From the February 01, 2010 issue of Futures Magazine • Subscribe!

Orange juice futures squeezed

A deep freeze in Florida in early January caused a sharp rally in frozen concentrated orange juice futures, but although the cold put the crop in jeopardy, as of mid-January prices retreated some and it is unknown what the damage to the crop was.

“It’s too early to tell the full extent of the damage. There’s going to be some losses, but the market’s anticipated the freeze premium as well. That’s why we haven’t extended this rally as much as we would have if we were still below $1 a pound,” says Mike Zarembski, senior commodities analyst at optionsXpress.

“It’s a classic ‘buy the rumor/sell the fact’ [scenario] in orange juice,” says Darin Newsom, senior analyst at Telvent DTN. “If we see this market start to show signs that damage wasn’t as bad as was anticipated, there’s a possibility of [orange juice] dropping near support at $1.06. We’re probably going to find some [initial] support around $1.20,” in late February to early March.

Zarembski expects the market to trade in a consolidated range of $1.20 to $1.25 versus May futures. “On the upside, if the damage is severe enough, it could take out $1.50 to $1.60 in the upside. This freeze will hurt next year’s production as well,” he says, adding that orange juice prices could go even higher in the long-term due to declining production in Brazil and Florida.

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