Today's Spotlight Market

Orange Juice futures have been range bound since the end of May, though we are starting to see more volatile trade as we enter the peak Hurricane months of September and October. Issues with disease affecting the citrus groves of Florida may be lending a longer-term bullish bias for the market.

Fundamentals

Orange Juice futures traders are in "weather market" mode, as the Atlantic hurricane season is reaching its most active month of September. The citrus groves in Florida, which is the top citrus producing state in the U.S., missed a direct hit by Isaac, as the storm moved to the south and west of the citrus growing regions of the state. Though prices fell after Isaac passed the region, the possibility of additional storms reaching the area are keeping traders from becoming aggressively short the market. Longer-term, the Florida citrus industry is facing an upward battle with disease, as an outbreak of citrus-greening disease threatens the state's citrus groves. This disease can shorten the lives of trees, potentially curtailing production sharply as the disease spreads. In addition, the high retail price of orange juice has many consumers looking to juice alternatives, and as a result, we have seen Orange Juice consumption fall by 1/3 in the last 10 years. Even after the hurricane season subsides in late fall, the OJ futures market may keep some of its "weather premium" as we move into winter and the potential for a damaging freeze enters many traders' thoughts.

Technical Notes

Looking at the daily chart for November Orange Juice, we notice prices rallying over 10 cents per pound, as Hurricane Isaac was thought to pose a threat to the citrus groves of Florida. After Isaac moved further west, prices gave back their gains, as the storm was no longer a threat. This is not unusual market behavior, as traders bid-up prices in anticipation of a direct hit and quickly remove the "weather premium" after the fact, unless severe damage occurs. Chartwise, we see prices holding above the 20-day moving average but still trading 30 cents below the widely watched 200-day moving average. The 14-day RSI has moved to neutral to positive territory, with a current reading of 57.67. The August 22nd high of 122.75 looks to be near-term resistance for the November futures, with support seen at the 20-day moving average, currently near the 112.00 level.


Mike Zarembski, Senior Commodity Analyst

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