Greetings, and welcome to Limoneira’s First Quarter Fiscal Year 2022 Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Mills with ICR. Thank you. You may begin..

Good afternoon, everyone, and thank you for joining us for Limoneira’s first quarter fiscal year 2022 conference call. On the call today are Harold Edwards, President and Chief Executive Officer; and Mark Palamountain, Chief Financial Officer.

By now, everyone should have access to the first quarter fiscal year 2022 earnings release, which went out today at approximately 4:00 p.m. Eastern Time. If you have not had a chance to view the release, it’s available on the Investor Relations portion of the Company’s website at limoneira.com.

This call is being webcast, and a replay will be available on Limoneira’s website as well. Before we begin, we’d like to remind everyone that prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions.

Such statements involve a number of known and unknown risks and uncertainties, many of which are outside the Company’s control and could cause its future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements.

Important factors that could cause or contribute to such differences including risk details in the Company’s 10-Qs and 10-Ks filed with the SEC and those mentioned in the earnings release.

Except as required by law, we undertake no obligation to update any forward-looking or other statements herein, whether as a result of new information, future events or otherwise. Please note that during today’s call, we will be discussing non-GAAP financial measures, including results on an adjusted basis.

We believe these adjusted financial measures can facilitate a more complete analysis and greater understanding of Limoneira’s ongoing results of operations, particularly when comparing underlying results from period to period. We have provided as much detail as possible on any items that are discussed on an adjusted basis.

Also, within the Company’s earnings release and in today’s prepared remarks, we include adjusted EBITDA, which is a non-GAAP financial measure. A reconciliation of adjusted EBITDA to the most directly comparable GAAP financial measures is included in the Company’s 10-Q and press release, which have been posted on its website.

And with that, it is my pleasure to turn the call over to the Company’s President and CEO, Mr. Harold Edwards..

Thanks, John, and good afternoon, everyone. We achieved top line growth in the first quarter with revenue increasing 3% compared to the same period last year, driven by higher avocado volume and pricing and higher lemon sale. We expect these trends to continue throughout fiscal year 2022 and are raising our full year avocado guidance.

However, lemon demand and pricing were lower than we previously expected and I will provide more details in a few moments. As we look out to the remaining nine months of this fiscal year, we are well-positioned to achieve strong top and bottom line results compared to the same period last year.

And our real estate development project Harvest at Limoneira is performing so well that we are raising our expected cash flow from this project approximately 19% to $95 million. I will now discuss each of our business divisions’ performance for the first quarter, starting with our agribusiness.

For the first quarter of fiscal year 2022, total net revenue was $39.3 million, compared to total net revenue of $38.3 million in the first quarter of the previous fiscal year. Agribusiness revenue was $38.1 million, compared to $37.1 million in the fiscal quarter of last fiscal year.

Agribusiness revenue for the first quarter of fiscal year 2022 includes $24.7 million in fresh lemon sales, compared to $25 million of fresh lemon sales during the same period of fiscal year 2021, approximately 1,207,000 cartons of U.S.

packed fresh lemons were sold in aggregate during the first quarter of fiscal year 2022 at a $20.48 average price per carton, compared to a approximately 1,320,000 cartons sold at an $18.91 average price per carton during the first quarter of fiscal year 2021.

Lemon revenues in the first quarter of fiscal year 2022 and 2021 included brokered fruit and other lemon sales of $3.9 million and $3.5 million respectively.

The lemon industry is experiencing a surplus of inventory due to a number of factors including overall tree crops throughout the California and Arizona growing region, being significantly larger this year, compared to last year and unfavorable weather conditions on the East Coast combined with the Omicron variant negatively affecting demand for all markets, particularly our Asian markets.

To put this in perspective, Asian markets are operating at about 50% of pre-COVID levels. We are beginning to experience improved demand domestically, but we expect lemon pricing to remain pressured this fiscal year due to current industry oversupply and the Asian export market continuing to be dramatically reduced due to Omicron.

We believe lemon prices could improve if the Asian market comes back in the second half of this year if we continue to see the decrease in Omicron.

We recognized $800,000 of avocado revenue in the first quarter of fiscal year 2022, compared to no avocado revenue in the same period last fiscal year, approximately 365,000 pounds of avocados were sold and aggregate during the first quarter of fiscal year 2022 at a $2.10 average price per pound and we are raising our expected avocado volume for the full year of 2022.

We recognized $900,000 of orange revenue in the first quarter of fiscal year 2022, compared to $1.1 million in the same period of fiscal year 2021. Turning now to our real estate development division. Harvest at Limoneira continues to perform very well and has now closed 586 lots since inception.

We have now completely sold Phase 1 of this project and are now focused on the 554 lots for sale in Phase 2. Additionally, the joint venture Limoneira Lewis Community Builders LLC of which Limoneira owns 50% has signed a letter of intent to purchase an additional 17 acres from Limoneira to potentially develop an additional 200 residential units.

We expect to receive a cash distribution of approximately $8 million by the end of fiscal year 2022 from this new transaction.

We are raising our cash distribution expectations for Harvest at Limoneira from $80 million to $95 million to reflect the planned sale of the additional 17 acres and an appreciation in land value in our existing Harvest at Limoneira.

We also believe there is an opportunity for even greater upside to our revised cash distributions due to the potential development of a medical campus in our East Area 2 development. We will provide more information on the medical campus later this year.

Overall, we are pleased with our results in the current difficult market and are confident we will achieve higher revenue and stronger bottom line results for the remaining nine months of the year. This will be driven by the strength of our team and decisions we have made to expand our One World of Citrus with alliances such as Wileman Bros.

& Elliott combining our volumes, service and expertise under the One World of Citrus program will enable us to provide a greater variety and service to our customers and improve third-party grow returns. And with that, I’ll now turn the call over to Mark..

Thank you, Harold, and good afternoon, everyone. As a reminder, there is a seasonal nature to our business with our revenue driven by varying harvest periods from year-to-year. Our first and fourth quarters as seasonally softer quarters while our second and third quarters are stronger.

Therefore, it is best to view our business on an annual, not a quarterly basis. For the first quarter of fiscal year 2022, total net revenue was $39.3 million, compared to total net revenue of $38.3 million in the first quarter of the previous fiscal year. Agribusiness revenue was $38.1 million compared to $37.1 million in the first quarter last year.

Other operations revenue was relatively flat to the prior year at $1.2 million in the first quarter of fiscal year 2022. Agribusiness revenue for the first quarter of fiscal year 2022 includes $24.7 million in fresh lemon sales, compared to $25 million during the same period of fiscal year 2021.

Approximately 1,207,000 cartons of fresh lemons were sold during the first quarter of fiscal year 2022 at $20.48 average price per carton compared to approximately 1,320,000 carton sold at a $18.91 average price per carton during the first quarter of fiscal year 2021.

As Harold mentioned, lemon demand suffered in the first quarter from adverse weather on the East Coast, as well as the emergence of Omicron variant, creating an oversupply of lemons in the marketplace.

Also, overall tree crops throughout the California and Arizona growing regions are significantly larger this year compared to last year and this combined with lower demand is currently weighing on pricing in the second quarter and will continue until we see the Asian markets open back up.

The company recognized $3.9 million of brokered fruit sales in the first quarter of fiscal year 2022, compared to $3.5 million in the same period last year. Brokered fruit sales are very seasonal and per carton prices can fluctuate in seasonally softer quarters.

The company recognized $800,000 of avocado revenue in the first quarter of fiscal year 2022, compared to no revenue in the same period last fiscal year. Approximately 365,000 pounds of avocados were sold during the first quarter of fiscal year 2022 at a $2.10 average price per pound.

The company recognized $900,000 of orange revenue in the first quarter of fiscal year 2022, compared to $1.1 million in the same period of fiscal year 2021.

Approximately 53,000 cartons of oranges were sold during the first quarter of fiscal year 2022 at a $16.42 average price per carton compared to 119,000 carton sold at a $9.17 average price per carton in the prior year period.

Specialty citrus and other crop revenues decreased $900,000 – to $900,000 in the first quarter of fiscal year 2022, compared to $1.8 million in the first quarter of fiscal year 2021. Total cost and expenses for the first quarter of fiscal year 2022 were $48.8 million compared to $43.9 million in the first quarter of last fiscal year.

The increase in operating cost was primarily attributable to the company’s agribusiness associated with an increase in third party grower and supplier cost and avocado harvest cost in the quarter of fiscal year 2022.

The company also recorded approximately $770,000 in one time severance cost in the first quarter of fiscal year 2022 related to the departure of Limoneira’s Senior Vice President and Chief Operating Officer Alex Teague.

Operating loss for the first quarter of fiscal year 2022 increased to $9.6 million compared to a loss of $5.6 million in the first quarter of the previous fiscal year.

Net loss applicable to common stock after preferred dividends for the first quarter of fiscal year 2022 was $6.6 million compared to a net loss of $4.3 million in the first quarter of fiscal year 2021.

Net loss per diluted share for the first quarter of fiscal year 2022 was $0.38 compared to a net loss per diluted share of $0.25 for the same period of fiscal year 2021. Adjusted net loss applicable to common stock for the first quarter of fiscal year 2022 was $6.2 million compared to a loss of $4.4 million in the same period of fiscal year 2021.

Adjusted net loss per diluted share was $0.35 compared to an adjusted net loss per diluted share of $0.25 for the first quarter of fiscal year 2021. A reconciliation of net loss to adjusted net loss is provided at the end of our earnings release.

Adjusted EBITDA was a loss of $6.2 million in the first quarter of fiscal year 2022 compared to a loss of $3.1 million in the same period of fiscal year 2021, a reconciliation of net loss to adjusted EBITDA is provided at the end of our earnings release. Now turning over to our balance sheet and liquidity.

Long-term debt as of January 31, 2022 was $142.1 million compared to $130.4 million at the end of fiscal year 2021.We believe the level of debt will decrease throughout fiscal year 2022 due to expected cash flow from our agriculture and real estate businesses.

Now, I’d like to turn the call back to Harold to discuss our fiscal year 2022 outlook and longer-term growth pipeline..

Thanks, Mark. As we all know, the COVID-19 pandemic continues to affect our food service business and industry logistics on a global basis. However, due to our diversified fruit business, we expect to achieve top and bottom line growth for the next nine months of fiscal year 2022, compared to last year.

However, slightly offsetting our volume momentum we are experiencing a surplus of inventory as the overall tree crops throughout the California and Arizona growing regions are significantly larger this year compared to last year and unfavorable weather conditions on the East Coast, combined with the Omicron variant are negatively effective demand for all markets, particularly our Asian markets.

We are beginning to experience improved demand domestically, but we expect lemon pricing to remain pressured this fiscal year until we see the Asian export market begin to open again. We continue to expect fresh lemon volumes to be in the range of 4.5 million to 5 million cartons for fiscal year 2022.

And we now expect avocado volumes to be in the range of 6 million to 7 million pounds for fiscal year 2022, compared to a previous guidance of 5 million to 6 million pounds.

We also continue to expect to expand our product offerings in fiscal year 2022 by marketing another producer’s oranges and specialty citrus through our One World of Citrus program. We have a growing list of customers that enjoy our ability to provide all of their citrus needs for one single supplier.

And by increasing our oranges and specialty citrus offerings, we’ll be able to attract even more customers. In addition, as I previously mentioned, we now expect to receive $95 million compared to previous expectation of $80 million from Harvest at Limoneira during the next five fiscal years, beginning in fiscal year 2022.

This is due to increasing land values and our new letter of intent with The Lewis Group. The breakdown of annual cash flow is expected from Harvest at Limoneira is as follows. Fiscal year 2022 is expected to generate $8 million of cash to Limoneira. Fiscal year 2023 is expected to generate $15 million.

Fiscal year 2024 is expected to generate $27 million. Fiscal year 2025 is expected to generate $30 million. And fiscal year 2026 is expected to generate $15 million. These expectations from harvest do not include the potential opportunity of a medical campus in our East Area II development. And with that, I’d like to open the call up to your questions.

Operator?.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Ben Bienvenu with Stephens. Please go ahead..

Hey, good afternoon..

Hi, Ben..

Hey, Ben..

So I want to ask – thinking about the – so appreciate the updated commentary around volumes. When I think about the cost equation on the business, obviously, we’re seeing broad based kind of supply chain operational costs inflation across the market.

Does that just raise the bar for where we need to see lemon prices, skip to, in order to recognize a margin recovery in the business? As you guys think about the path to margin improvement in the business and kind of recognition of what is the underlying earnings power of this business? What do you think that path looks like from here?.

Yes, it’s a great question, Ben.

And it’s – that question that we’ve been wrestling with, which is how much of the inflationary pressure that we’re experiencing and everybody’s experiencing is transitory and how much are we sort of living with now in our new world? And I think there’s a combination of both in there, but in essence, I think the bottom line answer to your question is yes, and it is challenging the margins.

And with the oversupply based on much, much larger tree crops in California, Arizona in combination with smaller markets, because of the lasting impacts of the pandemic. You’re seeing sort of the double negative on rising cost and then pricing pressure because of the oversupply.

And so those two issues are what are really driving the pressure on our margins. Now, as we get ourselves back into a growing demand situation, which we believe fundamentally we’ll get to eventually, we’ll be able to capture more of the advantages of running greater volumes through our packing capacity, and we think that’s going to help.

And that’ll help us drive down our overall cost. But until we get there, we’re in a more challenged environment certainly for our margins. I’ll turn it over to Mark and see if he has any other color on that..

Yes. I just want to add, the other way we’re going to fight this is through increased productivity and efficiency. So over the last 10 years, specifically, in our home range here in on the coast and district two. Our production just through innovative farming techniques and different agronomics has increased over 50%.

So we’ve initiated some new projects like lemon trellising and different things. So it’s really going to be a combination of all this. I don’t if you saw an article recently that all the Spanish lemon producers basically went into revolt just on the same thesis of the market prices aren’t following everybody’s costs.

So it’s first in everyone’s minds and usually you see bulldozers after you get three or four years of this kind of activity and trees coming out. So it’s through increased productivity and passing some of the charges through, we’re going to get there and get that supply demand imbalance..

Yes. Okay. Fair enough. That makes sense. As I think about Harvest at Limoneira, obviously, almost at 20% increase in the cash that you expect to receive from the project with, it sounds like, the potential from another kind of round of upside beyond this.

What was it you pointed to the 17 acres you pointed to land value appreciation? If we continue to see land value appreciation, does that – should we think about kind of thresholds at which you make another redetermination of what the cash flow should be.

And then as you think about this medical campus and East Area 2, how should we think about, at what point does that become solid enough such that you revisit this cast distribution number again? Thanks..

I’ll take the first part and then Harold can take the medical side. So from the Harvest at Limoneira, so we have a 17-acre piece that we’ve held on through of the 550 acres, which was originally deemed to going to be a commercial retail sort of environment.

And when that whole idea sort of went away, the city had reached out to us and looked at the opportunity to potentially develop that as residential for sale and or for rent. And so in the first concept that $3 million of distribution that we originally had, it was going to be for a more commercial based idea.

And so when we developed this concept and now in partnership with Lewis and then just signed the LOI that is what guided to the $8 million plus a balance of increased land projections from the original project. And so we had seen some cost increases, but not nearly as much as this land increases as we’ve seen around the story.

So it really gave us a great opportunity here to take that up by 15 million. And the second part of your question is, yes, there is potential for more opportunity there. There could be additional units that we’re still working on, that we’ll hopefully have some more insight on the year end.

And then as the years continue in the next two, three years, if we continue to see real estate climb, we’ll expect our land values to climb accordingly and therefore adjust cash flows accordingly..

Yes. And Ben, the second part of your question revolves around East Area 2 across the highway and the medical campus. We’ve previously announced a letter of intent to actually sell parcel – land parcels to a developer who will be in partnership.

We believe with the healthcare agency of Ventura County to build we believe concurrently a medical office building and a 49 bed hospital. And then another use of a continuous parcel to that and we believe that those land transactions will take place in 2023 with the balance of the property most likely transacting in 2025.

Directionally, the first three parcels for 2023, which is not included in any of our guidance is approximately $15 million and then the placeholder of the balance in 2025 directionally is somewhere between $8 million and $10 million. And we’ll bring more clarity as those deals are announced and, and firm up.

But we do believe that there is a very good chance that we’ll see direct monetization in the sale of land to our developer partner for the hospital medical office building in a third parcel in 2023..

Okay, great. Thank you so much..

Thanks, Ben..

Thanks, Ben..

The next question is from Vincent Anderson with Stifel. Please go ahead..

Yes, thanks guys. So maybe just at a higher level then, can – is it possible for you to quantify for us the net supply demand impact between the California crop increase and the Asian demand shortfall.

And then working through that, what your thoughts are on the East Coast later this year, especially given the importance of Russia as an outlet for Argentinian lemon..

That’s a great question and shows a lot of insight, because that’s the big unknown their events, which is the impact of now the Argentine lemons not having access to the Russian market and where will that fruit go? The big question mark, for all of us in the United States at this point is how the impact of the increased shipping costs through containerized shipping lanes, how that will impact the profitability or ability for the exporters out of Argentina and the importers in the United States to actually profitably land that fruit into this market.

We’ve seen the cost of containers double over the last 12 months driven a lot by the logistical supply chain challenges that we’re all aware of. And basically we’re somewhere between $5 and $10 a carton below the breakeven point for the Argentine shippers to be profitable.

So we’re not sure whether or not that fruit’s going to find its way into the U.S. market or not. It’s a big question, Mark, because, obviously if it arrives on the East Coast later on this year, then that’s going to have a one sort of impact that will most likely be negative from an oversupply situation.

On the other hand, since we’ll be participating in some of those imports, it could potentially be beneficial to us, but our sense is that we’re going to continue to be pressured from a pricing perspective because of all the – all of the variables coming together, suggest that we’ll continue to be oversupplied with lemons for the remainder of the year, and at least we’ll be under pressure..

Okay.

And sorry, did you – what did you have a sense of just the scale of the California crop relative to what you lost in Asian demand?.

Yes. So what we do know is the desert is 40% – was 40% larger than last year. The valley was 20% larger than last year. And we think the coast is 15% larger. If you put it all together, it’s about 25% larger year-on-year, the tree crop last year – this year versus last year.

It equates to about 10 million cartons, additional cartons that were all in the industry going to have to find a hum for. And as it relates to the destruction of Asian demand, it’s probably off on, on someone on the magnitude of 5 million cartons type of thing. So the combination of those two things are making it pretty crowded out there..

Yes. Okay. So those are pretty real numbers. Okay. So little bit of a different question, I mean, maybe just generally how the third party grower conversations are going with given everything that’s happened. And you mentioned that this is the kind of environment the last few years, where trees should be getting taken out of the ground.

Are we seeing that? And maybe just more specifically, if this isn’t too much at once, but you’re not a cooperative, but a lot of your competitors in the U.S. are.

Do any of them have programs that you’re aware of related to alternative modernization of land or are they really just there to pack and market?.

I think it’s more the latter, they’re there to pack and market. And so there isn’t – there’s a lot of discussion that we’re in an oversupplied situation.

We try to keep our finger on the pulse with all the nurseries throughout California and Arizona, and are aware of all the nursery activity, because that’s sort of the harbinger of more supply coming, if there’s a lot of nursery stock that’s being planted.

And we do know that there’s an awful lot of young trees that have been planted in California and Arizona. There’s still yet to come online. As bad as things are right now, if you look back to last year, as the world began to open up before the Omicron variant really manifests itself.

And we pulled back again, we had a situation where in the valley in district one and then down in the coast, in district two. Growers actually made a little bit of money and we made money back to the ranches for ourselves and for our outside grower partners in a pretty good way.

And we expect that to be the case, it’ll be interesting to see how it all shakes out with the lower pricing environment, but it’s not to the point of pain where we’ve crossed the threshold where farmers are pulling trees out, but we’re believe we’re getting closer..

Okay. And so I’m a little surprised to hear that there’s a lot of new trees that are still coming to bear wild guests. Those were planted around like the [indiscernible] okay..

Exactly. And the other thing that’s – the other dynamic there Vince is you have different parts of the growing areas, where because of the drought there’s water curtailment.

And so if you were row cropping and using five acre feet an acre, and now you’re limited down to one to two acre feet going into a permanent crop something like lemons does survive with less water. And you’re seeing a lot of planting as a result of that..

Interesting. Okay. And that all that land is has to stay agricultural in California by and large, except – in the exception we saw for your real estate development..

Yes. We’re definitely an anomaly in the exception not the rule. It takes so much effort financially and just politically to convert an agricultural piece of property to urban development that you might as well just assume it can’t be done..

Got you. Okay. Fair enough. If I could ask one more quick one, it’s probably a big no. We try not to care about juice. But do you have any thoughts on this anti-dumping case? Is there any opportunity based on what you know of juice supply demand in the U.S.

that your $2 a carton for juicing goes to $4 and it’s just found money or not much to do there?.

Yes. He’s a friend of ours, the guy that filed the suit and periodically will actually ship send to him fruit. These kind of cases typically fizzle and we don’t have any expectation of a successful outcome. What we will say is we’ve had a direct relationship with a juice manufacturer who has really great inroads into NFC offerings.

And as a result, we typically get a premium for that relationship versus the gentleman that filed the suit that, that was really just looking at the overall industry. So even if he prevailed, I really wouldn’t necessarily expect it to raise the tide to float all boats a little higher.

I think it would really just come across as a one-off, but we’re rooting for them, but we don’t really have a lot of camp. We don’t think it’s going to be successful..

All right, no problem. I appreciate it guys. That’s all for me..

Thanks, Vince..

Thank you..

The next question is from Ben Klieve with Lake Street Capital Markets. Please go ahead..

All right. Thanks for taking the questions. But most of what I wanted to address has already been discussed, but I do have one question about how this kind of current environment that, that you guys have been talking about affects your thought process around the lemon, excuse me, around the water rights that you have access to.

I mean is there any thought that, that, the water that you have access to would be is going to be deployed in a kind of non-operational way to monetize it given the challenges, the current environment, or is that something that’s not really a consideration at this point?.

Thanks for the question, Ben. That it’s a good one. I’ll take a stab at it and then Mark feel free to jump in. So you’re beginning to see some really interesting opportunities to actively monetize water in ways that are not only in growing agricultural products.

And the first one that is about to be announced is a following program with our Colorado River water rights. We own and farm 1,300 acres in Arizona growing lemons. We’ve just followed 600 of those acres in preparation of this following program.

And in essence, in return for not farming and not pumping that water will allow that water to be pumped for other uses mostly filling up late need to actually take that water to the Central Arizona project of all the housing from Phoenix down to Tucson, but also to Las Vegas.

But that following program will be a new and a new alternative way for us to generate value for that water versus growing lemons. So that, that’s an example of the first one you’ll see. And you’ll – we expect to formally announce that program later this year, probably in the mid-to-late summer.

And so we are sort of taking inventory of all of our assets and what we’re doing with them and constantly seeking highest and best use with them that that’s an example of something else that we’re going to do with our water there.

Mark, any other color?.

No, I think that that’s the one that’s on the front plate right now..

Got it. Okay. That’s very interesting. I guess we’ll stay tuned for more there. Thanks for taking my question. That’s it for me. I’ll get back in queue..

Thanks, Ben..

Thanks, Ben..

[Operator Instructions] The next question is from Eric Larson with Seaport Research Partners. Please go ahead..

Yes, thanks, guys. Good afternoon. So I did one of the of the questions that I, you’ve already addressed part of it with your Argentinian fruit. So I don’t think we actually quantified the potential case volume impact on that like you did in the U.S. market is.

How big is the volume impact that you’re thinking about that volume that won’t – potentially won’t go into Russia.

Obviously, we don’t know what’s going to happen there yet, but so what have you got a number on that?.

We don’t, Eric, it’s a great question. Because there’s also other area – there’s other areas that it can go. So besides Russia, the Spanish crop is down considerably. So we received a report this morning that there’ll be a four to six-week shipping window for some of that Argentina fruit to go to Spain. And so that’s going to help as an outlet.

And again a lot of it’ll depend on the – on just the raw economics of what the market is bearing at the time that the fruit would be shipped juxtapose against now the increased shipping costs to deliver that fruit that will really drive the decision of the Argentine exporters.

We handle – Limoneira handled 20% of all the imported fruit from Argentina a year ago. And we believe that that and directionally that was somewhere on the order of about a million cartons.

And so if you extrapolated that would be 4 million to 5 million cartons of what came in last year, all of the shippers if the economics were right, were prepared to export more or we would be all of us as importers would be prepared to import more, but I really would doubt if that much fruit finds its way into the market.

We’ll really just have to – we’ll just have to see that the – it’ll all come down to the economics of what’s the market pricing is at that time driven by domestic supply coming out of district two. And what’s that doing to the price that will either open the window for the imports or close it because of the prohibitive low pricing.

And Eric Argentina does have a pretty large juice market, typically only 20% to 30% of the crop ever went fresh. And so they do have the ability through the co-contracts and whatnot to absorb some to get call it maybe just below breakeven, but not total disaster. So they do have some optionality..

Okay, great. So is – do Europeans and Russian, do they like a different type of fruit grade or is it pretty ubiquitous so that it isn’t kind of a unique grade of fruit that you’re sending to those countries. You could if other areas opened up again, United States shipping, you talked a little bit about that.

Can that fruit be basically shipped anywhere else in the world?.

Yes. It – and in that case, specific case, it – a lemon is a lemon is a lemon. And the three grades, the fancy, the choice, the standard, typically the exports out of Argentina are what they call their fancy grade. So if it can’t go to Russia, it can most likely go in into any of the other markets that would be interested in taking it..

Okay. So my final question, I’ll let you guys go. So you quantified the impact of the larger crop this year in California about 10 million cases or cartons.

I’m assuming that’s an industry-wide number, is that correct?.

That’s right..

And if that’s correct, so you are – you’ve been adding acreage every year. We talked a little bit about that today too.

Does the overabundance of fruit change the way you plant, how you put into development those other acres that you’ve been doing for the last three or four years, and obviously actually you could be 10 million carton short too, right? So does it impact how you are developing your other non-producing lemon land?.

Yes. And that’s a very insightful question. So we have a lot of young trees coming that will be bringing greater productivity with younger, stronger, stronger trees. At the same time, we’re also balancing the portfolio across all the growing regions of older, less productive blocks.

So you’ll begin to hear about and see us pulling some of those older, less productive blocks and most likely not going into lemons and going into alternative crops in those areas.

As a way for us to do our part to limit our total supply, that we – because of the success of our grower partner services, and our ability to pack market and sell and provide those services to outside growers, we think there’s plenty of fruit to continue to expand and fill our packing house with other people’s fruit.

And for us to begin to decrease the total amount that we bring, albeit slowly, because we’re going to be constantly balancing these non-bearing trees that are now becoming bearing with pulling out older, less productive acres as we move forward. But we’re going to be watching very, very closely what everybody else in the industry is doing.

And hopefully, find ourself moving as an industry closer towards the correct balance between demand and supply. A big part of the unknown right now, Eric is just how big is the impact of the pullback in demand that’s still being driven by the pandemic.

Once that comes back remember before the pandemic, we were seeing double-digit growth throughout most of the Asian markets, and we fully expect it to return there. We’re just not sure how long it’ll take to get back there..

Got it. So one of the goals that you’ve been striving for over the last let’s say three or four years is to become a more full service citrus supplier to your U.S. retail customers. And I – is – and I believe a conversation that we had on this was that you were really interested in more in – of more oranges, more orange citrus plantings.

Is that really where – would that be the primary substitute if you don’t put lemons back on that land?.

Probably not. I think avocados would be an area of expansion.

And really, we believe we’re very bullish down in the main ranch where you visited in Santa Paula, that where we have access to lower cost water relative to other parts of California that, that appear to be secure and abundant, which gives us a good opportunity to pivot from a lemon to an avocado.

And if you look out into the few future, we’re really bullish about the future and continued consumption and growth of avocados..

Got it. So last question, I’ll let you guys go. So the Omicron variant in the U.S. has come off very sharply, we’re lifting masking requirements and all the mandates and all the – all that stuff.

So I – and I probably should know this where in the infection rate of Omicron in Asia, where do they sit relative to where we are in the U.S.? So when that comes off, shouldn’t it come off pretty sharply or else it’s like what we’ve seen here in the U.S.?.

I think so, we read this morning that Hong Kong is at its peak today. Like it’s having the biggest outbreak they’ve had so far. So it’s peaking in Hong Kong today. Japan is on the downhill slide and it’s improving and South Korea, we would put in that camp too.

Those are the three primary markets that we work with, but they’re at a – it’s not like it is here in the United States where it feels like we’re looking at it in the rear view mirror, they’re still actively dealing with it. And the impact, especially of the Japanese market is what’s been hurting the industry the most.

And we’re just watching it very, very closely because there’s the reality of the pandemic, but then there’s the reality of how their society is dealing with it. And I – at this point, it feels like they’re being more cautious maybe than we are, but we’re watching it very closely.

And the litmus test for us is just the orders we’re getting from the trading company are not. And right now that’s going out about 50% of where it was before the pandemic hit us..

Okay. Got it. Thank you, everybody. I’ll follow to you a little bit later..

Thanks, Eric..

Thanks, Eric..

There are no further questions at this time. So I would like to turn the floor back over to Harold Edwards for closing remarks..

Thank you very much for your questions and interest in Limoneira and we want to wish you all a great day. Thank you very much..

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation..