In this post, we take our gaze away from the popular suspects to look at an exotic commodity, namely the OJ, which has yielded triple-digit returns to its investor in a year. Several other crop commodities like arabica coffee (+13%), cocoa (+16%), and robusta beans (+40%) have all boasted double digits in gains, with our primary focus, FCOJ gaining over 29% in the last few months alone.
Overall Status of the Market
Over the past year, U.S. orange crop futures have increased by 202%, and there have been many forecasts of a new high that could surpass all-time-highs. Over the last few years, imports for orange juice has steadily increased in the U.S. as production has considerably dwindled due to several factors especially the losses experienced by Florida – one of the top producers of the crop in the U.S. – have been awfully huge.
Even though the U.S. still stands as more of an exporter than an importer, the supply shortage and drop in production levels have negatively impacted its rankings in the global market. However, with imports to offset the production decline, they have been able to meet slowing domestic demand.
Even though the U.S. still stands as more of an exporter than an importer, the supply shortage and drop in production levels have negatively impacted its rankings in the global market.
Rabobank, the Utrecht-based bank, follows its positive outlook on orange juice and reiterates that the recent surges in prices were a result of tight market conditions based on dwindling inventories and low outputs from producing countries. Nevertheless, they also note that an equilibrium level might be in sight as OJ demand drops. It will allow the market to readjust as consumers face high prices and weak purchasing power. This balance will provide some form of stability, but prices will remain high pending harvest projections from Brazil and Florida for the rest of H2 2023 and beyond.
Production Figures
According to the USDA, in June 2023, the U.S. produced close to 62.25 million boxes of orange crop (roughly 2.57 million tonnes) between 2022 to 2023. As reported by The Agriculture Department in January 2023, the projection for Orange crop produce from Florida for 2023 is expected to reduce by more than half of production in 2022 – a 93% downswing compared to the record high in 1998.
U.S. produced close to 62.25 million boxes of orange crop (roughly 2.57 million tonnes) between 2022 to 2023
To further add to the decline, the oranges produced now are smaller than ever. Records indicated that this would be the first time Florida would come short in orange produce since World War II, with California overtaking them. Even though California oranges are mainly consumed raw rather than processed into juice, this represents the first time since the boom of the concentrated juice business that such will happen.
Recent Events
Last year, growers of the sumptuous citrus fruit in Florida were hit with a series of inadvertent events that dictated the price of orange crop and orange juice. The price skyrocketed as an early freeze, heavy hurricanes, and a fast-spreading disease, among many others, crippled production across the Sunshine State. As per reports from Wall Street Journal, reconstituted orange juice was sold at retail for $6.27 a gallon, while the squeezed juice (not derived from concentrate) went as high as $10. Commodities analyst Judy Ganes even likened it to “liquid Gold.”
As per reports from Wall Street Journal, reconstituted orange juice was sold at retail for $6.27 a gallon, while the squeezed juice (not derived from concentrate) went as high as $10.
Florida experienced loads of environmental disasters that contributed to the surge in price, with the early freeze and Hurricanes being the chief contributors. The former destroyed several budding trees while the latter toppled and uprooted more as growers faced a situation that was simply out of their hands. There is also the issue of “citrus greening.” It contributed to a large percentage of decrease in production as several trees were infested with premature fruit shedding.
Experts’ Opinion
Andres Padilla, a senior analyst at Rabobank, said, “The global OJ market is under supply stress, and the lack of clarity regarding when inventories will be replenished is increasing the upward pressure on prices. In addition, the ongoing decline of production in Florida has meant that US imports have been rising over the past four years, adding demand for exports from Brazil”.
Rabobank is of the assumption that the U.S. will still depend on imports to a certain degree as the year rolls by, pending a total and sustained recovery in Florida. With conditions more unfavorable than ever, there seems to be no clear path for such recovery at the moment. And with worsened conditions, it would take a substantially huge investment and high production cost to keep production at an acceptable level, talk less of significantly increasing it.
Key Takeaways
On a concluding note, all eyes will be on the latest developments coming out of Florida going forward, as well as the latest happenings in Mexico or if there is an emergence of another supplier aside from the leading OJ producer, Brazil. All of these will be in check as market demands projections remain tight amid price increases.
Despite weakening demand, the global supply/demand balance is on course for another deficit this season, albeit smaller than in the past two years.