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While Florida Freezes, Walmart Shares Heat Up


Food prices are soaring at supermarkets, but not at the big box retailer.

On Monday, Citigroup analyst Deborah Weinswig upgraded Walmart (WMT) to Buy from Hold, increasing her 12-month price target from $54 to $64.

Weinswig wrote that the world's largest retailer is "lacing up the gloves as it prepares to step back into the ring and win the modern day price war in food retail," according to MarketWatch.

This does not portend well for Safeway (SWY), Supervalu (SVU), and Kroger (KR) -- the three biggest supermarket chains in the US whose margins are already razor-thin, whose sales have dropped off due to high unemployment, and who are facing increased wholesale produce costs.

The cold temperatures in Florida have wiped out almost 70% of the state's tomato crop, pushing prices up nearly 400% in some cases, and leading to shortages at category-killers like Target (TGT).

Walmart is simply turning to Mexican suppliers to meet demand.

"We just really agonize over seeing market share given up to our imported competitors in Mexico," Reggie Brown of the Florida Tomato Growers Exchange told Bloomberg. "That's not a healthy scenario for a domestic industry to have to take this kind of a lick and remain viable. It's just really going to be tough."

Florida farmers also have the redbay ambrosia beetle to worry about, which has been discovered in Miami-Dade County and could devastate the avocado industry. The beetle, which transmits a fungus called laurel wilt disease, could mean "a total economic impact of about $27 million, including lost jobs," according to University of Florida agricultural economist Gilly Evans.

Theoretically, California, the number one avocado producer in the country, could step in and relieve some of the pressure, but with freezing temperatures threatening crops there as well, the only practical solution would likely come from Mexico.

Finally, the price of green grapes has doubled at stores like Whole Foods (WFMI), as a result of the Chilean earthquake.

"It's about supply and demand, as pure as it can be," said David Holzworth, general counsel for the Chilean Exporters Association. "When you decrease the supply, that means the price goes up."

After the February 27 quake, cargo ships have been taking longer to fill before leaving port, creating gaps in delivery, thus making consistent availability an issue.

In a blog post on, Karen Christensen, a produce buyer for the company, wrote that Chile's current "capacity to cool and hold new fruit is extremely limited" and that "Many vineyards are reported to have been affected by the movement of the earth, some vines have collapsed and it's still unknown how root systems may have been affected."

If it's any consolation, Chilean grape farmers are not alone in struggling to maintain their crops.

According to the Johannesburg Times, "rampaging Chachma baboons" have overrun South Africa's Franschoek growing region, eating as many as two metric tons of Chardonnay grapes a week.

One farm manager, Mark Dendy-Young, said he lost 40% of his harvest last month to the baboons.

Mr. Dendy-Young, why not give the Walmart home office a call at 479-273-4000? Surely they'll figure out some way to work around the problem.
No positions in stocks mentioned.
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