Apple turnover - a visit with Desmond O'Rourke

Visiting with apple country economist Desmond O'Rourke yesterday, I asked him about the mood among apple growers and shippers.

Of course, I remarked about the Nov. 1 inventory report (covered by Andy Nelson in the Nov. 17 issue of The Packer) and Des remarked the late harvest in Washington picked out longer than expected. The packed fresh crop is now estimated at 109 million cartons, up from 98 million cartons a year ago.

O'Rourke said fujis, golden delicious and granny smith inventories were all up about 20% compared with year ago levels and figure to be under the most pressure. Galas have been heavily sold already, and reds appear to be in decent shape.

On the world scence, he said Europe and China are also talking about bigger than expected crops. The Chinese apple crop is now pegged at 28 million metric tons significantly higher than earlier expectations.

Another reality weighing on the apple market is the fact that California's navel orange crop is much larger than a year ago, so apple face more competition in a tougher economic environment.

Des asked if I had paid attention to the "Operation Mainstreet" program, which Wal-Mart announced earlier this month as a scheme to bring savings to its consumers in time for the Christmas season. He speculated that one of ways that Wal-Mart will do this squeeze their suppliers. Most the press I've read about Operation Mainstreet refers to its impact on consumer electronics, but I don't doubt Wal-Mart will ask concessions of produce shippers as well.

"Either they cut their margin, or reduce what they pay suppliers," O'Rourke noted. Come to think of it, Wal-Mart's first play will be suppliers...

Back to apples.

Despite the recent shift in market psychology, Des beleives apples should be in decent shape during a recession. Not too many people will cut out apples from their produce purchases - kiwanos, yes, red delicious, no - unless perhaps they are newly unemployed and cutting out all produce purchases.

Looking ahead, O'Rourke said one unknown is whether the credit crunch could reach apple country. While most farm lenders have said the banking industry's troubles shouldn't impact well run ag businesses, O'Rourke said it is uncertain how local banks will handle credit renewals for grower-shippers considering continuing U.S. economic trouble and the larger apple crop size.

"There have been some big chinks in the market during the last couple of months," he said.