HardAssetsInvestor

Written by Edward Faubert  |

January 24, 2012

Will Orange Juice Supplies Get Squeezed?

Details

Orange juice traders on alert ahead of USDA report after several price swings this winter.

FCOJ (frozen concentrated orange juice) prices have exploded during January. Prices had been trading in a stable range between $1.50 and $1.80 a pound for more than a year. By Jan. 10, prices as measured by the ICE Futures contract had raced to an all-time high of $2.12 a pound.

Then prices quickly retreated to $1.78 a pound before rebounding again to $2.10 a pound on Jan. 20. Propelling the market has been a combination of declining stocks, fear of damaging frosts in California and Florida orange groves, and concerns about possible FDA restrictions on imports from Brazil over the use of a fungicide. And if all that was not enough for traders to deal with, a key USDA citrus report is due out this week.

According to the USDA, in its last Foreign Agricultural Service global citrus report in July 2011, total world production of fresh oranges (the raw stock from which FCOJ is made) for the October 2010/September 2011 crop year totaled 53.8 million tons, an increase of 5 percent from the previous year.

Much of the increase was due to a surge in production from Brazil of 18 percent. Brazil accounts for about 38 percent of world orange production, or 20 million tons. Other major producers include the USA (8 million tons) EU-27 (6 million tons) and China (5 million tons).

Total world production of FCOJ for 2010/2011 was 2.31 million tons, up from 2.19 million tons a year earlier, but well off the 2.48 million tons in the 2007-08 crop year. Global consumption has also been slipping, from a peak of 2.29 million tons three years ago to presently 2.06 million tons. But ending stocks have fallen during the same time from 681,000 tons to 494,000 tons. Traders consider this to be tight, with no room should there be a disruption in supply.

Traders are always on edge in January when the risk of frost damage is greatest to the North American citrus crops. This year, orange groves in both Florida and California have flirted with potentially damaging freezing temperatures. Brazilian imports account for 11 percent of total domestic FCOJ consumption. Florida accounts for about 75 percent of domestic concentrate supplies and California about 25 percent.

A typical orange tree can take four to seven years before achieving peak production. Oranges, and orange trees, can sustain damage when temperatures fall below 28 degrees Fahrenheit for more than four hours.

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