Orange juice in a squeeze

Orange juice has rallied to its highest level in nearly four months after the U.S. Department of Agriculture (USDA) dramatically slashed its crop forecast for Florida citrus earlier this week.

The USDA report noted that the fruit “droppage rate” is projected to be its highest since the 1969-1970 season, while the fruit sizes will be below average. “We’re seeing an abnormally high rate of fruit drop, where the fruit just drops to the ground before it can be harvested,” says Shawn Hackett, president of Hackett Financial Advisors. “Then it just spoils and you can’t use it for juice. Nobody really knows what’s going on.”

Hackett goes on to say that Citrus Greening, also called Huanglongbing or yellow dragon disease, may be behind the uptick in lost crops. “We’re just not able to get this crop going. It seems the Citrus Greening is causing all this fruit to drop, but nobody really knows for sure,” he says. “The bottom line is the trees are not holding the fruit like they used to. Although the fruit is there, we just can’t get it.”

Hackett adds that if the droppage rate continues at the pace it’s on, this year’s orange crop with likely be downgraded.

Since the report was released on Dec. 11, orange juice futures have rallied from $1.25 per pound to nearly $1.40. Hackett says the “pump was primed for a surprise” before the move after the Commodity Futures Trading Commission’s Commitment of Traders Report  showed near-record net-short positions held by producers on Dec. 4 at -17,186.

Hackett says the market may be getting ahead of itself and notes Brazilian production could fill the void. “With the Brazilian real having lost almost 30% of its value in the last year, the price of orange juice in Brazil is extremely attractive,” he says.

In the short-term, Hackett sees resistance coming in at $1.50 and support in the $1.05-$1.10 range. “That’s the range. Unfortunately it’s a wide one,” he says. “If we get through the season without a frost, we’ll come back down and Brazil will give us all kinds of juice. If we get a cold snap, it could kick this up one more notch and have a real go at it.”

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