In a world that often seems to have gone bananas, it's the humble orange that’s now taking the commodities market by storm. Orange juice futures are climbing the commodity market tree at a rate that has traders and consumers alike raising their eyebrows—and their glasses. The chart below looks at the price history of orange juice from 1971-2023. Back in 2016, the previous all-time high for frozen concentrate orange juice futures stood at 227.50. Just a few days ago, it peaked at 417! 83% higher than the previous all-time high!
So, what’s causing this juicy surge in prices? Let’s peel back the layers to uncover the zest behind this financial fruit phenomenon.
As with any commodity, there are usually a handful of usual suspects when it comes to drivers in price. For orange juice, the following factors weigh heavily:
Weather - Orange crops are incredibly sensitive to weather conditions. Florida, a citrus heavyweight, has faced its fair share of meteorological woes—from hurricanes to unexpected frosts. California, the new king of oranges in the US, is regularly hit with drought conditions and fires which threaten the consistency of crop harvests. Not only does weather impacted current harvests, but it may also take years to replace damaged groves. When Mother Nature stirs up trouble, orange juice futures often feel the squeeze.
Disease and Pests – It’s not just the weather that’s bittering the lot of orange farmers. Diseases like citrus greening and pests that view orange groves as all-you-can-eat buffets are causing havoc. While new treatment methods are being developed, and proving effective, it will take time to recover from the damage already incurred. These factors contribute to reduced harvests and, in turn, put pressure on orange juice supply, causing prices to pulp up.
Speculators - Finally, we must consider the role of speculative investors who, sensing the potential for growth, pour capital into orange juice futures, thereby driving prices even higher. It’s a classic case of market dynamics—where there’s speculation, volatility often follows. Recent markets are a clear example of that. From the February lows, orange juice futures have surged higher by 355%.
While speculators have a heavy hand in pushing prices up, when they exit their positions, prices are bound to retreat significantly. The question is when, and how much!
These factors are always influencing the price of commodities. However, there is a new problem to contend with. Greed. Florida has had a long-standing tradition of being the juggernaut when it comes to orange juice in America, but that trend is changing. With the massive surge in real estate prices, some farmers are selling their plantations to developers while prices are high. According to the USDA (United States Department of Agriculture) in 2000, there were 665,592 acres of oranges in Florida. In 2023, that number has plummeted to 303,284, and is falling fast. This dramatically reduces supply of orange juice and may be responsible for the meteoric rise over the past few years.
To put the current Supply issue into perspective, in 2004, Florida produced 242 million 90-pound boxes of oranges. For 2023, the USDA, is forecasting 15 million boxes. That’s a 94% decline in production in 19 years! While California is picking up some of the slack, the days of bountiful orange harvests appear to be a thing of the past.
As a result, our weekend brunch lives may be directly affected as well. The once beloved, bottomless Mimosas that graced the tables at brunches around the US may soon become a thing of the past. At this rate, orange juice may be more costly than champagne!
The price of orange juice futures isn’t driven by just one factor, but a cocktail of environmental, economic, and behavioral elements. For those looking to invest, it’s essential to consider the full array of ingredients that go into this commodity’s market price. And for the average consumer just hoping for an affordable morning OJ? It might be time to brace for a little extra zing at the checkout.
Like any market with its share of ups and downs, the orange juice futures market requires a keen understanding of its nuanced and interconnected factors. For now, it seems the only thing not in short supply is volatility!
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