The Net Present Value of New Citrus Plantings

Transcription

1 The Net Present Value of New Citrus Plantings Florida Growers Institute April 3, 2018 Avon Park, FL Ariel Singerman Assistant Professor / Extension Economist Citrus Research and Education Center (CREC) singerman@ufl.edu (863)

2 2,600 2,400 2,200 Cost of Production of Processed Oranges in Southwest Florida $ per acre 2,000 1, $ per box 1, , ,200 0 Cost per box (right axis) Cost per acre (left axis) Source: Ariel Singerman, CREC, University of Florida

3 Revenue and Cost per Acre for Processed Oranges in Southwest Florida 3,500 3,000 2,500 $ per acre 2,000 1,500 1, Revenue Non-Valencia Revenue Valencia Total Cost Cultural Cost Source: Ariel Singerman, CREC, University of Florida

4 Annual Acreage Planting and Loss Rates For Oranges in Florida Annual Rate 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Source: USDA-NASS Acreage Loss New Plantings

5 Total Florida Citrus Bearing Acres 900, , ,060 Acres 700, , , , , , , , , ,700 0 Source: USDA-NASS Crop Year

6 Number of Operations 6,000 5,000 4,000 3,000 2,000 1,000 0 Source: USDA-NASS 5,304 Number of Florida Citrus Growers by Farm Size (Acreage) 4,302 2,156 1, to 49.9 acres 50 to 249 acres 250 to 749 acres 750+ acres

7 Number of Citrus Juice Processing Facilities and Fresh Fruit Packers in Florida Number of facilities Source: FDACS Juice Processing Facilities Fresh Fruit Packing Companies

8 Establishment, Production Cost, and Profitability Analysis of a New Grove in the Era of HLB

9 Assumptions Operation located in SW Florida Land previously owned and clear of trees Valencia orange grove for processing Grove lifespan: 20 years Services contracted Land preparation and bedding Fertilization with Tree See Technology Hedging and Topping Tree Removal Tree Replacement

10 Assumptions (continued) Tree Density Trees per Net Acre Between Rows (ft.) Between Trees (ft.) Tree Mortality and Removal Year 1 thru 5 6 thru 20 Annual Rate (%) 3 5 Tree Replacement Varies for each density (based on highest return)

11 Made different assumptions to represent different scenarios: 1. Initial Investment in Machinery, Irrigation & Frost Protection 2. Yield Low: USDA-NASS (~40% reduction compared to pre-hlb) High: 25% reduction compared to pre-hlb estimates Quality assumption: 6.24 p.s./box (FDOC, 2016/17) 3. Price Assumptions (continued) Constant price throughout investment Delivered-In Price Scenarios Low Medium High $15.62/box $2.50/ps $17.78/box $2.85/ps $19.23/box $3.08/ps

12 Scenario Analysis For each tree density, 145, 220, and 303 TPA, computed different scenarios combining Yield, Prices, and Costs to obtain Returns Yield scenario Low High Price ($) Delivered-In Low 15.62/box 2.50/ps Medium 17.78/box 2.85/ps High 19.23/box 3.08/ps Low 15.62/box 2.50/ps Medium 17.78/box 2.85/ps High 19.23/box 3.08/ps Capital Investment Full Partial Full Partial Full Partial Full Partial Full Partial Full Partial

13 Establishment, Production Cost, and Profitability Analysis of a New Grove in the Era of HLB 145 Trees per Acre Partial Investment

14 Yield for 145 TPA Boxes per tree Plant Age (years) Low Yield High Yield

15 Dollars per acre 10,000 8,000 6,000 4,000 2,000 - Cash Receipts, Expenses, and Yield 145 TPA; High Yield; $2.85/ps Delivered-in Grove Year Boxes per acre Cash Expenses (left axis) Cash Receipts (left axis) Yield in Boxes (right axis)

16 Discounting Cash Flows: illustration 12,000 10,000 Dollars per acre 8,000 6,000 4,000 2, Discount all cash flows to year 1

17 Profitability Analysis Tree density Yield scenario Price ($) Delivered-In Capital Investment IRR Payback Period (year) 145 Low High Low Medium High Low Medium High 2.50/ps 2.85/ps 3.08/ps 2.50/ps 2.85/ps 3.08/ps Full -8% Not in 20 years Partial -5% Not in 20 years Full -2% Not in 20 years Partial 0% 20 Full 0% 20 Partial 3% 17 Full 0% 20 Partial 3% 17 Full 4% 15 Partial 8% 13 Full 7% 14 Partial 10% 12

18 Establishment, Production Cost, and Profitability Analysis of a New Grove in the Era of HLB 220 Trees per Acre Partial Investment Additional assumptions: Changes in machinery, irrigation, and application costs to accommodate higher density

19 Yield per Tree for 220 TPA 3.5% penalty for canopy closure starting year 10 Boxes per tree Plant Age (years) Low Yield High Yield

20 Cash Receipts, Expenses, and Yield 220 TPA; High Yield; $2.85/ps Delivered-in 10, Dollars per acre 8,000 6,000 4,000 2, Boxes per acre Grove Year 0 Cash Expenses (left axis) Cash Receipts (left axis) Yield in Boxes (right axis)

21 Profitability Analysis Tree density Yield scenario Price ($) Delivered-In Capital Investment IRR Payback Period (year) 220 Low High Low Medium High Low Medium High 2.50/ps 2.85/ps 3.08/ps 2.50/ps 2.85/ps 3.08/ps Full 1% 19 Partial 3% 16 Full 5% 15 v Partial 7% 13 Full 7% 13 Partial 10% 12 Full 7% 13 Partial 10% 11 Full 11% 11 Partial 14% 9 Full 13% 10 Partial 16% 9

22 Establishment, Production Cost, and Profitability Analysis of a New Grove in the Era of HLB 303 Trees per Acre Partial Investment Additional assumptions: Changes in machinery, irrigation, and application costs to accommodate higher density

23 Boxes per tree Yield per Tree for 303 TPA Plant Age (years) 5% penalty for canopy closure starting year 10 Low Yield High Yield

24 Dollars per acre 10,000 8,000 6,000 4,000 2,000 - Cash Receipts, Expenses, and Yield 303 TPA; High Yield; $2.85/ps Delivered-in Grove Year Boxes per acre Cash Expenses (left axis) Cash Receipts (left axis) Yield in Boxes (right axis)

25 Profitability Analysis Tree density Yield scenario Price ($) Delivered-In Capital Investment IRR Payback Period (year) 303 Low High Low Medium High Low Medium High 2.50/ps 2.85/ps 3.08/ps 2.50/ps 2.85/ps 3.08/ps Full 5% 15 Partial 7% 13 Full 8% 13 v Partial 11% 11 Full 10% 11 Partial 13% 10 Full 11% 11 Partial 13% 10 Full 14% 9 Partial 17% 8 Full 16% 9 Partial 20% 8

26 Conclusions Is it profitable to establish a grove under endemic HLB conditions in Florida? If only a partial investment is needed: 145 TPA initial investment: $7,000 per acre low yield => no profitability with low and medium prices high yield => returns 3% (current mkt conditions); 10% (high price) 220 TPA initial investment: $8,300 per acre (19% more than 145 TPA) low yield => returns 1% (current mkt conditions); 10% (high price) high yield => returns 7% (current mkt conditions); 16% (high price) 303 TPA initial investment: $10,300 per acre (47% more than 145 TPA) low yield => returns 5% (current mkt conditions); 13% (high price) high yield => returns 11% (current mkt conditions); 20% (high price)

27 Caveats of the analysis 1. Uncertainty in the long-run about yields of high density groves (current plantings <10 years old) 2. Also uncertainty regarding the impact of HLB on 10+ year old trees 3. We did not include any potential impact of weather events (and their effect on prices)

28 Thank you for attention My contact info: Citrus Research and Education Center (863)