Perfect Storm of Politics and Mother Nature Raises Avocado Prices
Dwight D. Eisenhower said, “Farming looks mighty easy when your plow is a pencil and you’re a thousand miles from the corn field.”
Those words rang true over the past couple of years.
This past week, the markets were rocked as U.S.-China trade negotiations faltered… again. And the U.S. will be slapping new tariffs on Chinese imports starting September 1.
Now, the casualties in this trade war are largely American agricultural products. And we’ve seen prices for some of those suffer steep drops over the past several days.
But there’s another trade war putting the squeeze on American consumers…
I love avocados. Millions of Americans do.
Unfortunately, if you’re one of them, you’ve probably noticed an unwelcome trend… Avocados have gotten expensive!
That’s bad news for all the friends who say “I’ll bring chips and guac” to those summer get-togethers by the pool.
Back in April, avocados suffered their largest one-day price spike since 2009. The initial blame fell on the White House because it threatened to close the southern border and impose tariffs on Mexico.
But prices have rocketed higher since. And Americans are starting to feel it in their wallets…
On July 5, the U.S. Department of Agriculture reported that, nationally, the average price of a Hass avocado was $2.10 – almost double the $1.17 price tag of a year ago.
But wholesale prices have risen even faster. During the first week of July, the wholesale price for a 25-pound box of avocados was $84.25. This was the highest price recorded for this time of year in almost a decade, as well as a 129% jump from July 2018.
Souring trade relations with our southern neighbor can’t be ignored. Mexico is the top fruit and vegetable supplier to the U.S. Last year, we imported $13 billion worth of these goods. And almost 80% of the avocados Americans consume are from Mexico. California supplies 16%, with Peru and Chile making up the rest.
But Trump’s threats and trade war drama are just a couple of the ingredients in this pricey burrito bowl.
California’s avocado growing season just came to an end. And it was a flop due to extreme heat. Farmers are expecting a harvest of a mere 175 million pounds this month. That’s half of last year’s volume and the smallest crop in more than a decade.
Plus, we’re in the “summer lull” for avocados. This is seasonally the lowest time of year for Mexican avocado output.
Mix all of that with skyrocketing American and global demand… and we’re in for a crippling price spike.
Profit on the Pain
There was a time when avocados were a treat. But now the Mexican fruit has found room in our stomachs year-round, from guacamole to avocado toast to bubble tea smoothies.
Plus, they’re a physician favorite for adding healthy fats to a patient’s diet. Apples are out. Avocados are in.
This has helped fuel the more than 20% run the shares of avocado producer Calavo Growers (Nasdaq: CVGW) have enjoyed in 2019.
Avocado prices should retreat once Mexican harvests start ramping up.
But remember, investors don’t have to take the price hikes lying down… They can profit from them.
About Matthew Carr
Matthew’s expertise ranges from classic industries such as oil and mining to cutting-edge markets like small cap tech, cannabis, 3D printing and cloud computing. With almost two decades of financial experience under his belt, Matthew’s knack for finding market trends never fails to surprise us, which is why we keep a close eye on his free e-letter, Profit Trends.