If you’ve ever seen the film Trading Places with Dan Ackroyd and Eddie Murphy you’ll already know what orange juice futures are all about. The climax of the film involves Duke and Duke trying to corner the orange juice market based upon information they fraudulently obtained from the U.S crop report.
Unfortunately for them they’re thwarted in their efforts by Ackroyd and Murphy who doctored the crop report before handing it to the Dukes. The result meant the Dukes we’re bankrupted by betting the wrong way.
Now of course this isn’t a real world example, no self respecting trader would risk everything on a single trade like this; even if he had inside information. But it gives you an idea what orange juice futures are and what fundamentally affects their price.
So let’s take a closer look at the orange juice futures market.
Frozen Concentrated Orange Juice (FCOJ) futures are traded electronically at the Intercontinental Exchange (ICE).
- The contract for orange juice futures is for 15,000 pounds of orange juice solids (3% or less).
- Orange juice trading prices are quoted in cents and hundredths of a cent.
- One point equals $1.50, but the minimum fluctuation is 5/100 of a cent per pound, or $7.50 per contract.
- Contract months are January, March, May, July, September and November with at least two January months listed at all times.
Why Trade Orange Juice
Orange juice as a commodity is appealing to traders for a number of reasons. One of the most important factors to consider is that orange is a popular commodity and demand generally outstrips supply, which keeps prices high. Add to this, most orange juice groves tend to be based in the U.S. and Brazil. Since these two areas are relatively stable politically, the only thing that affects supply is the weather.
Orange Juice Market
The main orange juice market is, and always has been, the U.S. domestic market. Orange juice is renowned for its health benefits, namely its high quantity of vitamin C, and is a staple of many an American breakfast. It’s also provided to children in schools.
In terms of production, Brazil is currently the worldwide leader. Florida was the primary orange juice exporter until 1962, but hurricanes and other severe weather systems irreparably damaged the ecosystem. As a result, Brazil now supplies approximately 80% of the worldwide export of FCOJ. Brazil also supplies the US with at least 50% of its imported FCOJ.
What Affects Frozen Concentrated Orange Juice (FCOJ) Futures Pricing?
When you’re trading orange futures there are a couple of things you need to consider. Firstly the weather, the predominant orange growers in the U.S are located in Florida so hurricanes are a regular problem that can affect yields. The hurricane season in Florida lasts from the beginning of June to the end of November. Florida can also be prone to frost in the winter, so keep a look out for local weather reports.
Similarly Brazilian growers can be subject to severe droughts which can negatively impact yields. The key drought season is between December and March. Since Brazil is the largest supplier a drought can have a severe impact on global supply and can drive prices through the roof.
If Florida suffers a frost at the same time as Brazil suffers a drought you can expect to pay significantly more for your carton of Tropicana.
How to Trade Frozen Concentrated Orange Juice (FCOJ) Futures
FCOJ futures are traded primarily on the Intercontinental Exchange (ICE), with the symbol OJ. They’re one of ICE’s primary commodities.
When trading orange juice futures it’s worth considering that although orange juice commodities are a valued item and there will always be demand, sometimes orange juice is supplanted by other juices in the public eye, leading to short term depression of FCOJ futures prices.
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