Hurricane Irma’s Devastation to Florida Agriculture

by Robbie Hall, TerViva Propagation & Agronomy Associate

Hurricane Irma swept across Florida on September 10-11, 2017, leaving a wake of destruction behind. A month later, Floridians are still dealing with the aftermath. Agriculture is Florida’s second largest industry, and contributed $4 billion to the state’s economy in 2015 [1]. The Florida Department of Agriculture and Consumer Services released its preliminary report on Irma’s damage to the industry on October 4, 2017, and estimates agricultural damages totaling over $2.5 billion! Here is the breakdown of losses outline in this report [2]:

  • Total Florida Agriculture: $2,558,598,303
  • Citrus: $760,816,600
  • Greenhouse, Nursery and Floriculture: $624,819,895
  • Sugar: $382,603,397
  • Forestry: $261,280,000
  • Beef Cattle: $237,476,562
  • Fruits and Vegetables (excluding citrus): $180,193,096
  • Field Crops: $62,747,058
  • Aquaculture: $36,850,000
  • Dairy: $11,811,695

The economic assessment above accounts for some crop losses, damaged infrastructure, debris cleanup, and animals’ long-term welfare that was affected by Irma. These costs will likely increase as more information is made available. The remainder of this blog post will discuss some of the impacts from Irma in greater detail and provide some insight into what could potentially happen in the near future.

Florida’s citrus industry has been reeling over the past decade from production losses, due to the citrus greening disease [3], and Hurricane Irma was the last thing growers needed to come along. Reports range from 40% of lost fruit in Central Florida, to as much as 100% in some areas of Southwest Florida [4]. These numbers are still climbing, as damaged fruit initially left on the trees continues to drop. In addition to fruit loss, some of the trees received significant structural damage, such as broken limbs and even trunks splitting down the middle. One of the hardest hit groves near LaBelle, FL, had 70% of its trees ripped from the ground, exposing the roots of the trees. The severely damaged trees will need to be cleared out with front-end loaders. Some of the smaller trees that were blown over can be pruned, stood back up, and braced, but that will require additional labor. Paul Meador, owner of the LaBelle-based Everglades Harvesting & Hauling, brought up another point. “The trees are extremely stressed. You get what’s left of this crop off, and then next year we’ll probably have half a crop again… It’s the ugly gift that keeps on giving” [3].

RH fallen fruits

Fallen fruit sits on the ground below orange trees in Frostproof, FL, U.S. Hurricane Irma destroyed almost half of the citrus crop in some areas.
PC: Daniel Acker/Bloomberg/Getty Images

Hurricane Irma caused problems for cattle owners as well, especially in Okeechobee County. As everyone in the state frenzied to prepare for Irma’s landfall, many routine operations became interrupted. One of these instances happened with the “grain train”, a train bound for Okeechobee with 26 freight cars of ground corn, soybean meal, cottonseed meal, and other commodities used in making feed for the dairy cattle in the area. On the weekend of September 2nd, farmers anxiously awaited the overdue delivery. As the week wore on, the grain train still had not arrived. Fortunately, the State Agricultural Response Team (SART), a partnership made up of government agencies and non-profit groups, intervened and the train finally arrived Friday evening, September 8th.

Without SART’s assistance, many dairy cows could have gone without food for too long [5]. After the hurricane arrived, one beef cattle ranch in Okeechobee, the Alderman-Deloney Ranch, experienced major flooding after a surrounding dike broke loose. A group of 20 people had to move the herd of approximately 500 cattle five miles down the road to higher ground at the Triple S Ranch. The Aldermans believe that at least five of the animals drowned before they were able to be moved [6][7]. Statewide, ranchers estimate that 100 animals died during the storm. Some additional losses from this disturbance include an estimate of 7 percent of cows not breeding this year, and approximately 187,000 calves losing close to 50 lbs each while awaiting shipment to out-of-state feedlots ($75 loss per calf) [4]. Other losses to cattle owners include damage to grain bins and commodity barns, as well as rain-soaked commodities, feed, and silage [5].

RH antique mill before

Antique windmill before hurricane Irma – PC: Robbie Hall

 

On a personal note, my family has a small cattle operation near Bushnell, FL, and we were not without our own problems from Hurricane Irma. Countless trees and large limbs fell around our property, and many came down on our barbed wire fences. We spent the rest of the week sawing up trees and rebuilding our fences around the perimeter of our property before some of our cattle decided to go out on the highway. Additionally, we were without power for six days, and by the fifth day, our cattle water troughs were empty. Thankfully, we were able to borrow a friend’s trailer that had a 500-gallon tank, and used a generator so we could pump and haul water to the empty troughs. At the moment, we still have trees and cross-fences down on the interior of our property that will need to be repaired when we have time, but our cattle at least cannot escape anymore. We were very fortunate that we did not have any structural damage to our house and barn, but our antique windmill was not lucky in surviving the storm!

RH antique mill after

Robbie hauling water to the empty trough in front of the damaged windmill after hurricane Irma – PC: Matthew Hall

This blog post was not meant to be an exhaustive discussion of all those industries affected, because really all of Florida was affected; Hurricane Irma was roughly the size of Texas, so it was thorough in enveloping the whole entire state! Florida Commissioner of Agriculture Adam Putnam has stated that he will “present the needs of Florida’s agricultural sector to Congress and ask for short-term federal disaster relief” [8]. In the meantime farmers will continue their efforts in recovering from this natural disaster. In addition to the losses incurred by the agricultural sector, Hurricane Irma could impact Florida’s economy in a couple of other ways. Some of these domestic crops may be replaced in grocery stores with foreign competition from countries such as Mexico, Honduras, and Costa Rica [1]. Also, Puerto Rico was ravaged by both hurricanes Irma and Maria, and there will likely be an influx of people moving to Florida that will be looking for jobs in construction and agriculture-related fields [8]. One thing is certain: Florida agriculture will never forget Hurricane Irma!

 

References

  1. http://www.sun-sentinel.com/news/weather/hurricane/fl-reg-irma-agriculture-tour-20170918-story.html
  2. http://www.citrusindustry.net/2017/10/05/760-million-initial-estimate-of-irmas-florida-citrus-damage/
  3. https://www.thepacker.com/node/3091
  4. http://www.wptv.com/news/state/irma-s-agriculture-toll-tops-2-5-billion-in-florida
  5. http://blogs.ifas.ufl.edu/news/2017/09/27/uf-expert-helps-ensure-grain-train-gets-feed-dairy-cows/
  6. https://www.local10.com/weather/hurricane-irma/hundreds-of-cows-rescued-from-flooded-ranch-in-okeechobee-county
  7. http://www.wptv.com/news/region-okeechobee-county/cows-dead-many-more-at-risk-after-okeechobee-county-ranch-floods
  8. http://www.floridatrend.com/article/23179/perseverance-a-priority-for-florida-farmers-post-irma

An Oilseed Crop for Florida’s Lost Citrus Acreage

Diseased abandoned citrus acreage in Florida

Diseased abandoned citrus acreage in Florida

While the United States is the most efficient agricultural producer on the planet, it also is home to one of the greatest agricultural disasters on earth. Few people outside of the state of Florida realize that the 150 year old citrus industry could be on the brink of collapse in as little as two years, according to some industry observers. Citrus contributes $9 billion in revenues to the state and employs 76,000 people. A series of severe freezes back in the 1980’s drove the majority of the citrus industry from the northern half of Florida to the southern half of the state – generally from Orlando southward.

Ten years ago, in its heyday, the state produced about 240 million boxes of fruit. As of the most recent USDA crop report, that number has declined to as low as 104 million boxes. And that rate of decline is not linear, it is accelerating. Estimates are that as production declines to 80 million boxes, most of the remaining processing plants will begin to shut down. After that, citrus in Florida could remain only as a niche crop.The cause is a pinhead-sized insect that transmits a bacterial infection to citrus trees and slowly chokes off the flow of water and nutrients from the roots to the leaves. Not only have scientists been unable to come up with a viable cure, they haven’t even been able to culture it in the lab.

Infected trees can take years before the first symptoms appear. By then the tree has already lost a great part of its root mass. The best strategy growers have is to just keep the progress of the disease at bay by feeding it repeated heavy doses of pesticides and fertilizers. It used to cost growers close to $500 per acre for these sprays. Today, those cost are exceeding $2000/acre! These high costs with declining yields are squeezing the life out of the growers’ profit margins. And it’s not doing much to help the long-term health of the soils, either. Imagine if an incurable disease wiped out corn and soybeans in Illinois and you’ll get an idea of the magnitude of the impact to the state.

To be sure, tens of millions of research dollars are being thrown at the greening problem at the state level, federal level, and even worldwide. One of the most promising solutions is inserting a spinach gene into the citrus which makes the tree quite resistant to the deadly bacteria. However, this veers into the genetically modified world and risks considerable consumer backlash over GMO food. There is a wasp that preys on these insects, but that is considered too little too late for Florida.

The Headwinds against Florida Citrus

Even if a cure is found, growers still face other headwinds. Annual consumer sales of orange juice (the main product from Florida citrus) in the US have declined from about 5 gallons per person in 2000 to about 3 gallons currently.   High prices, recession, alternative energy drinks, concerns about sugar and obesity have all contributed to eroding the demand side of the consumer equation. It could be difficult to reverse those trends.

Citrus groves that once sold for $18,000 per acre now sit barren, weed-infested, and end up looking like the above picture. They sell for close to $3000 per acre. Not only has millions of dollars of landowners’ wealth evaporated, but also have the state’s tax revenues.

The Problem With Alternative Crops

Some growers are replacing their lost citrus by planting peaches and blueberries. However, those crops are expensive, labor intensive, and can have intense price competition from other states when their harvest comes to market. Planting only a few thousand acres could swamp the marketplace with over-supply and crush prices. Stated differently, if there was a viable alternative crop to grow, there wouldn’t be over 125,000 acres of abandoned citrus land.

Arguably, the only agricultural industry with deep enough demand to accommodate the tens of thousands of acres of dead and dying citrus land is the oilseed industry where the worldwide demand for oil and protein is huge and growing. Currently, the oilseed demand is being met primarily by soy, and to a lesser degree by cottonseed, canola, and other minor (by comparison) row crops like flaxseed, safflower, etc.

So why haven’t some of these row crops filled in the void in these lost groves? There are two major problems in the soils in the southern half of the state. While the Florida is blessed with a long growing season and generous rainfall, the soils where citrus is grown are extremely sandy with a hard clay layer underneath.   This sand layer makes it difficult for them to hold nutrients. During the rainy season which runs from June to October, the almost daily rainfall flushes fertilizers and other nutrients out of the soil. The other problem is the field configurations. Citrus cannot tolerate its roots standing in water for long periods of time so the great majority of the groves were “bedded-up” when the groves were initially set up. Top soils were pushed into raised beds with a furrow in between to remove water in heavy rain events. Over the years, soil compaction occurred while in this configuration. Attempts to simply grade the raised beds flat for row crops still resulted in a wavy topography (once the soils settled) which created drainage issues. Some tried deep-disking this sand and the underlying clay layer in an attempt to blend the two into a sandy loam-like consistency, but the result was a mud bog that seemed to never drain properly.

Ground Rules for any Successful Replacement Crop

Any time that a new crop is introduced into a local geography, it has to meet some fundamental tests if it is to have any hope for viability. For example:

  • Hardiness. Does this new crop fit the climate?
  • Does it fit within the growers’ existing infrastructure?
  • Is it easy to grow and harvest?
  • Can growers generally utilize their existing body of agronomic knowledge?
  • Does it minimize labor requirements/costs?
  • Is it profitable enough to make it compelling versus alternatives?
  • Can growers use their existing machinery or at least need minimal new machinery?
  • Does it require high CAPEX to process?
  • Are there readily available downstream markets?

However, there is one beam of hope in this sea of gloom that has shown great promise for current citrus landowners and extraordinary opportunities for agriculture investors – and checks off on all challenges listed above.

Pongamia

A young company called TerViva has been working for several years with an oilseed tree crop called pongamia. Pongamia is an oilseed tree that is native to Australia and India. It is adapted to tropical and subtropical climates.  In the US, we already know that the tree thrives in Florida.  It was introduced back in the 1920’s when it was planted as an ornamental.  Many mature pongamia trees can be observed in southern Florida on both coasts along freeways, in neighborhoods, and in state parks and shopping centers.

Conceptually, growing pongamia is like growing soybeans on trees. The tree yields a generous harvest of nuts (which is why it fell out of favor as an ornamental) whose seed properties are similar to soybeans.  It has a high tolerance to salt and cold tolerance is similar to citrus so it is geographically suited to the same sites where citrus grew.

What’s the advantage for pongamia over soybeans? Pongamia’s per acre yields of oil are 6x greater than that of soybeans on prime Iowa farmland, plus it can grow on a footprint where soybeans generally cannot!

One of the first things growers notice about this tree crop is that it drops right in to the existing citrus field architecture. Some growers have literally planted it between the old citrus stumps.

Pongamia is very much like any orchard tree crop. The tree must first get established. It will begin to flower around year 3-4, and it should be commercially harvestable around year 4-5. Then the tree can produce for over 50 years.

There is also a strong ecological theme with pongamia.   This tree is a legume so it fixes nitrogen in the soil and enriches it.  To date, no pesticides have been used- or needed – in any geography TerViva has planted – Florida, Texas, or Hawaii. Insects and deer really do not care the leaves that much.

 

Mature pongamia acreage in Florida (photo courtesy of Paul Family operation near LaBelle)

Mature pongamia acreage in Florida (photo courtesy of Paul Family operation near LaBelle)

Growing – Harvesting – Processing – End Markets        

  • Harvesting can be mechanically done with a nut tree shaker. This is how pecans, almonds, pistachios and other nuts are harvested. Mechanical shakers also minimize the cost and challenges of dealing with manual migrant labor that is necessary for most orchard crops.
  • Processing after the harvest is all low-tech and low CAPEX; the seeds are shelled with a peanut sheller, and the seeds (about the size of lima beans) are crushed with a soybean crusher.
  • The End Markets are a separate discussion, and that’s where this gets interesting. Like soy, there are two end markets for pongamia: the oil and the seedcake.

Several oilseed crops used in industrial applications are surrounded in controversy. Soybeans should be for feeding people, not trucks. Palm oil production is coming at the expense of the rain forests which have caused a huge backlash from environmental groups and consumers. Chemically, pongamia oil is practically a first cousin to soybean oil, but it has some bitter flavenoids, so it is not edible. Its utility is for broad industrial applications that currently utilize soybean oil and palm oil. Industry loves soy and palm oil because these seeds contain rich long-chain carbon compounds which are high in energy content and can be separated into compounds such as oleic acid, palmitic acid, linoleic acid and others. These plant-based compounds are used in soaps, detergents, lubricants, cosmetics (like Oil of Olay), surfactants, inks, paint binders, and even plastics. In fact, a whopping 60% of the pongamia oil is oleic acid, compared to soybean with 24%.  Oleic acid is so valued that Monsanto has created a new GM version of soybeans called Visitive, just to increase the oleic acid content.

Pure pongamia oil being used in crop spraying

Pure pongamia oil being used in crop spraying

The oil also has known biopesticide properties. There is a recent study on this where it was more effective than DDT.   There is a body of literature on the use of a 50/50 mix of neem oil and pongamia oil as an exceptionally effective biopesticide. Early evidence also has shown pongamia oil could be an effective substitute for “435 mineral oil” that growers mix with many of their crop sprays.

As a jet fuel, the Department of Defense and the airline industry have a strong interest in fuel refined from plant oils called biojet fuel. It is 7% lighter than conventional jet fuel so a plane can fly farther or carry larger payloads. But most importantly, it burns considerably cooler than fossil-based jet fuel which means longer engine life and lower maintenance costs.

The deepest market, however, is to simply refine the oil into diesel. When that long-chain carbon compound in the oil is combusted, it releases a lot of energy. (Ethanol is only a C 6:1 compound that releases much less energy when combusted. This is why it is such a poor fuel for performance and mileage.) Currently, about 80% of biodiesel is produced from soy oil. Refiners are hungry for feedstocks for their refineries. No matter what you think about renewable fuels, they are going to be around for a long time. Both political parties are even in favor of them. Additionally, most countries around the planet have aggressive mandates for renewable fuels. It is important to emphasize that the biodiesel market is the base case scenario and con turn a fine profit at that.

The remaining seedcake can be used as a high protein animal feed. It has about a 27% protein content which is quite high. Tests are currently being conducted with Texas A&M as an animal feed. So far Phase 1 livestock feed tests have been quite positive, and Phase 2 testing is now being done. The next step is submitting the results for regulatory approval. Livestock and poultry feeders are always in the hunt for protein to blend in their feeds. Animal feed is quite the growth market in China, by the way.

Separately, the seedcake can also be used as a high-nitrogen (4%N) organic fertilizer. Nitrogen has become a very expensive crop input in recent years. Additionally, as a fertilizer, it is also reported to have great nematocidal and nitrification properties in the soil.

Processing

Once mechanically harvested, all that remains is to shell the pods and (just like soybeans) crush the seeds into oil and seedcake. A facility for shelling and crushing is not a large capital expense; perhaps $1MM-$2MM would suffice for a crushing facility that could service about a 75-mile radius. Several municipalities have indicated that the state has generous economic development funds for these small rural communities for economic development for these facilities.

Expected Returns                                                                                                                                                      

The other downstream markets (mentioned above) are fun to talk about and are very high-value markets, but the point is that simply selling this oil to refiners to make into fuel can be deliriously profitable. …Certainly more profitable than most traditional agricultural row crop commodities. We can produce oil for about $1.60/gallon. There is broad demand for good virgin oils for biodiesel refining that generally are in the vicinity of about $3.50/gal. There are a couple of small refineries in south Florida, and major biofuel refineries nearby in Georgia, Louisiana, and Texas.

In any new endeavor, risk must be commensurate with returns. TerViva conservatively believes a grower can make >20% 8-year IRR growing pongamia assuming the base case of just selling the oil to the biodiesel refiners. Stated differently, net income to growers who already own land is estimated to be about $800-$1200/acre with some fairly conservative yield assumptions – about 400 gallons of oil per acre and about 2.25 tons of seedcake.

Pongamia seeds are available on the internet, but the problem with propagating from seed if that you don’t know what you are going to end up with because the tree is an out-crosser (you don’t know who the other parent is.)   No serious grower is going to make the capital investment to start a grove and find out five years later that his genetics are no good. Growers want uniformity at harvest time as well consistency on other traits like oil content in the seed, gross yield, as well as other desirable traits. TerViva propagates their young trees clonally from a licensed library of highly selected mother stock from science groups in Australia and India who have documented their research over meaningful time periods. In other words, TerViva’s science team wants as close as possible to 100% probability that these trees are replicas of the mother.

Establishment costs per acre are close to citrus – about $2000-$3000/acre. However, annual input costs are a fraction of citrus amounting to primarily weed maintenance.  

Indeed pongamia is a new crop. There is always uncertainty in agriculture. However, based on how the trial sites that TerViva has established throughout southern Florida have performed over the past few years make it feel like a pretty high-probability bet. The trees have grown astonishing well. The oilseed industry is big, globally, and it is not going to go away. There’s a great chance that this $3000 land will be productive $13,000 land again. It is quite rare to observe a massive agricultural transition of this scope in our lifetimes. And for it to happen in a US geography may be unprecedented. For farmland investors facing low returns on conventional row crop farmland, or sovereign risk in South America, or infrastructure and transportation risk in Eastern Europe or Africa, investing in this oilseed crop in Florida looks like a slow pitch over the plate.

Tom Schenk is Director of Business Development at TerViva. For more information:   : 509 251 2565