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Vegetable supplies, hurt by drought, now threatened by rains

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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 the stuff.

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.

Rains return

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%)

Source: 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 this weekend.

'Severe produce shortages'

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 29.

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."

Optimistic on prospects

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.

By Mike Verdin

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