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In the late October newsletter, we indicated that the orange juice market this year would be in a position to see lower than expected production and the potential for an increase in demand for the first time in many years. Reports from supermarkets continue to suggest stronger than normal demand for OJ this year due to the H1N1 virus and a shift in consumer preference to orange juice from other beverages as a way to help ward off illness. Estimates that there has been a 10-15% jump in demand are hard to confirm as of yet, but they make sense given the talk from the government over the need to keep children healthy and full of vitamin C during this outbreak. On top of the potential jump in demand, Florida production in October was pegged at just 136 million boxes, down from 162.4 million last year and 170.2 million two years ago. The December crop production report will provide an update for the 2009/10 crop. The cost of production has shot higher in the last few years, and this is an issue affecting Brazilian producers as well. New diseases like citrus greening disease are now a concern for producers there, and traders believe Brazil also lost close to 2 million trees to sudden citrus disease. Frozen OJ stocks at the end of October in the US were pegged at 1.115 billion pounds, down 8.5% from the previous month.
With increased fund trader interest in commodities, especially commodities which may show declining supply ahead, orange juice futures may begin to show increased interest from speculators. The recent Commitment of Traders report with options showed large and small speculators together holding a net long position of 14,674 contracts. This was in contrast to a net short position earlier this year (prior to the onslaught of H1N1) but still well short of the record net long position of over 33,000 contracts. As we move closer to the end of the year, the market may also begin to build a weather premium for the cold season for Florida in January. A late season freeze last winter may not have impacted last year’s crop much but seems to have caused much lower than expected production for the current crop.
The price trend for orange juice is up, and we still look for a rally this coming year to at least 137.05 for the nearby futures (a 50% retracement of the February 2007 to February 2009 break), and we would not rule out a run at the 154.00 level.
