The Damage to Oranges, Lumber and Cotton Caused by the Hurricanes

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Spend Matters welcomes this guest post from Jara Zicha and Verity Michie, market analysts at Mintec.

At the end of August, the Atlantic regions suffered devastating effects from Hurricane Irma that lasted for two weeks. It hit islands in the Caribbean and parts of the southern U.S. states, including Florida. But how did this affect commodity prices?

Oranges

Orange concentrate prices on ICE in New York have risen 5% in September, following the damage caused by the hurricane to orange groves in Florida, the main orange producing state in the U.S. In the aftermath of the hurricane, farmers reported a significant loss of their fruit.

While majority of trees survived the adverse weather, the fruit drop has been extensive, with some farmers claiming up to 75% of their fruit could be lost. Overall, based on initial estimates, between 25% and 35% of fruit could be lost in Florida this year due to Hurricane Irma.

Earlier this year, orange production in Florida was estimated at 68.7 million boxes, a decline of 16% compared with the previous season, driven down by ongoing problems with citrus greening. With a further 30% reduction, the harvest would amount to just over 48 million boxes. Just for comparison, 15 years ago, farmers in Florida produced 230 million boxes of fresh oranges.

The fear surrounding the effects of the hurricane caused prices of U.S. lumber to spike. Prices rose 6% week-on-week at the start of September and are up 12% month-over-month, following concerns over damage and supply disruption. Since around half of Florida’s land is forest, the long-term effects could be huge. However, while land remains flooded, the full impact to lumber supplies remains unclear.

Lumber

The fear surrounding the effects of the hurricane caused prices of U.S. lumber to spike. Prices rose 6% week-on-week at the start of September and are up 12% month-over-month, following concerns over damage and supply disruption. Since around half of Florida’s land is forest, the long-term effects could be huge. However, while land remains flooded, the full impact to lumber supplies remains unclear.

It’s not only the damages caused by a hurricane that effect lumber prices. It is also common that when a hurricane alert is set, people buy boards and wood to cover their doors and windows, in attempt to limit damage. Also after a hurricane, there is high demand for wood as people repair damages to their homes and buildings.

Cotton

U.S. cotton prices also rose 5% week-on-week at the start of September, as severe wet and windy weather damages the crops and lowers production. The alert of the hurricane caused a lot of panic, as cotton is a major crop in Georgia, South Carolina and North Carolina. However, cotton prices have since fallen 7%, as the hurricane was downgraded to a tropical storm before it reached these states.

This followed the devastating effects of Hurricane Harvey, which ripped through Texas earlier in August, damaging cotton bales that had been stored following a bumper crop.

Effect on GDP

The overall cost for the U.S. treasury from Irma is still unclear; however, early estimates put costs between between $50 billion to $100 billion, meaning U.S. GDP growth is forecast to slow down over the next quarter. The biggest effects will be felt in Florida, where the economic costs are estimated at $52 billion, resulting in its GDP growth to slow down at 2.5% from previous expectations of 3.6% in 2017.

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