It isn’t just in the likes of wheat and sugar markets that traders are coping with ample supplies.
A glut of bananas has put the skids under margins at Fresh Del Monte Produce.
Shares in the fresh fruit and vegetables group tumbled 8.8% to a 16-month low after it revealed a 67% tumble to $11.5m in earnings for the quarter ended September 29, a
period Fresh Del Monte said was “marked by one of the industry’s worst oversupply of bananas in several years”.
The problem, it appears, is that weather for banana growers has just been too good.
Not like the old days
“During the last 12 months, there has not been a single occurrence of any climactic conditions that would have reduced banana supply somewhere in the world,” said Mohammad Abu-Ghazaleh, the chief executive and chairman from Fresh Del Monte.
“In 2015, we had two occurrences that had really created a situation where we saw very high prices in 2016,” he said, flagging a typhoon in the Philippines that “wiped out a quite large volume of bananas”, and tempest which damaged Chinese plantations too.
“That made a big shortage in the markets, especially for the Asian market, and that created a huge opportunity.”
However, this year, “we didn’t have any of this”, meaning that “every” growing country is “producing at optimum volume”.
‘Full steam production’
Indeed, “it was like full steam production everywhere in the world, and the markets could not take all this volume”, Mr Abu-Ghazaleh told investors, adding that in the group’s key US market “consumers reduced their volumes” too.
“So we have to take this fruit and put it somewhere else in the market, which usually is the Mediterranean market, which is like a dumping market.
“The fruit is sold there at a loss.”
Fresh Del Monte saw its average banana sales price fall by 9.4% year on year during the quarter, driving gross profit in the banana division down 86% to $5.7m.
At least Fresh Del Monte has hopes of brighter times ahead, although ironically from producing more bananas itself.
That means the group “could lower our unit cost”, group finance director Richard Contreras said.
Now to tackle the “oversupply of pineapple concentrate from Thailand and Indonesia” that Abu-Ghazaleh said “was so great during the quarter that selling prices were significantly off”.
Pina colada anyone?