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Orange juice futures have rallied recently, with poor citrus harvests in the world’s largest producer, Brazil, pushing futures to an all-time high last month.
The orange juice futures (JO1:COM) contract has gained about 30% from the start of the year, and up +1.5% to $428.71 on the day. Low inventory in Brazil, along with the impact of several extreme weather events, have resulted in the second-lowest level of supply since 1988-1989, according to Fundecitrus, an association maintained by citrus growers and juice manufacturers.
Meanwhile, outbreaks of citrus greening disease, tree damages dating back to 2022 hurricanes, labour shortages, and overall a structural decline, has seen production from Florida decline by more than 90% during the past 20 years, Ole Hansen, head of commodity strategy at Saxo Bank said.
However, the primary factor behind the high prices (JO1:COM) for orange juice is the poor crop forecast for orange production in Brazil, Harry Campbell, market analyst at Mintec said.
“This situation has led market speculators to drive up prices due to concerns about insufficient supply to meet global demand, exacerbated by currently low orange juice inventories,” Campbell added.
According to market participants, the supply issue is not merely a short-term problem; many believe it signals a shift in the industry’s market dynamics, Campbell further said, adding, traders believe that prices will stay elevated until they reach a level where consumer demand drops significantly, leading to a supply and demand equilibrium.
Market participants believe, many juice manufacturers are trying to reduce exposure to orange juice and are therefore substituting it with other juice types a lot more.
High prices have also seen other producers, like Egypt, increase exports to Europe, the Middle East and Asia. The country’s climate and location near Europe and connection via Red Sea has supported the increase, Saxo Bank’s Hansen noted.
Relevant tickers: Tropicana, owned by Pepsi (PEP) and Minute Maid owned by The Coca-Cola Company (KO).
