Orange Juice Enters Super Bull Market On Florida Crop Squeeze
A record low US citrus output, after a 20% drop in Florida’s orange production, is setting up juice futures for a super bull market, with prices heading for the highest in at least four years.
Frozen concentrated orange juice (FCOJ) has closed up in 17 of the past 21 trading sessions on ICE Futures US. The rally puts it on track to a fourth straight week of gains and a second straight winning month.
FCOJ futures are also up 9% since the start of 2022 and 46% higher from a year ago.
On Monday, the most active FCOJ contract in New York hit a three-month high of $1.6395 a lb.
All charts courtesy of skcharting.com
Though still far from the record high of $2.35 hit in November 2016, the spot month for FCOJ has room to move higher based on fundamentals, including undersupply as well as technicals that show it is supported by a rally virtually uninterrupted since the end of November.
“We can expect FCOJ to retest the January high of $1.6445 in the near-term,” Sunil Kumar Dixit, chief technical strategist at skcharting.com, said, adding that the July 2018 high of $1.72 was a target viable in the longer term.
The US Department of Agriculture said Friday that the 2021-2022 citrus crop was expected to be the smallest in more than 50 years, finishing at 6 million tons, or 13% lower than the previous season, as production falters in major citrus-growing regions.
According to the USDA Fruit and Tree Nut Outlook for March 2022, declines in overall US citrus crop are due to smaller orange and grapefruit crops in California, Florida and Texas, as well as smaller mandarin crops in California and Florida.
Florida’s orange supply forecast dropped by 5% from February 2022 forecasts and is expected to be 22% below last season. This brings it below levels seen in 2017-2018, when the state was hit by Hurricane Irma. Decreased production of oranges, grapefruit, and tangerines are expected to result in increased imports and higher prices compared to last year.
All orange production in the state of California is also expected to decline by 5%, with a 4% reduction in non-Valencia oranges and a 9% reduction in the Valencia category, compared to last season.
The overall low supply of oranges has boosted retail prices for the fruit. February 2022 retail prices for navel oranges were $1.45 per lb, a 9.4% increase from February 2021.
Coincidentally, FCOJ futures, formed on Mar. 29, also offer a strong foundation at $1.45, said Dixit. This marked a 38.2% Fibonacci level of retracement measured from the November 2016 record high of $2.35 and the May 2019 low of 90 cents.
“Robust consolidation above the horizontal and static support area of $1.45 and breakout since, to above $1.49, has powered OJ on to current levels of above $1.64,” Dixit said.
Further consolidation above this area, he said, can boost strength for FCOJ’s next 50% Fibonacci level at $1.80, if the $1.65 and $1.72 levels are cleared with adequate volume.
“Put simply, OJ’s stochastic and Relative Strength Index readings across the daily, weekly and monthly time frames all are strong enough for a continuation of bullish advances,” said Dixit.
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold positions in the commodities and securities he writes about.