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Commodity Trading: Orange Juice Futures 

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Supply / Production Considerations

Oranges are grown throughout the world, though Sao Paulo, Brazil and Florida in the United States are the only regions which have major processing facilities.  Sao Paulo and Florida together account for over 90% of the worldwide production of Orange Juice, and more than 50% of the worldwide production of oranges.

World Orange Juice Producers

Orange trees take three to four years from the date of planting to begin bearing fruit.  Production of fruit increases until they reach full maturity at approximately eight years of age.  The average production life of a tree is roughly twenty years for trees in Sao Paulo, while Florida trees are productive for much greater periods (up to a total of 40 years) as irrigation and tree management is superior in Florida.  The production life of a tree can be cut short if they are damaged by a hard frost.

The number of producing trees has increased dramatically in the last 10 years in both regions.   This increase is attributable to the Florida freeze in December of 1989 and the following high fruit and juice prices.  Due to this increase in capacity, the market supply of oranges and juice has been very high which has resulted in lower prices.  The lower prices recently have slowed the pace of new planting, with relatively few new trees added in 1997 and 1998. 

The two major threats to the Florida orange crop are freezes and hurricanes.  Both of these factors damage the tree and reduce production capacity for the next several years. There are soft and hard frosts each having drastically different effects on the Orange Juice market.  Soft frosts damage the exterior of the orange, making the oranges unappealing for retail consumption.  Soft frosts reduce yields slightly, but create more Orange Juice supply because the damaged retail oranges are sold for juice.  This is especially true of soft frosts hitting the California growing region.  Hard frosts kill orange trees severely reducing yields for years in the future, and damage the pack, or sugary meat of the orange, so that the damaged fruit is unsuitable for squeezing.  Hard frosts are probably the most bullish event that can happen to the Orange crop because the damage takes roughly five years to be undone.  Hurricanes also damage the fruit or the tree, usually by either battering the fruit with gale force winds or actually uprooting and/or severely stressing the tree, thus reducing production.   The growing season in Florida lasts from January through mid June or July, with a break in late February and early March.  The bulk of Florida’s crop is turned into juice because of the sweetness content and the type of oranges grown.  California’s orange growing season usually runs from April through August but the Californian oranges are mainly produced for whole consumption.  In recent years Brazil also has become a major producer of oranges.

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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. 

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