Forecast and Analysis of China's Apple Production and Price Trends This Year
The bumper apple harvest in 2015 and the earlier market price decline are the two main reasons behind the return of apple prices to normal levels. The increase in market inventory and the rise in demand caused by lower prices will become the two decisive factors shaping this year's market direction. Uncertainty in the future market is increasing, and colleagues in the fruit industry face difficult choices. There is a certain degree of pressure and risk in apple purchasing and operations. ——Editor
2014 Production Season
Price trends disrupted the market rhythm, with purchase and inventory prices inverted
Influenced by the year-round profit effect of the 2013 production season, as well as reduced output in some production areas, purchase prices rose by nearly 40% year-on-year, disrupting the market sales rhythm and accumulating risk. Ultimately, purchase and outbound prices were inverted, with almost no profit opportunities throughout the year, and fruit storage enterprises and fruit farmers generally suffered losses.
In the 2014 production season, apple harvesting was influenced by the year-round profit effect of the 2013 production season (with future market prices rising all the way, bringing substantial profits to fruit-storing farmers and fruit merchants), as well as reduced output in some production areas. Purchase prices rose by nearly 40% year-on-year, setting a historical high. At the same time, purchase prices for navel oranges, pears and other major fruits also hit new highs for similar reasons. Because apple purchase prices remained at high levels throughout, fruit merchants in different production areas behaved differently during the purchasing period. Overall, the eastern region was rational and cautious, while the western region was relatively active and optimistic. Fruit farmers generally were reluctant to sell and resisted price cuts. The final result was that the proportion of fruit stored by farmers in both the east and west hit new highs. Taking the representative production areas of the east and west as examples, Qixia reached nearly 80%, and Luochuan was around 40%. By the end of the harvest period, farmers stored mostly mixed-grade fruit, and the overall storage quality was the worst in recent years, leading to severe diseases in stored apples, with the rate of substandard fruit exceeding 10% and losses far higher than in previous years.
Wholesale prices for apples in the 2014 production season, affected by the year-on-year rise in purchase prices, continued to operate at high levels. This caused the market sales rhythm to lag behind previous years from the very start of harvesting, with no boom during the peak season, and future market risks accumulating month by month. The highest point of wholesale prices for the whole year appeared before the Spring Festival, rather than in the later stage of the future market as in most previous years. By mid-to-late June, inventory increased by more than 30% year-on-year, and outbound prices began to loosen and declined all the way. Looking at the entire storage and sales period for apples, purchase and outbound prices were inverted, with almost no profit opportunities throughout the year, and fruit storage enterprises and fruit farmers generally suffered losses. Although market prices differentiated due to quality differences, with high quality commanding high prices, dragged down by low-priced fruit, sales of high-quality fruit were also relatively slow, and profit margins were compressed.
2015 Production Season
Purchasing will present a buyer's market situation, and some “difficulty in selling” cannot be ruled out
The purchasing period may be extended to a certain degree, and the final storage volume of apples will depend on the confidence of fruit merchants and fruit farmers in the future market. The purchase price of 6 yuan/kg is the market psychological line and will become an important indicator for judging the prosperity of this year's apple market.
Overall, in the later stage of apple growth this year, the climate nationwide was basically “favorable”, with flowering volume increasing by about 30% year-on-year, and the number of bagged fruits increasing by more than 20%. Increased production is already a foregone conclusion. In North China, Hebei, Shandong, Shanxi and Xinjiang had relatively higher increases in production, with most production areas seeing an increase of more than 10%. In the western regions of Shaanxi and Gansu, as well as southern Liaoning and the Sanmenxia area of western Henan, the increase in production was smaller than in the North China provinces, at around 5%.
Based on the above, combined with the increase in total production brought about by the expansion of apple planting areas in various production regions, it is predicted that apple production this year will increase by about 8% year-on-year. In addition, no large-scale severe diseases occurred nationwide, so the overall quality of apples is relatively outstanding. Compared with previous years, apple production in 2015 shows the distinct characteristics of large volume and high quality.
In 2015, affected by the substantial increase in apple production and the weak performance of the apple market in the 2014 production season, the trend of a sharp decline in apple purchase prices can no longer be reversed. Returning to the level of around 6 yuan/kg from the 2013 production season (referring to paper-bagged 80# grade two and above Red Fuji; unless otherwise specified below, the same applies) is the judgment of many in the industry. From the sales situation of early and mid-season varieties such as Gala and Jiangjunhong, which have already concluded, their purchase prices fell by 20%-50% year-on-year. Due to differences in production areas and quality, price differentiation is quite obvious, but it also basically indicates that after entering October, Red Fuji purchasing will not be smooth sailing.
⟦NL> The decline in apple purchase prices, and several factors that could partially ease sales pressure, also tend toward the bearish: 1. The overall macroeconomic downturn has more or less affected fruit consumption. 2. In recent years, new circulation channels such as e-commerce and fruit chain supermarkets, because they pay more attention to the intrinsic quality of fruit and the need to expand markets, and because they have strong cost-transfer capability, played the role of price “spoilers” in past apple purchasing. This year, due to environmental and other reasons, purchasing will tend to be rational. 3. The annual increase in imported fruit (including apples) has eroded part of the domestic fruit market, and apples, which have the largest domestic production volume, have also been affected, while domestic apple exports have declined for consecutive years. 4. The juice market has been sluggish for many years, and domestic processing enterprises, in order to control risks, mostly produce according to orders. Because raw material prices fell this year, there is insufficient motivation to greatly expand production capacity.
However, although the above factors are negative, none of their effects on the future market can compare with the key factor of market confidence. The ceiling effect of apple prices in 2014 and the squeezing effect of rising cost floors caused widespread losses among fruit-storing farmers and fruit merchants. In 2015, for merchants, because purchase prices have fallen, sufficient profit space has been expanded, which is a necessary condition for profitable apple operations that year. If colleagues in the fruit industry maintain sufficient confidence, are optimistic about the future market, and generate good industry expectations, the risk of expanding purchases will be at least much smaller than last year.
In summary, the pattern of abundant production and high quality in China's apple crop in 2015, together with the weak market performance in the earlier period, will dominate this year's apple purchasing market. Apple prices will no longer be as irrational as in 2014 and will show a decline of around 30%. The purchase price of 6 yuan/kg is the market psychological line and will become an important indicator for judging the prosperity of this year's apple market.
Market Strategy
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The increase in market inventory and the rise in demand caused by lower prices will become the two decisive factors shaping this year's market direction. With uncertainty in the future market increasing, there is a certain degree of pressure and risk in apple purchasing and operations.