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Commodity Trading: Orange Juice Futures

Overview

Almost all of the Orange Juice sold at the retail level is a processed, pasteurized product. The three principle forms of juice are reconstituted single strength juice, juice not from concentrate, and frozen concentrated juice. Reconstituted single strength juice is typically reconstituted by the packager and sold as a ready to serve product either in chilled form or in aseptic form sold in bottles or cartons without the need of refrigeration. Not from concentrate juice has been processed and pasteurized without the removal of the water content from the juice. Frozen concentrated juice has been partially reconstituted by the packager and must be defrosted and fully reconstituted by the consumer. It is the frozen concentrated Orange Juice that is traded as a commodity.

Once the orange crop is harvested, it is loaded into a truck and sent to a centrally located fruit receiving plant. At the plant a sample is taken and measured for various criteria such as size, concentration (brix), acidity, and sugar content. Shipments of suitable quality are unloaded into silos. The fruit is typically stored in the silos for a period not exceeding 12 hours before it is washed with hot water to remove dirt and then disinfected with chlorinated water. After washing it is sent down a conveyor belt where unfit fruit is manually removed. The fruit then goes to extractors, which is specifically designed equipment that punctures a hole at the bottom of the orange before squeezing it, forcing the juice and pulp down into a pipe. The juice coming from the extractor is sent through a finishing process to remove the larger fragments of pulp, seed, and peel before concentration. Concentration is achieved by heating the juice to 203 degrees Fahrenheit for approximately 20 seconds (to pasteurize), then a vacuum is applied to evaporate the water without need for high temperatures, thus preserving the nutritional and taste qualities of the juice. After concentrating, the temperature of the juice is lowered in cooling tanks while the juice is homogenized and aromas are added back in. The juice then is pumped through heat exchangers that lower the temperature to 14 degrees Fahrenheit and stored in either double plastic bag lined 55 gallon barrels (small packers) or large 30 ton tanker trucks (large packers, such as Louis Dreyfus) for distribution.

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Disclosure of Risk: The risk of loss in trading futures and options can be substantial; therefore, only genuine risk funds should be used. Futures and options ARE not suitable investments for all individuals, and individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option would result in a futures position.

SEASONAL TENDENCIES ARE A COMPOSITE OF SOME OF THE MOST CONSISTENT COMMODITY FUTURES SEASONALS THAT HAVE OCCURRED IN THE PAST 15 YEARS. THERE ARE USUALLY UNDERLYING, FUNDAMENTAL CIRCUMSTANCES THAT OCCUR ANNUALLY THAT TEND TO CAUSE THE FUTURES MARKETS TO REACT IN SIMILAR DIRECTIONAL MANNER DURING A CERTAIN CALENDAR YEAR. EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT IN A PROFITABLE TRANSACTION AS FEES AND THE TIMING OF THE ENTRY AND LIQUIDATION MAY IMPACT ON THE RESULTS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT HAS IN THE PAST, OR WILL IN THE FUTURE, ACHIEVE PROFITS USING THESE RECOMMENDATIONS. NO REPRESENTATION IS BEING MADE THAT PRICE PATTERNS WILL RECUR IN THE FUTURE.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO, ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM, IN SPITE OF TRADING LOSSES, ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS, IN GENERAL, OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.