Orange juice prices have skyrocketed since penning “Florida’s Orange Juice Crop at Risk Due to Hurricane Dorian – Reminisces of the ‘Trading Places’ OJ Trade” in August 2019 (Twitter thread) and “Florida’s Orange Juice Crop Devastated by Hurricane Ian” published in October 2022 (thread). Fast-forward to commentary throughout the financial universe today and the current rally is described by pundits as “the (short) squeeze that nobody is talking about” this week. I beg to differ because the citrus market’s fundamental outlook and price action on the frozen concentrated orange juice (FCOJ) futures chart had predicted much higher prices over the horizon since at least 2022. FCOJ was developed in 1945 leading to oranges becoming the main fruit crop in the U.S. Here is an excerpt from the most recent technical analysis:
“On top of Hurricane Ian’s devastation in Florida and reduced production over decades, the seasonality pattern favors higher price points as a rally challenges all-time highs… If orange juice is your favorite breakfast drink, I suggest you get to the grocery store asap and stock up on frozen concentrate….” – TraderStef
The fundamentals for OJ remain negative, but that’s a positive for prices due to increased global consumer demand going forward, tight supply and reduced production in Mexico, the U.S., and Brazil, NOAA has issued its most aggressive hurricane season weather forecast on record, an incurable bacterial disease known as “citrus greening,” ongoing supply chain issues, and wicked inflation dynamics that have worsened in the Bidenomics economy.
Global Orange Juice Market Growth Expectation 2023-2030 – Data Bridge
A powerful spike in FCOJ futures since 1Q24 was initially triggered by the USDA Citrus World Markets and Trade forecast (PDF file) released on Jan. 25. Despite painting a rosy picture, the following graph is indicative of how production has trended down in Florida since 2014 and only a small increase is anticipated this year. The OJ industry views current market conditions as being “in crisis” amid record-high prices and projections that the supply will continue to experience shortfalls despite any uptick in crop production outside the U.S.
Orange Production for Florida and California 2023-2024 – USDA
Orange juice sector squeezed by shortages and price hikes as extreme weather and inflation bite… “Karel Coosemans, global innovation program director, Re-Master Citrus at IFF, says: ‘Orange juice costs have skyrocketed and it’s a huge concern across the industry, affecting both producers and consumers.’ With main processors sold out, there is a supply shortage that will remain firm for some time, he flags. ‘There’s certainly no indication that the situation will improve before the arrival of the 2024/2025 crop.’ – Food Ingredients First, Feb. 2024
Companies May Stop Using Oranges to Make Orange Juice as Costs Skyrocket… “A dwindling supply of oranges from the world’s largest exporter could force manufacturers to look for substitutes as prices soar, according to reports… Wells Fargo Agri-Food Institute’s David Branch said ‘shortfalls in global production have kept futures prices higher than typical trading range.’” – Newsweek, May 29
Orange juice makers consider using other fruits after prices go ‘bananas’… “Prices of orange juice reached a new high of $4.95 (£3.88) a pound on commodity markets this week after growers in the main orange producing areas of Brazil said they were expecting the harvest to be 24% down on last year at 232m 40.8kg boxes – worse than the 15% fall previously predicted. Orange trees in Brazil have been suffering from citrus greening, an incurable disease, after extreme heat stress and drought during their key flowering period in the latter part of last year. The predicted poor crop in Brazil, which accounts for 70% of all orange juice exports, marks the third difficult global harvest in a row. As well as problems in Brazil, Florida in the US has been hit by a series of hurricanes and the greening disease, which is spread by sap-sucking insects and turns the fruit bitter before killing the tree. The series of poor harvests has limited manufacturers’ ability to ride out the current difficulties by mixing the new crop with frozen juice – which normally has a two-year lifespan. ‘This is a crisis,’ Kees Cools, the president of the International Fruit and Vegetable Juice Association (IFU) told the Financial Times. ‘We’ve never seen anything like it, even during the big freezes and big hurricanes.’” – The Guardian, May 29
Traders and investors have few choices to invest in orange juice, and it’s best left to professionals that trade FCOJ (market details) with futures and options. There is no ETF that is specifically focused on orange juice for a retail-level investor to trade. Investopedia provides a basic overview for trading in the orange industry.
Orange Juice Futures Seasonality
FCOJ Futures ICE-US weekly chart as of May 30, 2024…
Since the $91.60 low printed in Feb. 2020, the price action skyrocketed to a high of $495.25 this week in blue-sky territory. What stands out is a pullback in fall 2023 that printed an Adam & Adam Double Bottom at the 50 Exponential Moving Average (EMA) and 50% Fibonacci level and then pivoted into a price spike after the Jan. 2024 USDA report was released. The bearish Shooting Star in Feb. resulted in a consolidation that formed a bullish Pennant until the breakout in May after crop yields were reported to be below expectations, especially for Brazil. That rally was explosive and is overextended but not necessarily overbought. This week’s candle might print a bearish Plunger (aka Shooting Star), but one more trading day is left before deciding.
The DMI-ADX is primed with a bullish Alligator Tongue setup, the 50 EMA is lagging too far behind, and buy Volume remains solid but has fallen throughout the rally in May. The chart is set up for a breather and another period of consolidation. If the recent all-time high is taken out, keep an eye on the two Fibonacci Extension levels as upside targets. Support levels are at the lower trendline of the Up Channel and the 50 EMA. The FCOJ chart remains bullish for now but needs a breather before choosing a seasonality uptrend path for mid-summer – or maybe not. Caution is warranted.
What Actually Happens At The End Of ‘Trading Places?’… “It’s been 30 years since Trading Places came out. And, to be honest, I never really understood what happened at the end of that movie. Sure, Louis Winthorpe (Dan Aykroyd) and Billy Ray Valentine (Eddie Murphy) get rich, and the Duke brothers lose all their money. But what actually happens? How does it work?” – Planet Money, 2013
Trading Places (1983) – The Orange Juice Trade Closing Scene
