Slumping banana markets have become an increasing concern in the fruit industry in recent weeks, as economic turmoil in Europe and the prospect for burdensome supplies darkens profit prospects for Chiquita Brands International and Dole Food Co., analysts say.
Import prices for the European Union and the U.S. have dropped for at least five consecutive months, according to World Bank data. At the retail level, U.S. supermarket banana prices last month fell to the lowest level since January.
The weakness in part reflects renewed problems in European fruit markets stirred by fears of a Greek debt default, analysts say. That’s rippling across the Atlantic to the U.S., which is also struggling with high unemployment and a slow economy, raising the prospect of an excess supply scenario similar to what’s plagued banana markets over the past two years.
Banana prices in dollar terms have “deteriorated dramatically, reflecting the steep drop in the euro,” BB&T Capital Markets analyst Heather Jones said in a Sept. 16 report. It’s an “admittedly difficult environment for the banana companies with weak EU pricing and a very uncertain euro outlook.”
Since the end of August, the euro has lost more than 5% of its value against the dollar, trading at about $1.37 on Sept. 20. EU banana prices were already eroding through the summer. During August, import prices averaged 1,023 per metric ton, down 4.9% from July, according to the World Bank.
In the U.S., bananas at Gulf of Mexico ports averaged $951 per metric ton in August, down 1% from July.
Jonathan Feeney, an analyst with Janney Capital Markets, said it appeared EU banana markets had stabilized in recent months. Still, he said he’s been “worried the supply demand balance over there was just bleeding into here as opposed to true supply balance,” Feeney said in an e-mail.
Because most bananas sold in the U.S. are purchased through prearranged contracts, as opposed to bought on open markets, it’s unclear how recent developments will play out here, Feeney said.
“We won't know for sure until these grocer contracts roll,” he said.
While contracting happens year-around, the bulk of it happens from September through February, Jones said.
Chiquita and Dole, which along with Fresh Del Monte Produce account for about 85% of U.S. banana imports, have a lot riding on the market’s direction. The three companies have seen profits come under pressure over the past two years from banana-related problems, including bad weather that destroyed crops in Central America early this year and last year.
The fruit companies’ European troubles have been percolating for months. In late-July, David DeLorenzo, chief executive for Westlake Village, Cal.-based Dole, said he expected the company’s third-quarter results to fall below the same period in 2010, partly because of lower banana prices in Europe.
Chiquita, based in Cincinnati, said its second-quarter banana sales rose 1.5% to $555 million on stronger prices in North America, though sales volumes in the region were unchanged and those for Europe fell 5.4%.
In 2012, Jones expects profitability of the North American banana business to be “down somewhat” for multinational fruit companies, according to her Sept. 16 report. Chiquita and Dole didn’t immediately respond to messages.
Bananas are the third-biggest fresh produce item at the U.S. retail level in terms of dollar sales, trailing only tomatoes and apples, according to FreshLook Marketing Group. But bananas have to some extent bucked a broader inflationary trend in fresh produce.
During August, bananas at retail fell for the sixth consecutive month, averaging 60.6 cents a pound for the lowest monthly price since January, according to Labor Department data. Banana prices are still up 5.2% from August 2010.