When a market analyst announced in October she was changing her rating on banana giants Chiquita and Dole from “buy” to “hold,” it was headline news.

Banana markets look more appealing

Andy Nelson
Markets Editor

A worldwide banana glut was expected to lower prices in 2011. Also, recent earnings reports from some banana industry leaders had not been exactly rosy.

What a difference a few months make. Weather problems in Central America are diminishing volumes and strengthening some markets, and some importers are projecting stronger, not weaker, markets in the first quarter of 2011.

And, on Dec. 9, that same analyst reversed course, recommending investors start buying again.
I’ve been covering this story mainly from the supplier end. For some wholesaler perspective, I turned to David Hahn, who heads up the banana buying program for Four Seasons Produce Inc., Ephrata, Pa.

Turns out he’s as surprised as everyone else.

“I remember at PMA, everyone was talking about how it looks like there’s going to be a ton of fruit next year,” Hahn said. “It can change so quickly.”

Thanks to cold weather and lack of sunshine in Ecuador and rain, rain and more rain everywhere else in Central America, prices on the spot market were up as much as $2 per box heading into the holidays, Hahn said.

“It’s going to be extremely tough for banana shippers the first quarter,” he said.

In addition to being scarce, some bananas will also be smaller, or wind-scarred, or both, Hahn said. As a result, retailers can expect a larger number of No. 2’s than usual in coming months.

Banana shippers who source from multiple regions should benefit from the stronger demand, Hahn said. Those with all their eggs in one basket, however, could be in big trouble.

A few months ago, Hahn said the prevailing industry theory was that banana prices would fall in 2011. Now, he said, contract prices will likely hold steady, but there’s little chance of them falling.

It struck me, talking to Hahn, that retailers who are still contemplating launching price wars — 39 cents a pound, anyone? — will have to think long and hard about how much money they’re willing to lose just to get a temporary edge on their competitors.

With all this talk about the supply side, the demand side shouldn’t be forgotten. Hahn expects strong demand for bananas in the coming months.

“We’re in the time of year where it’s banana time until June or July, when we start getting the stone fruit in,” he said. “Demand should be very good.”

So there you have it: from weak markets to strong, from heavy supplies to light, from sell to buy, in the space of two months.

In other words, par for the produce industry course.

E-mail anelson@thepacker.com

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