Drought in California and parts of Mexico, besides Florida’s wettest December already since the 1920s, have forced unprecedented US vegetable shortages and “exorbitant” prices, Landec Corp said, cutting profits hopes.
The fresh vegetables-to-biopolymers group, which is based in California, warned of a “severe produce shortage”, thanks to “very poor yields and quality” of key purchases, which was affecting in particular its Apio salads business.
“There is simply not enough supply from our contracted growers, or for purchase on the open market, to meet demand,” said Molly Hemmeter, the Landec chief executive.
“Many experts in the Western [US] vegetable industry have commented that they have never seen vegetables in such short supply, which has led to exorbitant prices,” she said, flagging a rise in cauliflower prices to $47 a case, from the typical price of $15-21 a case.
Booming vegetable inflation has also shown up in official data, which show US onion values up 21% year on year in October, celery prices up 66% and broccoli prices up 68%.
‘Unseasonably warm weather’
Landec blamed the supply shortfall on “unseasonably warm weather”, which has long dogged the major vegetable-producing state of California, of which 97% is in drought, according to weekly US Department of Agriculture data.
The drought reading has not been below 94% since April 2013.
Dryness is also affecting parts of Mexico, a major vegetable supplier to the US, which was a net importer of nearly $4.3bn of fresh vegetables last year including potatoes and mushrooms.
Mexico exported 10bn pounds of fresh vegetables to the US, which overall relies on imports for 25% of its needs, according to the USDA.
The group also highlighted the heavy rains in Florida, another major vegetable producing state.
Miami has received more than 8 inches of rain so far this month, more than the six inches usually received from December through February, and with the south of the state already seeing its wettest December since 1929, according to the Weather Channel.
Customers lost
Landec added that the impact of the “unusually warm weather in California and Mexico” had been evident in lower output in Windset Farms, the Canada-based producer of which it owns 27%, which has operations in the US and supply deals in Mexico.
The conditions had hurt “particularly in its Mexican grower marketing programmes which are down considerably from contracted volumes”, Ms Hemmeter said, adding that the setback would lower to $1.2-1.4bn the fair market value of its investment in Windset, from the $4.0bn which had been expected.
At Apio, it was taking a hit too, with the shortage of vegetables for purchase preventing the business from meeting all its customer orders, meaning that some clients would be lost during the second half of its financial year, which ends in May.
Shares fall
Landec said that it was likely to report a 6% drop in revenues, and 45% drop in earnings, for the second quarter, which ended on November 29.
For the year to the end of May 2016, the group cut guidance for revenue growth to 3-6%, from 7-9%.
Full year earnings were seen growing by 10-20%, compared with the 60-65% previously expected.
Landec shares fell by 7.8% to $12.00 in early deals in New York.
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