Soft commodities have been on fire, leading the commodities asset class in 2023, over the first six months of 2024, and in August. A September 3 Barchart article on the top performers and underperformers in commodities highlighted FCOJ, reaching a new record price peak at $5.2515 in August. The bullish price action continued in September, pushing the price to another record peak.
Illiquidity fosters volatility
Liquidity in a market is the ability to execute purchase and sales orders in a narrow range. The critical liquidity measures in a futures market are daily volume and open interest, the total number of open long and short positions.
In the soft commodities sector of the commodities market on the Intercontinental Exchange (ICE), sugar, Arabica coffee, cotton, and cocoa are liquid futures markets. Meanwhile, frozen concentrated orange juice suffers from the last liquidity. The most recent open interest data highlights the liquidity of the soft commodities:
- Sugar: 810,059 contracts
- Arabica coffee: 209,027 contracts
- Cocoa: 147,665 contracts
- Cotton: 230,371 contracts
- FCOJ: 9,511 contracts
Low liquidity tends to increase price volatility, as the lack of volume and open interest causes bids to buy to disappear during selloffs and offers to sell to evaporate during rallies. Because of the futures market’s low liquidity, FCOJ can be highly volatile.
OJ prices soar to new record highs in September
The chart of the recently expired September frozen concentrated orange juice futures highlights that the lack of liquidity has pushed prices to record highs.
The long-term chart dating back to 1971 illustrates the explosive rally that took FCOJ to a record $5.8900 per pound high in early September on the expired September futures contract.
Floridian orange production has plunged
Florida has an ideal climate for orange production. Two factors have caused Floridian orange production to plunge over the past years. First, citrus greening, a crop disease, has devastated the orange crop. Second, migration to Florida, a U.S. state with no income tax, has caused significant migration from other U.S. states. New home building has eliminated many previously orange grove areas, limiting the output.
According to the USDA, Florida orange production has plunged by 20% over the past twenty years.
The chart illustrates the dramatic decline in Florida orange production this century.
Brazilian output has declined
While Florida has been a significant orange producer, Brazil is the world’s leader in production and exports. In 2024/2025, Brazilian orange output reached its lowest level in over three decades. Adverse climate conditions and citrus greening have devastated Brazilian orange crops.
Sao Paulo and Minas Gerais, Brazil’s leading orange-producing states, will produce 232.38 million 40.8-kg boxes of oranges this year, down 24.36% from the previous production cycle. Output is the lowest since 1988/1989, when Brazilian production was 214 million boxes.
The decline in Floridian and Brazilian production and the illiquidity of the FCOJ futures market have led to the rally to record highs.
No ETF or ETN products- Illiquid futures require a cautious approach
Commodity market prices tend to rise to levels where production increases, inventories rise, and demand decreases, leading to significant tops. They fall to prices where output slows, inventories decline, and consumption increases, creating price bottoms. The cyclical nature of commodities causes price tops and bottoms, and illiquid trading conditions in futures markets can create price levels that defy rational, logical, and reasonable price levels.
While FCOJ futures have risen to an extreme high, the potential for a significant correction has increased, given the cyclicality. However, the trend is always a trader or investor’s best friend, and prices can continue to move to even more illogical, irrational, and unreasonable levels that defy technical and fundamental analysis. While the odds favor a substantial and even vicious correction in FCOJ futures from the recent high, there is no guarantee that prices will not reach higher highs before a correction.
The only route for investing or trading FCOJ is the ICE futures, as no ETF or ETN products track the volatile soft commodity. Any trades in FCOJ require careful attention to risk-reward dynamics and a trading approach that reflects the futures market’s illiquidity.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
