Coverage: Orange juice futures hit seven-year high

Orange juice futures — the commodity that made Dan Aykroyd and Eddie Murphy rich in “Trading Places” — hit a seven-year high on Wednesday, juiced by concerns about production.

Myra P. Saefong of MarketWatch.com had the news:

Frozen concentrated orange juice for January delivery rose 10 cents, or 4.7%, to settle at $2.2365 a pound on the ICE Futures exchange Tuesday. That’s the highest close on record, according to FactSet. Prices have gained more than 50% year to date.

Concerns around Brazilian and U.S. orange production, both of which are expected to decline to multi-year lows, gave prices a lift, said David Maloni, president of the American Restaurant Association, a food and energy commodity-services organization.

Recent firmness in the Brazilian real has also added support, he said. A strong Brazilian currency can discourage that nation’s growers from selling oranges into the global markets.

The U.S. Department of Agriculture’s biannual “Citrus: World Markets and Trade” report released in July showed that Brazil’s production is forecast to drop 2.4 million metric tons to 14.4 million, because higher-than-normal temperatures during September and October “significantly damaged fruit settings.”

Fabiana Batista and Marvin G. Perez of Bloomberg News noted that Florida production is less than half what it was a year ago:

In Florida, collection of early and mid-season oranges — or those that ripen from October through January — is less than half of what it was this time last year, the U.S. Department of Agriculture’s statistics unit said Monday. At the same time, exports are shrinking from Brazil, the No. 1 grower, deepening global supply concerns.

“The world is going to have a shortage this year,” said Thomas Spreen, an emeritus professor of agricultural economics at the University of Florida’s Institute of Food and Agricultural Sciences. “There’s probably more upside than downside to this market.”

Prices for orange juice have surged 55 percent this year in New York. The Asian citrus psyllid, a disease-spreading bug, has infiltrated groves so deeply that production in Brazil is set to be the lowest in two decades, compounded by earlier droughts and tree losses. Florida’s output is poised to drop a fifth straight season, the worst slump in more than a century, USDA data show.

Kevin Brouffard of the Lakeland (Florida) Ledger notes that higher costs are also hurting growers:

“Generally speaking, last year was a huge challenge to make a profit,” he said. “This year will be a challenge.”

The Zansler outlook predicted Florida processors would produce just 368 million gallons of orange juice from this year’s crop, down 17 percent from last season. Weak inventories carried into 2016-17, the total OJ available for sale will decline 7 percent to just 1.1 billion gallons.

Including Brazil, the world’s biggest orange grower and OJ producer, orange juice availability in 2016-17 will decline 18 percent to almost 2.5 billion gallons. Brazilian orange and OJ production has also declined since greening arrived in that country in 2004.

Because of the OJ supply shortage, the retail price in the U.S. for 100 percent orange juice will jump 4 percent to $6.80 per gallon, Zansler said, but it could rise as high as $7.10 or fall as low as $6.68. But even the low-price projection represents an increase from the 2015-16 average of $6.55 per gallon.