Don't Panic, Orange Juice Won't Be Squeezed

NEW YORK (TheStreet) -- The unusually severe cold temperatures experienced by the central and eastern U.S. in recent weeks are expected to have a chilling effect on economic activity for the quarter, so much so that a noticeable slowdown in GDP growth is possible.

The largest industries to take a hit are retailers and restaurants -- when would-be diners and shoppers stay warm at home, so do their dollars.

But while the damage caused by weather-related consumer skittishness is generally reversed as soon as temperatures normalize, one industry is threatened with irrecoverable losses when the cold strikes: citrus producers.

Because many varieties of oranges and lemons are harvested in the winter months in the U.S., an unseasonably cold winter can cause devastating losses for Florida and California citrus farmers, some of which pass down to juice producers, crop insurers and consumers.

We've had two significant freezes this season: a deep December freeze in California's Central Valley, and several freezing days in southern Florida where a large portion of the country's oranges are grown.

Impact on Producers

The largest public companies most directly positioned to suffer the brunt of the bad weather are Limoneira  (LMNR) in the Central Valley and Alico (ALCO) in southern Florida.

In the case of Alico, the worst of the possible damage was likely avoided because temperatures in Florida didn't fall deep below 28 degrees (the temperature at which substantial damage to citrus plants occurs) at the peak of the night-time freeze, and didn't stay there very long. While we aren't particularly bullish on Alico in general, we don't believe the winter weather is a catalyst to sell.

The December freeze in the Central Valley, on the other hand, was substantial. California Citrus Mutual estimated the total damage there at as much as a quarter of the $2 billion California citrus industry.

From a historical point of view, the freezes of 1998 and 2007 were more severe, but in each of those cases the industry bounced back from its setbacks relatively unscathed in the long term. Unless this season's severe temperatures are part of a systemic change, which seems unlikely, there's no reason to suspect the lemon grower won't weather this milder freeze just as well.

Overall, while a potential 25% crop loss is significant, we don't believe LMNR is a sell at this level. The market has beaten the stock down substantially from its highs in December, so the most likely negative scenarios are already priced in at this point.

We recommend holding for now, and waiting for clarity on the extent of the damage as numbers from the company come in. If Limoneira cites loss experience that's in line or below California Citrus Mutual's estimates, it may be an excellent buying opportunity for investors looking for exposure to agricultural stocks.

Impact on Consumers

Even if Florida and California citrus groves wind up suffering more severe weather-related damage than expected, we believe noticeable impact on consumers of orange juice is unlikely. Futures have ticked up somewhat but the gains are modest in the context of multi-year fluctuations, which are driven by global supply and demand dynamics.

On the other hand, the fresh citrus market, which is much more local in nature, is likely to be affected in the short term, with consumers seeing higher prices for some varieties of lemons and oranges in the coming months. The impact will be limited, however, because U.S. farmers are likely to absorb some of the loss in order to avoid ceding market share to rapidly growing overseas producers.

The Bottom Line

While this season's frigid weather has been making headlines and breaking records, the freeze is neither disastrous nor unprecedented from the citrus growers' perspective.

Consumers need not worry about breaking the bank at the supermarket on account of the cold, and investors would do well to be on the lookout for oversold growers clouded by market fears.  Big freezes happen every several years, and the surest bet is that there are opportunities to snap up when the sunshine inevitably returns.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

More from Opinion

Throwback Thursday: Intel Edition

Throwback Thursday: Intel Edition

Intel's Next CEO Should Try Harder to Protect Its Flanks Against AMD and Others

Intel's Next CEO Should Try Harder to Protect Its Flanks Against AMD and Others

3 Warren Buffett Stock Picks That Could Be Perfect for Your Retirement Portfolio

3 Warren Buffett Stock Picks That Could Be Perfect for Your Retirement Portfolio

Wednesday Wrap-Up: GE and Facebook

Wednesday Wrap-Up: GE and Facebook

PayPal Strikes Again, Facebook, and AT&T -- 3 Tech Stories You Must Know

PayPal Strikes Again, Facebook, and AT&T -- 3 Tech Stories You Must Know