Avocados will probably be more expensive under Trump's Mexico tariffs

Avocado toast and the extra side of guacamole will probably get more expensive if President Donald Trump's latest trade threat becomes a reality.

The United States gets most of the supply of the popular fruit from Mexico. If Trump's surprising 5% tariffs on country imports are carried out, companies ranging from importers like Calavo Growers to restaurants like Chipotle Mexican Grill will probably start paying more. And analysts say the increase is likely to be passed on to consumers.

Shares in Chipotle – where diners already pay extra for guacamole – fell 2% Friday on the threat of rising prices. Burrito-purveyor goes through more than 450,000 avocados a day, the company said.

"Over the past year, our supply chain team has been working to diversify our supply line in line with our food integrity principles," the company said in a statement to CNBC. "If the advertised tariffs are adopted, they will adversely affect costs and we monitor the situation and work with our suppliers to minimize the impact. "

Chris Markt, marketing manager at Chipotle, said last year that" guac has long been one of Chipotle's most beloved items, "adding that customers order about 50 million

"Avocado is a difficult thing to predict," said John Hartung, CFO of Chipotle Mexican Grill, in the company's first-quarter earnings call. and adding that rising avocado prices are the reason why the second quarter cost will be about 1[ads1]00 basis points higher. "We are paying a lot more right now. "

Higher avocado prices are likely to eat in the company's profits for Chipotle, according to Wedbush CEO and research analyst Nick Setyan.

"If the avocado prices go up, there is an impact on their bottom line," Setyan told CNBC in a telephone interview. "If we see another big step up because of the tariffs, and it's a longer duration, the cost is likely to be passed on to the consumer."

Avocado prices began to rise late in March – based on higher demand from dealers promoting the fruit, lower expected short-term supply, less harvesting on Easter holidays and a lighter California crop this year, said Setyan, who has a "neutral" rating and $ 700 share price target.

At a Metric provided by Wedbush Securities, the prices of Hass avocado from Michoacan have already raised 58.8% so far.

But Setyan pointed out that avocado prices are already volatile, known to fluctuate 20% to 30% in a year. Much of it is already reflected in Chipotle's forward-looking guidance.

In this context, a 5% move may not be as big of a deal – you get the wilds turn in order, Setyan said.

International Agricultural Products The company Calavo Growers sources most of its fruit from Mexico and was also under pressure on Friday. Stocks at Santa Paula, California-based company were down as much as 4%.

Stephens analyst Ben Bienvenu said that in recent years, Mexican crops have accounted for 80% to 90% of the total avocado volumes entering the US supply for the whole year. This amount was set higher in 2019, since the California trees are in an "off-year" from production given the fruit's two-year production program.

This year, Mexico's harvest prices have doubled from $ 25 in January to more than $ 50, according to the US Department of Agriculture. "Because Calavo buys fruit in bulk from Mexico, and dealers charge customers per piece, there is still a little" cushion "to" better absorb cost increases "by passing them on to the consumer, Bienvenu said.

"Although these tariffs have the potential to create margin pressure for importers like Calavo, we note that the mechanics of how avocados are bought and sold create flexibility for the supply chain to pass higher costs to the consumer," Bienvenu said in a note. for clients Friday. "Avocados are also some of the more profitable products that dealers sell. These robust margins allow resellers to deal with cost pressures as they arise. "

According to the White House, new tariffs are meant to push Mexico to improve border security measures and is expected to take effect on June 10. The president tweeted Thursday night, the prices will remain in place for "The Illegal Immigration Problem Solved." The White House said these charges could increase to as much as 25% on October 1, if Mexico did not substantially support illegal immigration across the northern border.