By Agronometrics CEO Colin Fain

As the year begins and U.S. avocado markets start ramping up for the Super Bowl, it's a good moment to look back on how markets have behaved in 2013 and what lessons are offered by the data that is available to the industry.

When taking a look at the shipping point prices published by the United States Department of Agriculture (USDA), including FOB (Freight on Board) prices, the first thing that jumps out at you about avocados from Mexico and California is the big change in price throughout the California season.

Looking at shipping point prices since 2003 when Mexico was first allowed to export to 49 U.S. states, the average market price reported during the California season has almost consistently been about 18% higher than the average price of the market when California avocados are not sold. This implies a premium of US$5.40 for the average price when California avocados were not in season over this 11-year period.

There are several market forces that play into this phenomenon. Without a doubt, consumer demand is an important factor. The American public consumes more avocados in the summer time when the California crop is in full swing, than in the winter when Mexico comes into force. Another reason for this price difference are production costs, which, including transportation, are lower for Mexican growers than for Californian growers.

Evidence of this can be seen in the area harvested by each country reported by the Food and Agriculture Organization's (FAO) FAOSTAT, as a representation in investment in the crop's production. Mexico has consistently expanded the area harvested, growing at an average of 3.6% per annum between 2003 and 2011. Meanwhile, the average area harvested by the U.S. fell by 1.2%.

On the other hand, by running a linear regression test on average daily prices since 2003, we can see that prices have remained remarkably stable without showing any consistent upward or downward trend.

By combining these facts, we can see that Mexican growers have more of an incentive to participate in this market, even as they receive less for their product than their U.S. counterparts.

As is the case with all perishables, markets will always react to a bad or great harvest, but some overarching themes that go into market movements can be seen from historical data. Mexican production will keep on growing in line with the marke; in the 2012-13 season they seemed to hit saturation with 510 million metric tons (MT), a 44% year-on-year increase, which brought with it the lowest prices since 2003.

But the market is catching back up. From July through to the end of 2013, Mexico had already sent 209 million MT, which is only 4% less year-on-year. The biggest unknown variable is always the California harvest. Since there aren't many alternative growing regions for U.S. consumers to buy avocados from, mother nature and the ingenuity of California producers will continue to define the market from the 5 de mayo promotional period through to Labor Day, give or take a couple of weeks.

U.S. markets are also affected by some other countries, the two biggest of which I'll mention briefly. Peru is entering the market from a privileged position, right at the end of the California season when prices are traditionally the highest. As it increases the volumes that are getting to the U.S. markets, consumers may see the price spikes that tend to happen around the third quarter of the year getting evened out a bit more.

Chile has invested heavily in diversifying it markets and is sending a larger percentage of its volume to Europe and other markets. As the season competes directly with the height of Mexico's season, it's unlikely that Chile will have the same market presence it used to have.

Colin Fain is the CEO of Agronometrics, a market intelligence platform for agricultural products that collects, standardizes and visualizes international wholesale market prices from around the world. For more information click here for the company's website.

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