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Orange Juice Basic Fundamentals

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Basic Fundamentals

What Market Fundamentals Can Affect The Orange Juice Futures?  

Global production of oranges and FCOJ is dominated by Brazil and the United States. In Brazil, citrus production is predominately in the Sao Paulo area. In the United States, production is predominately in Florida and California. When you are considering a trade in the frozen concentrated orange juice (FCOJ) market some of the basic fundamentals that you should consider are:

1. Brazil Brazil is the largest producer of oranges and frozen concentrated orange juice (FCOJ). Brazil accounts for as much as 80% of the FCOJ export market. Brazil mostly has to worry about dry weather and drought which affect production. Remember, the growing cycles of Florida and Brazil are opposite of each other because the countries are located in different hemispheres.

2. Florida The bulk of Florida’s oranges are squeezed into frozen concentrated orange juice. In California, most of the oranges are sold as fresh fruit for eating. Florida accounts for almost 98% of FCOJ of U.S. supply and almost 40% of global supply. Florida has to worry about hurricanes and freezes which affect production.

3. Hurricanes The 2004 and 2005 hurricanes that hit Florida did tremendous damage to the Florida citrus groves. Much of this damage is still being felt today. Not only did the storms knock down fruit, break limbs, and uproot trees, they also spread disease. Citrus diseases are the most serious threat facing the industry today. Some analyst fear that the end of the Florida citrus industry may be right around the corner.

4. Freezes In the 1980’s, freezes triggered major price movements. Cold weather tore out the heart of the central Florida's citrus industry. This price volatility was memorialized in the 1983 movie Trading Places with Eddie Murphy, Dan Aykroyd, and Jamie Lee Curtis. While freezes are not considered as much as a risk today due to heartier varieties of trees and plantings farther south, it should never be underestimated. Just ask the residents of Frostproof, Florida.

5. Citrus Canker In 1995, citrus canker reappeared in Florida after being wiped out in the early 1900s with an aggressive eradication campaign. The eradication campaign of the 1990's was restricted by lawsuits from homeowners who complained about their backyard citrus trees being cut down. The 2004 and 2005 hurricanes spread the citrus canker bacteria so thoroughly across the state that the USDA cut funding for the eradication campaign and declared it a failure.

6. Citrus Greening Citrus greening is undoubtedly the biggest threat facing the Florida citrus industry today. It has devastated citrus groves around the world. It first appeared in Florida in 2005. It has quickly spread to all of the 32 counties in the state with commercial groves. When a tree is infected, it produces small, hard, and bitter fruit. The tree dies in approximately 2 years. Citrus greening is spread by Asian citrus psyllids which are tiny insects. There is no known cure or way to stop it.

These are just some of the basic fundamentals to keep in mind when you are considering a trade in the frozen concentrated orange juice (FCOJ) market. The geographic concentration of FCOJ production makes it a very volatile market. Therefore, before opening up a commodity account to trade FCOJ you should consult with a licensed commodity broker that follows the FCOJ market to discuss investment strategies.

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Commodity trading is not suitable for everyone. The risk of loss in trading can be substantial. This material has been prepared by a sales or trading employee or agent of Van Commodities, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Van Commodities, Inc. Research Department. Please view our Risk Disclosure.

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