Mexican avocado prices are ripping! I was sitting at home yesterday morning having my breakfast of avocado toast and yerba mate tea when I saw two headlines which made me reminisce about my avocado agriculture round up (Oh my guac!). If you have ever wanted to invest in the popular superfood, I got you covered. Be sure to check out that previous article for more details about the avocado market and surging demand.

The first headline was something I briefly spoke about: eating just one avocado a week slashes risk of heart disease by up to a fifth. Harvard researchers studied more than 100,000 people and now recommend you have the superfood with your toast as it cuts heart disease risk by up to 21%. How so? Avocados are filled with healthy fats that lower bad cholesterol and prevent plaque building up in the arteries. The article then takes a shot at millennials defending its hefty price by saying it is hard to get the older generations to cough up $20 for avo on toast at restaurants. Nah, just make it at home lads.

The second headline got the investor in me excited…or in this case, validated, as I spoke about this in my previous Avocado edition roundup. Especially got me elevated because there were two chart setups I REALLY liked. Both were pure avocado plays, and the market structure guy in me knew some headline was coming. In my years of following markets, I always see these bottoming patterns before a new uptrend due to some catalyst.

Enough of the suspense. The second headline is definitely sad news. Avocado prices hit 24 year highs! This is due to tighter supply from THE major producer, Mexico.

Avocado prices from the major producing state of Michoacán are up 81% this year to 760 pesos ($38) for a 20-pound box — the highest on record in data that goes back to 1998, Bloomberg reported, citing Mexican government statistics. Mexico’s avocado production is expected to be 8% lower than it was over the previous year, the US Department of Agriculture said in an October report.

This news comes off the drama in February. The US banned avocado imports from Mexico after an American plant-safety inspector received a threatening phone call. The ban lasted one week before it was lifted. Huge as 80% of Mexico’s avocado shipments go to the US. Some are still blaming this one week ban for higher prices. For now, the US exclusively imports its avocados from Michoacán, but the state of Jalisco has also been approved to supply the fruit by June.

The largest US distributor of avocados, Mission Produce, raised its selling prices of avocados by 50% due to lower industry supply out of Mexico, as well as inflationary pressures as per reported in its Q1 results on March 10th 2022.

Since avocados is a main staple for many, not just millennials, this has the real possibility to impact food inflation. It likely already is. If you are Chipotle, Taco Bell, or any of these bars which serve guacamole, are you going to eat the cost of higher avocado prices? Or are you going to pass it to consumers especially when other costs (food included) are rising?

Let’s have a refresher of some of the avocado plays that I covered in my “oh my guac!” avo round up.

 

Calavo Growers (CVGW)

Market Cap ~ $ 656 million

Calavo is the primarily pure avocado play… or as they say, the first name in avocados. The company mostly sells avocados but also sells tomatoes, papayas and other fruits. Avocados are the main cash crop for Calavo. On March 14th 2022, Calavo reported financial results for the first quarter ending January 31st 2022. Here are some highlights:

• Total revenue of $274.1 million, a 24% increase from the year-ago quarter.
• Fresh segment revenue increased 41% year-over-year to $162.6 million, and Renaissance Food Group (RFG) and Foods segments revenues increased 6% and 4% year-over-year, respectively.
• Gross profit of $13.2 million, or 4.8% of revenue, compared to $17.8 million, or 8.1% of revenue, for the year-ago quarter.
• Net loss of $(4.0) million, or $(0.23) per diluted share, compared to net income of $5.3 million, or $0.30 per diluted share, for the same period last year.
• Adjusted net loss was $(0.4) million, or $(0.02) per diluted share, compared to adjusted net income of $3.0 million, or $0.17 per diluted share last year.
• Adjusted EBITDA of $4.7 million, or $0.27 per diluted share compared to $9.4 million, or $0.53 per diluted share for the same period last year.

Remember how excited I was about this technical set up? I still am. Even more so as we develop a nice mini range within a larger range. Our major support zone still holds at $33, and the major breakout zone for an extended new uptrend remains at $45.

I am really liking the bids near support especially with news that avocado prices are hitting 24 year highs considering avocados are Calavo’s main cash crop. One can pick up shares near the $33 support, but there is another breakout trigger I am watching. I have drawn a mini horizontal resistance line which we are testing right now. If we can get a candle close above this $37.80 zone, not only would it be an important breakout, but it would also see prices close back above my moving average. Cross overs tend to be bullish signs.

 

Mission Produce (AVO)

Market cap ~ $ 883 million

Mission Produce engages in sourcing, producing, packaging, and distributing avocados in the United States and internationally. They also have the most avocado ticker on the market: AVO. The company has been in business for decades and recently just IPO’d. They have built the world’s largest and most advanced avocado network, becoming the preferred global supplier of avocados.

Mission also released Fiscal 2022 first quarter financial results. Earnings were negatively impacted by rapidly rising fruit costs, rising transportation rates, and declining volumes across the industry. Here are highlights:

• Total revenue of $216.6 million, a 25% increase compared to the same period last year, impacted by average selling price increases of 50%, partially offset by an 18% decrease in avocado volume sold, compared to the same period last year
• Net loss of $(13.4) million, or $(0.19) per diluted share, compared to net income of $2.2 million, or $0.03 per diluted share, for the same period last year
• Adjusted net loss of $(12.2) million, or $(0.17) per diluted share, compared to adjusted net income of $7.9 million, or $0.11 per diluted share, for the same period last year
• Adjusted EBITDA of $(10.4) million compared to $12.5 million for the same period last year

Now this is one chart that really changed for the better. In the last avo roundup, I highlighted the $12 zone. We got the close above it AND a successful retest. Very bullish sign for an entry. I also talked about the gap, which tends to act as resistance. Well folks, we have almost closed this gap. What will be required is a close above $13. Once this happens, tons of bullish signs are met. We have recovered from record lows, we crossed back above resistance, we have filled the gap, and crossed my moving average. I cannot stress how bullish the gap fill will be. If we do retrace instead of closing above $13, I would watch the $12 again which is acting as new support.

 

Hormel Foods (HRL)

Market Cap ~ $28 billion

The last two companies were pure avocado plays. Let’s take a look at some plays with an avocado element.

Hormel Foods Corporation develops, processes, and distributes various meat, nuts, and food products to retail, foodservice, deli, and commercial customers in the United States and internationally. How is this an avocado play? Because Hormel owns the #1 US refrigerated guacamole brand, and also began competing with Calavo and Mission Produce by rolling out Whooly Avocado.

Hormel’s first quarter sales beat expectations:

• Volume of 1.2 billion lbs., up 2%; organic volume¹ down 4%
• Record net sales of $3.0 billion, up 24%; organic net sales¹ up 13%
• Operating income of $320 million, up 19%
• Operating margin of 10.5%, compared to 10.9% last year
• Pretax earnings of $309 million, up 11%
• Effective tax rate of 22.4%, compared to 19.7% last year
• Diluted earnings per share of $0.44, up 7% compared to last year
• Cash flow from operations of $384 million, up 87%

On the back of stellar earnings, on March 28th 2022, Hormel Foods declared a quarterly dividend on the common stock. 26 cents per share will be paid out on May 16th 2022 to stockholders of record at the close of business on April 11th 2022. The May 16 payment will be the 375^th consecutive quarterly dividend paid by the company.

Hormel is one of the charts that hasn’t changed too much structurally since my last roundup. Although, it has shot up. What we would expect for a higher low continuation after breaking out above $48. For a higher low to be confirmed, we need a higher high which means Hormel will likely take out previous record highs at $53.

These guys are big boys. Not a pure avo play, but one for you value investors and one to play all the future food inflation and shortage headlines.

 

Dole

Market Cap ~ $ 1.18 billion

I am sure you have heard of Dole. Dole engages in procuring, marketing, and distributing fresh produce, health foods, and consumer goods worldwide. I drove by their pineapple plantation in Hawaii a few years back, sadly, I did not take the tour.

Avocados isn’t the main cash crop. The company deals with many fruits and vegetables. I think they are known for their pineapples and bananas.

Recently, Dole released Q4 and full year 2021 financial results. Here are highlights:

• Significant increase in scale and footprint following acquisition of remaining 55.0% of Dole Food Company, Inc. (“DFC” or “Legacy Dole”) by Total Produce plc (“TP”) to create Dole plc (“Dole”)
• Following the acquisition, revenue has increased 113.7%, Adjusted EBITDA¹ 56.5% and total assets 147.5%
• On a pro-forma² basis, revenue increased 3.5% and Adjusted EBITDA increased 5.9% for the full year
• Group is well positioned for long term sustainable growth following completion of IPO and debt refinancing
• Net Debt¹ / pro-forma Adjusted EBITDA 2.87x as of December 31, 2021

The Dublin-based distributor of fruit and vegetables had a net loss of $4.178 million, or 4 cents a share, after a loss of $154,000, or breakeven, in the year-earlier period. Pro forma per-share earnings came to 14 cents, ahead of the 10 cent FactSet consensus. Revenue rose to $2.251 billion from $2.201 billion.

The chart has my attention. We are hovering around a MAJOR support zone. Look at the wicks from the past, indicating buyers jumping in. I hope to see the same here soon. I wouldn’t mind dabbling a little bit here, but the ‘trading is a business of probability’ guy in me wants to see some signs of buying first. I would love to see a daily candle with a large wick. Or even better, a few days of a range developing. Let’s watch for a bottoming pattern!

 

Fresh Del Monte (FDP)

Market cap ~ $ 1.23 billion

Not much needs to be said about Fresh Del Monte. I am sure you have come across their name at your local grocery store. Fresh Del Monte Produce Inc., through its subsidiaries, produces, markets, and distributes fresh and fresh-cut fruits and vegetables in North America, Europe, the Middle East, Africa, Asia, and internationally. t offers pineapples, fresh-cut fruit, fresh-cut vegetables, melons, and vegetables; non-tropical fruits, such as grapes, apples, citrus, blueberries, strawberries, pears, peaches, plums, nectarines, cherries, and kiwis; other fruit and vegetables, and avocados.

Not much has changed on the news front for Fresh Del Monte. Their earnings, which I covered in the last avo roundup, remains the latest news.

But the chart has new developments. The same support level remains. I said I would like to see a break above $27. Even more so now. It appears as if we have developed a nice inverse head and shoulders reversal pattern here! A breakout gets the reversal pattern triggered, and a new uptrend higher perhaps even past $29!

 

Chipotle (CMG)

Market cap ~ $ 44.92 billion

Oh my guac! Chipotle is on the verge of a breakout here! I highlighted the $1600 resistance level before, and we are just a few ticks away and a daily close from confirming a breakout. We get this close…and we see $1760 then $1960 next.

I am very much interested in following what happens with Chipotle. These guys are one of the biggest avocado purchasers in the US and directly buy their avocadoes from Mexico.

With avo prices going up, chipotle may need to raise prices. I say may raise because I believe rice and beans are still cheap. They may have room to eat some margins. If prices do indeed move higher, it would be interesting to see how consumers react. Chipotle is seen as a reasonably priced place. I would say a lot of people I know go to chipotle when they want to save some money and have a healthier meal.