Bananas - the EU the Euro - Straws in the Wind

The impact of recent changes in banana importing into the EU and the decline of the dollar have had a noticeable impact on the market.

Chiquita Brands International are the world's leading banana producer. Despite Q3 sales growing 8% to $1.03 billion, and North America price rises of 5% the company reported losses of US$96 MN or US2.29 per share.In Banana segment, year-over-year sales rose 8% in the third quarter to $444 million, up from $411 million the prior year. This segment incurred an operating loss of $43 million,

In the first 9 months the company reported EU sales down 2% - Premium Chiquita brand bananas volumes rose by 4% but second label fruit sales were down 35% as the new EU banana regime began to take effect.

The company report ..

Regulatory changes have encouraged new entrants and more intense price competition in the European market, especially at the low-end of the price spectrum. Because most of the new entrants do not have established customer relationships they’ve been forced to sell their products through brokers at very low prices. ..... In addition, the firm suffered $19 million of net incremental cost associated with higher banana import tariffs in the European Union.

All this is set against a lower market as in the warm summer customers seek juicier fruits in the warmer summer - as well as determined EU producer effort for expanding the length of the growing season for EU grown soft fruits.

On December 16th British Summer Fruits, the industry body representing UK growers who supply over 92% of soft fruit sold in UK supermarkets report record sales for 2006. The last of nine years steady growth. Blackberries showed the greatest increase with sales soaring 31% to £4 million. Raspberry demand was very strong , with sales up over 26% to £35million. British strawberry sales rose by 5% to over £165 million. The British berry industry receives no price support subsidies from the EU or DEFRA.(Pic BSF)

In a fascinating view of a major EU trader's outlook , Chiqiuta has hedged with put options approximately 75% of its estimated net Euro cash flows 18 months into the future. For 2007, the firm recently reset its put option positions at an average rate of $1.28 per euro, which has effectively locked in anticipated year-on-year currency benefits of approximately $15 million. For 2008, the firm is approximately 30% hedged at an average rate of $1.27 per Euro.

The firm also hedged a significant portion of its fuel exposure on ocean shipping.