11-13-2017: January Orange Juice: Irma Damage Estimates Increase

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Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calend Spread

Level Table
Other Factors
Recommendation

1012

345

678

91011          13


Introduction

The weather-related ups and downs of the Florida orange juice market with Brazil remaining as a "wild card" relate to Hurricane Irma. First they thought the damage would be bad. Then they thought the damage would not as bad as expected, especially after an encouraging USDA report with higher-than-expected total production estimates. But then it was "discovered" that almost all of Southern Florida's groves had been wiped out, trees uprooted, and damage from Hurricane Irma cut a wide swatch through the entire state. The damage may take years to recover and orange juice may price itself right out of the market except for the most dedicated drinkers.


Intermarket Analysis

We fed Orange Juice, Coffee, and Cocoa into a neural network to get the following result:




Parabolic Chart

January Orange Juice:

Parabolic Chart


Nirvana Chart

January Orange Juice:

Initial Chart


News Analysis

With twenty-five or more percent of the Florida orange juice crop wiped out by sudden death greening disease, orange juice futures shot up unitl it was indicated Barzil, the world's Number One orange juice supplier, would have a bumper crop. Then futures prices began to collapse aided by reduced demand for certain fruit juices in a more weight and health conscious America. Then Hurricane Irma hit Florida with much damage expected. Then it was reported the damage was not as severe as previously expected. But the latest news is that orange juice drinkers may pay as much as $2.30 more for a gallon of orange juice as the result of a broad swatch that Hurricane Irma cut through Florida's citrus crop. Just how high OJ prices can rise depends upon whether Brazil can increase its exports to the U.S. to help cover a shortfall. The Florida Dept. of Citrus estimates that 30% to 70% of the state's crop was destroyed. If consumer switch toi other juices or blends, the prices rises might be managed.

Tropicana made from Florida OJ concentrate was selling for $6.48/gallon on WalMart's website. People will probably not pay $8/gallon. Damage to trees may impact prices in following years as well.

Brazil's exports of OJ to the U.S. may increase by as much as 50% to 300,000 metric tonnes, meeting the needs of about half of American consumption. But Brazilian orange juice is less sweet and more sour. If Florida becomes a less important supplier, thats another reason for consumers to drink less juice. American's habit of drinking orange jjuice is highly associated with Florida.

Many trees in the Florida orange belt were actually uprooted. This cold provide a knockout blow for orange juice that has been slipping in popularity among Americans. Some estimates now put statewide losses at 70%. The average American drinks 23.74 lbs. of orange juice per year, or an ounce a day, more than any other fruit including apples. California and Texas continue to grow oranges, but it is Florida oranges that are used up to 90% to make their way into orange juice because of better taste. In the 1940's Florida began to move excess oranges into other parts of the country along with publicity campaigns.

The number of acres in Florida planted with mature orange trees was 624,900 in 1997 at its peak, but has fallen to 367,500 in 2017. That's a decline of 40%. Because fruit juices like orange juice are so sugary, research organizations recommend switching to other beverages and demand has declined.

Recently the USDA pegged the 2017-18 Florida orange crop at 54 million 90-lb. boxes, down 21% from last season. Before Hurricane Irma, the USDA was estimating 75 million boxes. Since this was not as bad as figures previous cited in this article, orange juice futures fell for a time. But the USDA estimate was still the lowest in 71 years. The real damage is in South Florida, where 70% - 80% of production was lost to the hurricane.

Orange juice has moved more than any other commidity this year. Falling prices earlier were a combined result of diet/health concerns and a decline in production which led to a decline in interest from futures traders. Of course, the takeover of the contract by ICE futures didn't help either, as that exchange has introduced hefty problems to small traders making their products undesirable.

The latest news seems to indicate sources have under-estimated the damage due to Hurricane Irma. But orange juice may also be pricing itself right out of the market. Florida orange juice production is continuing on a downward spiral. It is anticipated forecasts for season totals will continue to decline as the season progresses. The latest Florida government estimate was down 7.4% from its previous estimate. High winds and flooding rains have made it difficult for trees to hang onto whatever fruit that's left.

Grapefruit production has also fallen about 40%. In 1997, the state's harvest totalled 244 million boxes. The state estimates damages to Florida's groves at $2.5 billion. About $761 million of this was for citrus trees. Governor Scott of Florida has asked for $21 million in federal aid, $10 million for citrus research, $4 million for marketing, and $7 million for post-storm relief.

Researchers are claiming that crop estimates in the recent past have been positively correlated with the size of the U.S. market, but not correlated with orange juice imports from Brazil. Brazilian crop estimates and the USDA Florida Crop Report have shown no correlation.

A key element in news analysis is various reports from the U.S. International Trade Commission, known as "the Commission." It requires reports on impacts of imports of Brazilian orange juice upon American prices. It has requested Brazilian exporters to provide data, and major companies in Brazil have been cooperating since the early 2000's. There is very little domestic demand for commercially processed orange juice in Brazil, so Brazil's orange juice industry is geared for export. Five firms account for 83% of Brazil's exports. Any remainder goes into inventories. The Commission has concluded in the past that high inventories do not cause orange price to fall, but low inventories will cause orange juice prices to rise. Transportation costs for oranges from Brazil are roughly equivalent to transportation costs for oranges from Florida to other parts of the U.S. For reasons not entirely clear to us, the largest U.S. importers of foreign orange juice are kept secret (redacted) in Commission reports. These importers frequently mix Florida with Brazilian orange juice to standardize color and taste.

Our assessment of the news follow the present trend of damage interpretations to suggest a shortage of domestic orange juice will raise futures prices, and the impact of Brazilian imports will not be as great as previously anticipated. But the news circulates up and down all over the place since the hurricane, providing some credence to those who believe news is simply written to adjust to wherever futures prices lead.


Point & Figure Chart


200.0I                                                                  T 11/ 9
     I ICE - Jan-18 Orange Juice, 15000 lbs, c/lb. Cm.=0.20  Lim.=10.0
     I
     I
     IO  X
190.0IOX_XO____________________________________________________________________
     IOXOXO
     IOXOXO
     IOXO O
     IOX  O
180.0IO___O____________________________________________________________________
     I    O
     I    OX         X
     I    OXO        XO
     I    OXOX       XO
170.0I____OXOXO______XO________________________________________________________
     I    O OXO      XO
     I      OXO      XO
     I      OXOX     XO
     I      O OXO    XO
160.0I________OXO____XO______________________X_________________________________
     I        O O    XO                      XOX
     I          OX X XO                  X   XOX
     I          OXOXOXOX                 XO  XOX
     I          OXOXOXOXOX               XOX XOX
150.0I__________OXOXOXOXOXO______________XOXOXOX_______________________________
     I          OXO OXOXOXO              XOXOXO
     I          OX  OXOXOXO            X XO OX
     I          O   O OXO O            XOX  OX
     I                O   O            XOX  OX
140.0I____________________O____________XOX__O__________________________________
     I                    O            XOX
     I                    O        X   XOX
     I                    O  X     XO  XO
     I                    OX XOX   XOX X
130.0I____________________OXOXOXOX_XOXOX_______________________________________
     I                    OXOXOXOXOXOXOX
     I                    OXOXO OXOXO O
     I                    O OX  OXO
     I                      O   O
120.0I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
      11111111                                11
      111222221111222334444666677778888999999900
      012001230112012020112122301231222000122212
      289179206277267135384216051410159167402733
The above chart is giving a conventional buy signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical high and a seasonal down period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "Pattern." It is giving a buy signal.

Internal Printout 1 Internal Printout 2

Results of "Pattern" for Orange Juice (blue lines = successful trades, red, unsuccessful): (Always in the market.)

Results


Third System Confirmation

Our third system is working on a long-term buy signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $150. Initial margin on a single contract is $1,761 Use of options is advised.


Historic Range

Scale traders are not a factor in this price range.

Historical Chart


Commitment of Traders

Commitment 1

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 getting increasingly-long.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that an uptrend remains intact from the last volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Orange Juice May 155 Put and Sell (1) Orange Juice May 160 Put @ 2.45 to the sell side or greater.


o 1 o 2 o 3 0 4 o 5


The following is an effort to track previous option trade prices if positions were held indefinitely or until expiration. They include cotton, live catrtle, Kansas wheat, crude oil, and ethanol.

*** It should be understood that some of these trades may have gone through periods where they were very profitable before moving out of the profitable range. This can be tracked by reading the "Option Trade" section of the corresponding article and noting on the option graphics chart shown there the corresponding profit or loss for previous underlying commodity prices. Thus any of the above trades might be or have been profitable if terminated at the right time, underscoring as with all commodity trades the importance of continuous monitoring.


Calendar Spread

What the Jan. - Jul. 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 in the long run. The best time to enter or leave the above spread is when it is at 0.00 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -6.00 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be approaching the buy the far, sell the near point.





Level Table:

Level Table

The path of least resistance is up.
199.0|                                                                  R 11/ 9
 ICE - Jan-18 Orange Juice, 15000 lbs, c/lb. Cm.=0.20  Lim.=10.0
     |
     |B
     |BBB
189.0|ABBBBB___________________________________________________________________
     |AABBBBBB
     |AAABBBBB
     |AAAAAAABBBC
     |AAAABBC
179.0|AAAABC___________________________________________________________________
     |AC
     |CCJJ
     |CCCCCCDJJ
     |CCCDDJK
169.0|CCCCDDDDJJK______________________________________________________________
     |CCDDDDJJK
     |DDDDDDEJKK
     |DDDDDEJJJK
     |DDDEEEHHJJJJK
159.0|DEEHHJJJJKKYY[[__________________________________________________________
     |DEEFHJJJJKKXYYZZ[[   <<<
     |EFFGGHHHJKKKWXXXXXYYYZZZ[
     |EEFFFGGGGGGGGHHKKLLLVVWWXXXXXYYYYZZZZZZ
     |EFFFFGGGGGHHKLLLLVVVWWWXXYYYZZZZZZ
149.0|EFFFFFGGGGHHHKKLLLLLLMMVVVWWWWWXXYYYYYYYZZZ______________________________
     |EEEEFFFFFFGGGHHHKKKKLLLLLLLMMMMMMMVVWWWWWXXXYYYYYZ
     |EEEFFFFFFHHHKKKKLLMMMMMMVVVWWWWXXX
     |EEFHHKKKLMMNVVWWXX
     |EFKKKMMNNVVVW
139.0|KMMNNNNVVVW______________________________________________________________
     |MNNNNNNUVVV
     |MNNNNNNUUV
     |NNNNNPQQQRUUUUVV
     |NOOPPPPQQQQQRRSUUUUV
129.0|OOOOOPPPPPQQQQQQRRRRSSTTTUUUUUV__________________________________________
     |OOOOOOPPPPQQQQQRRRRRSSSSSTTTTTTTUUUUUVV
     |OOPPPQQQQRRRRRSSSSTTTTTTTUUUUVVV
     |OOPPPPQQRRRRSSSSTU
     |OQQQRRRRSSS
119.0|SS_______________________________________________________________________
     |
     |
     |
     |
109.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO= 0.360
       1 1 1 1                                       1 1 1           1
       1 1 2 2 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 8 9 9 0 0 1           1
       1 2 0 2 1 2 0 2 0 2 0 2 0 1 0 1 0 1 0 1 2 1 2 1 2 0           0
       1 5 9 3 0 5 8 3 9 3 6 1 5 9 5 9 3 8 1 5 9 3 7 1 5 8           9


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 11/12 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                   OJF8    January Orange Juice

                      High Price:  176.6
                   Current Price:  160.8
                       Low Price:  153.2

                            Risk:  0.092
                     Opportunity:  0.192

                    (O/R) Ratio =  2.079


Overall Recommendation

Decision Weighting Factors
FactorsWeighted 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 0
Commitment of Traders + 1
Range/Volatility + 1
Level Table + 1
Other Factors + 1
Total + 7
Place 8 January Orange Juice on a Buy Watch with stoploss @ 8.60 below the get-in point when recent price is represented as "162.65".
____________________________________________________________________________________________________________________________________________F.C.