, and 27 per cent from California, with an unprecedented high share of avocados from Peru. 

In terms of production, 2020 is telling a different story compared to that of 2019. Industry sources expect the avocado harvest in California to be 70 per cent higher year-on-year, as production goes back to historical levels under favourable weather conditions.

Also, planted avocado area in Peru will be up 8 per cent year-on-year, with expected production to grow 31 per cent year-on-year, according to local industry estimates. Avocado production in Mexico is also expected to be up year-on-year, given a mature orchard pool, as well as a steady expansion of newer planted area in Michoacán, the only Mexican state that currently is certified to export avocados to the US market.

Back to ‘normal’ production

In Rabobank, we have developed a quantitative analytical tool to provide probabilistic (stochastic) estimates of weekly avocado shipments to the US market. We take into consideration industry estimates of annual production, trends in harvested acreage, and seasonality of production by region. Our estimates also capture potential weather-related supply shocks, as well as other risks.

Our average estimate for week 26 in 2020 has avocado shipments to the US market up about 27 per cent compared to the corresponding week in 2019. There is a 50 per cent probability that shipments are between 47.5m and 55.8m lbs during the aforementioned week, while there is a 5 per cent chance that shipments are below 42.4m lbs.

We expect shipments to be higher year-on-year during most of the spring and early summer. A wider variance in our shipment estimates after week 42 reflects greater supply-side risks, as the California season ends and harvest in Mexico is still susceptible to weather shocks (end of the hurricane and rainy seasons).

Avocado prices amid an uncertain backdrop

During the summer of 2019, avocado prices became a popular subject across US media, especially around week 26, when prices reached a multi-year high. Our average blend (across all sizes) price estimate for week 26 in 2020 is about US$48 per 25lb carton, down 33 per cent year-on-year. We estimate a 5 per cent chance of shipping-point prices being south of US$35/carton for that specific week.

Our baseline estimates show a higher price year-on-year after week 32 (early August) in 2020. This trend is in line with historical seasonal price behaviour and consistent with an expected recovery of foodservice demand by Q3 2020. Also, we estimate prices in week 48 to be about US$31 per 25-lb carton, with a 50 per cent chance of being US$26-US$36 per carton. Our blend price estimate averages all avocado sizes from all origins. Price estimates by size are available to Rabobank clients.

Seemingly positive outlook in the longer run

Demand channels have been drastically impacted by lockdowns and shelter-in-place guidelines amid Covid-19 pandemic, especially foodservice, as consumer buying patterns radically switched.

We expect that consumers will continue to make healthy choices during virus-stressed times, favouring avocados. The related economic downturn may pull demand for avocados in a non-positive direction. But, as a reference, avocado consumption and prices remained firm during the 2009 economic and H1N1 sanitary crises.

Our average estimate is that per capita consumption in 2020 will show a modest, but positive, annual growth, whereas consumption in 2021 may reach 9lbs per person, as the US economy rebounds.

Rabobank estimates show that economic activity may start its way to recovery as soon as Q3 2020. Some expect that, when the social distancing measures are relaxed, consumers will be eager to eat out, injecting a much-needed boost to the foodservice industry, a relevant demand channel for avocados.

During Q1 2020, avocado shipments to the US were up 13 per cent, yet unweighted average shipping-point prices were up 25 per cent compared to prices during Q1 2019. Retail avocado sales have remained strong through the first months of the lockdown, up about 20 per cent year-on-year compensating for the loss in foodservice sales. The industry’s flexibility and ability to redirect product to retail have proven crucial.

Continued promotion of fresh avocados as a great tasting, healthful, and extremely flexible food item will continue to be the cornerstone of demand expansion, especially in newer, global markets.

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