01-06-2012: March Orange Juice: Weather Dominates Short-Term Only
Often we've seen traders new to commodities get whipsawed about th weather concerns for orange juice futures. Every cold snap brings a rally, usually followed by disappointment. After reading the news, that is what we expected to find, but the technicals and other indicators seem overwhelmingly supportive for higher orange juice prices. While we can't put our finger on any rational fundamental consideration as to why this should be so, other than that production will be less than last year, when orange juice futures were soaring.
Our interpretation of technical patterns has dominated, and they seem to point relentlessly at this time toward higher orange juice prices. Do we need a reason beyond that to suppport our conclusion that orange juice is a "buy?" So the cold weather goes away for a while and it is suggested traders over-reacted to the freeze news! Yet it does point out what can happen in even a little cold snap, and we are still only into January.
We fed orange juice, sugar, and milk into a neural network to get the following result:
March Orange Juice:
March Orange Juice:
Orange juice futures jumped nearly 25% after a cold snap caused some damage to Florida's orange crop. Temperatures fell below freezing across much oif Florida in recent nights, but an industry spokeperson said that the cold didn't linger long enough to cause significant crop damage. Analysts expect a recent rally to be short-lived because warmer weather is forecast. Continuing worries about Europe's banking sector and an upcoming Labor Department employment report are outside forces affecting all commodity prices including orange juice in a negative way. Florida is the world's second biggest grower of oranges after Brazil. The cold snap allowed futures to rise to a five-month high. The frost-hit areas of Florida comprised about 75 percent of the state's citrus growing regions. A hard freeze hit the remaining 25%. An EarthSat meteorologist said damage is not expected to be widespread. The frost will definitely mean lower yields in the USDA's February Crop Report. The Florida citrus industry generates $9 billion per year in economic activity and employees around 76,000 people. Low-lying areas will probably bear the brunt of the frost damage. One estimate of the total weather damage to Florida crops this week was placed at $5 million. That's a small fraction of the economic activity amount above. Citrus greening disease remains a concern threatening the existence of Florida citrus growers since the first discovery of the bacterial disease in 2005. Orange juice is helped by higher exports and a weakening U.S. Dollar. A decline in the dollar makes commodities priced in Dollars more attractive to buyers with other currencies. A similar frost in December resulted in a USDA assessment that damage would be less than expected, causing pressure on orange juice futures recently. This week's cold snap means the USDA will have to adjust their 2010/11 Florida Orange crop estimate down from its current 143 million boxes. That's 20% less than last year's harvest of 162.4 million boxes. A drought in Florida earlier in the year will shrink this season's yields. Our overall assessment is that while weather seems to be dominating the orange juice news, its effects are generally understood to be negligible at this time to the overall crop, suggesting a return to pressuring orange juice lower, especially if world economies improve.
187.0I T 1/ 4
I ICE - Mar-12 Orange Juice, 15000 lbs, c/lb. Cm.=0.20 Lim.=11.0
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The above point-and-figure chart is giving a conventional buy signal.
We are headed toward a cyclical high and a seasonal up period.
Our best-performing internal program is "Pattern." It is giving a buy signal.
Results of "Pattern" for Orange Juice (blue lines = successful trades, red, unsuccessful): (Always in the market.)
Our third system is working on a long-term a buy signal. (Note, disregard the year 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 $1,764. Use of options is advised.
Scale trade sellers are entering the market for the long term 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. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are remainingn long.
The average volatility shown below suggests to us that downtrend remains in effect from the last volatility low point, although this one is hard to call because of a secondary higher low volatility point and a higher price high which is distantly subsequent to the last volatility low point. in direction to up is imminent at a volatility low point.
Our option trade recommendation is to Sell the Orange Juice July 160 Put @ 6.70 or better.
What the Mar. - Jul. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down. The best time to enter or leave the above spread is when it is at 0.10 or narrower selling the far as prices are falling and then buying the near, and exiting or entering when it is at 1.50 or wider buying the far as prices are rising and then selling the near.
Here's an intraday chart for the previous day ( 12/04 ).
Risk Versus Opportunity Report
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JOH2 March Orange Juice
High Price: 191.55
Current Price: 178.05
Low Price: 171.4
Risk: 0.073
Opportunity: 0.149
(O/R) Ratio = 2.030
| Factors | Weighted Points |
|---|---|
| Inter-Market Analysis | + 1 |
| 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 |
| Historic Range | - 1 |
| Commitment of Traders | + 1 |
| Range/Volatility | - 1 |
| Level Table | + 1 |
| Other Factors | + 1 |
| Total | + 8 |
Place 8 March Orange Juice on a Buy Watch with stoploss @ -10.85 below the get-in point._____________________________________________________________________________________________________________________________F.C.
