Reduced US crops send orange juice futures skyward
By Andrew Knoll
21:41, 17 January 2022
Orange juice has begun to squeeze the commodity market as crops reached their lowest yield in nearly eight decades and, in turn, prices for the popular breakfast drink are rising.
The US Department of Agriculture released its January forecast, with marked declines in yield in terms of boxes of oranges. The forecast is expecting 44.5 million boxes, down 1.50 million boxes from the December forecast. If realized, this will be 16% less than last season’s final production.
The USDA also projected the average size of Valencia and non-Valencia oranges to be at or near the minimum size, signifying that more fruit will be needed to fill each 90-pound box. Grapefruit, tangerines and tangelos crops are in a similar bad state.
The cause, according to citrus producing powerhouse State of Florida’s department of agriculture, is citrus greening, which has been found in at least eight US territories and states, including Florida.
A downward trend in fruit supply means an upward trend in price.
Orange juice concentrate futures closed at $1.50 per pound on Friday, up around 50% from the outset of the pandemic. Prior to the pandemic, which shifted consumer and industrial needs toward goods with long shelf lives such as frozen juice concentrates, they were dangling near decade-long lows.
Impasse or passing problem?
This crisis for citrus production could be even more severe than the one caused by Hurricane Irma. That natural disaster left the industry in peril and required government intervention to revive the US citrus sector and the livelihoods of agricultural workers.
The length of the disruption also remains unclear, given that citrus greening is permanent and incurable once it affects a citrus tree. There are, however, workarounds including the practice of importing fruits from Latin American citrus producers such as Chile and Mexico.
The fertile south-eastern region of Brazil is the world’s largest producer of fruits and vegetables overall and of orange juice in particular, according to Brazilian agriculture authorities.
However, a drought has fettered much of South America and frost issues have complicated matters in some areas, including Brazil. Overall fruit and vegetable production has declined year over year, but nevertheless this year’s Brazilian orange harvest is expected to be higher than last year’s.
The Wall Street Journal reported an uptick in investment by hedge funds and other speculators in orange juice futures, with divergent views on the viability of such investments.
“We’re seeing it’s a commodity of interest at a time like this,” RJO futures market strategist Peter Mooses told the Journal. “There’s a big demand for oranges.”
Yet sound cultivation throughout Mexico, Brazil’s resilience and other potential sources have quelled such bullishness among other informed observers.
“The fundamentals do not support prices at these levels,” Florida-based Homemaker Juice president Brandon Saltmarsh told the Journal. “There’s still too much juice in the world.”