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More Bad News for the Orange Juice Market

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October 15th, 2018

Florida’s orange groves are recovering. But that’s unlikely to save the long troubled market for frozen concentrated orange juice.

The number of boxes containing Florida citrus is expected to hit 79 million in the 2018 to 2019 season, a 76% increase from last year’s production of about 45 million boxes, according to the U.S. Department of Agriculture’s forecast.

That’s good news for farmers, but not for orange-juice futures contracts, which are reliant on crop grown in Florida, as opposed to California oranges that are mostly grown for eating.

The higher supply for a product that’s suffering from decreasing demand has led to prices of orange-juice futures slumping 14% to $1.442 a pound since August.
Squeezed OutOrange juice futures are sliding as the marketanticipates a recovery in Florida.Frozen concentrated orange juice futurespricesSource: CQG
.a poundJan. ’18June1.301.351.401.451.501.551.601.651.70$1.75

The falling market highlights the industry’s ongoing struggles. Last year, an incurable disease that devastated Florida groves, along with Hurricane Irma, led to a shortage of oranges from the state. The scarcity sent prices of Florida oranges surging. Orange-juice makers said the price spike led them to sell juice in smaller containers—a move that further deterred American consumers who are already drinking less orange juice.

“It’s been a very difficult year for growers no doubt and it’s good to hear production for this season is expected to be up,” said Michael W. Sparks, chief executive of Florida Citrus Mutual, an industry group. “Growers continue to show resilience and a commitment to replant and get the industry back on its feet.”

Sales haven’t improved. In the four weeks through Sept. 1, the total number of orange juice gallons sold fell by 5.1% from the same period last year, as prices increased by 2.6%. For the whole season that runs through the end of September, sales are down 4.8% from the prior season, continuing a multiyear trend of shrinking demand.

Rising prices of orange juice found in supermarkets can actually depress futures prices because higher retail prices typically lower consumer demand for the products tied to those contracts.
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Last year, as prices for Florida oranges moved to record highs, some of the country’s biggest orange-juice sellers shrank packaging. Pepsi Co.’s Tropicana shifted from a 59-ounce bottle to a 52-ounce bottle, following a similar move by its competitor, Coca-Cola Co.’s Simply Orange. The new packaging increases prices for consumers on a per-ounce basis.

Florida also faces increased competition from regions like Brazil, which has solidified its dominance in the orange-juice market in recent years.

While crops were dwindling in Florida last year, Brazil produced one of the largest orange crops on record. The discrepancy led orange-juice makers to import juice from Brazil and Mexico, mixing it with Florida juice—a trend they’re likely to continue, some in the industry say.

All this spells bad news for the frozen concentrated orange juice market, with Florida’s recovering groves only serving to push down futures prices.

 - Julie Wernau at Wall St. Journal.

See Also: Coffee, Cocoa, Cotton, Orange Juice, Sugar
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