01-26-2010: March Orange Juice: Control of Disease Boosts Some Prices
In the ICE (Intercontenental Futures Exchange) contract specifications for orange juice, only two countries of origin are allowed, the U.S. and Brazil. Whether it was always this way before the ICE, we don't know but had the impression the commodities contract was based upon Florida orange juice. But if the news is bad in Florida with growers looking at drastically reduced acreage and fighting off disease, the news from Brazil appears to be declining as well, as exports are going to be the lowest in eight years. Brazil has had its bout with disease killing off millions of acres of fruit trees, but still the projections for exports are substantial for next season, just not quite up to what they have been. It would be so simple if we could follow the news.
We may have freezing temperatures in Florida, but down in Brazil it's summertime and harvest time. In attempting to assess and balance out the news, it appears to us that imports will rule the day, and that technical factors favor orange prices maintaining a lid. It would be so simple if we could just take the bad news for growers and good news for prices and weave them into a consistent story along with the so-often-right "Other Factors" in the decision matrix below. But due to technical implication and the idea that the futures are way overbought, we have to go with our system and predict prices will go lower.
March Orange Juice:
March Orange Juice:
The coldest weather in over 20 years has damaged up to 30% of the Florida citrus crops. The USDA December 10th Report cut its Florida orange output estimate for 2009-10 to 135 million boxes, down 17% from this year and a 3-year low. The drop in Florida orange acreage in 2009 hit a 23-year low as farmers cut down trees to stop the spread of sudden-death greening disease. The totals were 492,529 acres, down 1% from a year ago and the lowest since 1986. A 12-year low in named hurricanes was part of this year's Atlantic hurricane season. The USDA figures for all U.S. 2009-10 orange production is down 11% year to year to 8.21 million tons. In January, Central Florida has had chances for freezing temperatures in four out of five days during the past week. The USDA 135 million box estimate does not include January freeze damage. Brazil's crop estimate for 2010-2011 is at 435 million boxes, up from 2009-2010, according to the USDA. The USDA projected in November that Florida's 2009-2010 endings stocks of orange juice would fall from 681 million gallons the previous year to 445 million gallons. The latter figure is 33% of annual use. Brazil is anticipated to be exporting 1.699 million gallons of orang juice in 2009, the lowest in eight years. As of November 30th, there were 1.13 billion pounds of frozen orange juice concentrate in U.S. cold storage, up 9% from a year ago. Because of efforts and chemicals required to control citrus greening disease, the average cost to maintain one acre of a Florida orange grove jumped from $775 in 2002-03 to $1,752 in 2007-08. Translated to commodity price, growers need to get $1.20 to $1.25 per pound of solids on their oranges just to break even.
296.0I R 1/22
I ICE - Mar-10 Orange Juice, 15000 lbs, c/lb. Cm.=0.20 Lim.=12.0
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276.0I_________________________________________________________________________
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256.0I______X_X________________________________________________________________
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236.0I______XOXO_______________________________________________________________
I XO O
I X O
I X X O
I XOX OX
216.0I____XOX__OXO__X__________________________________________________________
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I XOX OXO XOX
I X XOX OXO XOXO
IX XOXO OXO XOXO
196.0IXOXOX____OXO__XOXO_______________________________________________________
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176.0IX__________OXOX__O__X____________________________________________________
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156.0I_____________O___OXOXO___________________________________________________
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136.0I_____________________OXO______XO_________________________________________
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I O X
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116.0I_______________________O____X_X__________________________________________
I O XOX
I OX XOX
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96.0I_______________________O_OXOXO___________________________________________
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76.0I_________________________________________________________________________
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56.0I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
1 11 11 1
35677901234568902145678901467801
11212112222221121021312021011101
58135829283395240493016808820791
Our computer says a non-conventional reactive interpretation of point-and-figure chart signals works best for Orange Juice. Therefore, the above chart is taken as giving a sell signal.
We are headed toward a cyclical low and a seasonal down period.
Our best-performing internal program is "Trader." It is giving a buy signal.
Results of "Trader" for Orange Juice (blue lines = successful trades, red, unsuccessful): (Always in the market.)
Our third system is working on a long-term sell signal. (Note, disregard the year date on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)
The point value is $150. Initial margin on a single contract is $980. Use of options is not advised.
Scale traders are not a factor in this price range.
In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Red is small speculators. Green is large speculators. Blue is commercials. Large speculators with the best track record are getting increasingly-short.
The average volatility shown below suggests a continuation of the uptrend from the last volatility low point.
We could find no options for this commodity.
What the calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up. The best time to enter or leave the above spread is when it is at or narrower selling the near as prices are falling and then buying the far, and exiting or entering when it is at or wider buying the near as prices are rising and then sellling the far.
Here's an intraday chart for the previous day ( 1/22 ).
Level Table:
| Factors | Weighted Points |
|---|---|
| Parabolic Chart | - 1 |
| Nirvana Chart | - 1 |
| News | + 1 |
| Point & Figure | - 1 |
| Cyclicals | - 1 |
| Seasonals | - 1 |
| Internal System 1 | + 1 |
| Internal System 2 | 0 |
| Third System | - 1 |
| Commitment of Traders | - 1 |
| Historic Range | 0 |
| Range/Volatility | + 1 |
| Level Table | + 1 |
| Other Factors | + 1 |
| Total | - 2 |
Place 30 March Orange Juice on a Sell Watch with stoploss @ +10.75 above the get-in point.________________________________________________________________________________________________________F.C.
