The surge in US vegetable prices caused by too little rain
in California and Mexico is now under threat of being spurred by too much of
Landec Corporation, which a month ago cut its profits
forecasts thanks to "exorbitant" prices of the likes of cauliflowers, said that
the onset of rains this week in drought-hit California, a key vegetables producing
state, had put even these downgraded targets under threat.
The revised guidance - which included a cut to 3-6% from
7-9% in the forecast for revenue growth in the year to the end of May, and a
reduction to 10-20% to 60-65% in expected profits growth – included a "significant
contigency" for the extra costs of sourcing produce.
US lettuce prices soared 75% during November alone,
according to the US Department of Agriculture.
"However, if El Nino rains have a largely impact on supply
in California and Mexico than we are currently estimating, or heavy rains
continue in Florida, this contingency may not be sufficient and results could
be further affected," said Molly Hemmeter, the Landec chief executive.
The comments come as rains, attributed to the El Nino
weather pattern, are lashing the south of California, providing some relief to
a long-standing drought.
Selected US vegetable prices, Nov, change on month, (year-on -year)
Broccoli: $65.10 per hundredweight, +12.0%, (+45%)
Cauliflower: $121.00 per hundredweight, +76%, (+79%)
Celery: $40.60 per hundredweight, +45%, (+53%)
Carrots: $31.00 per hundredweight, -1.0%, (+10.7%)
Lettuce: $60.10 per hundredweight, +75%, (+22%)
Indeed, 97% of the state was in drought as of the end of
2015, according to the USDA.
The figure has been above 90% since April 2013.
Some parts of the state received more than 2 inches of rainfall
on Tuesday, with further rain systems due to blow in later on Wednesday, and
Landec's comments came as the group, which owns the Apio
salads business and has a 27% stake in California-based vegetables producer
Windset, unveiled a drop of 42% to $1.87m in earnings for the quarter to November
Revenues rose by 5.8% to $140.4m, boosted by higher selling
prices at Apio, besides by growth at Landec's Lifecore biopolymers business.
However, margins were squeezed by the increased costs of buying
vegetables – when, indeed, they could be sourced.
"During the second quarter, Apio experienced severe
produce shortages and increased costs for many of its key vegetables due to
very poor yields and quality," Ms Hemmeter said.
"Despite our efforts to meet the increasing demand for our
products, there was simply not enough supply from our contracted growers, or
for purchase on the open market, to meet demand."
Ms Hemmeter added that despite the "short-term setbacks"
from high vegetable prices, Landec was "very excited" about prospects for both its
Apio and Lifecore businesses.
Lifecore was "having a record year", with revenues seen rising
by 25% and operating profits by 130-140%, and allowing group earnings growth
despite the produce market hiccups.
The group's earnings per share for the latest quarter came
in at $0.07, $0.01 above the level expected by Wall Street.
Landec shares stood 1.8% lower at $11.40 in morning deals in New York.