wmeubank@ocp.kcmo.com
MERRILL LYNCH & CO.
North Tower, 21st Floor, New York, New York
(October 30, 1997) ORANGE JUICE: CITRUS FUNDAMENTALS REMAIN NEGATIVE–The FCOJ market has sat quietly, fluctuating in a tight range with no reason to break out of this band any time soon. Harvesting of the Florida orange crop has just gotten underway and holds promise to be absolutely huge. Current prices reflect this.
While demand might edge upwards, we continue to think that this will not be sufficient to force the market back up and crop losses will be necessary to drive prices significantly higher. As we noted in the past, the amount of surplus supply is expected to be so vast, that a mild or medium freeze is not likely to cause sufficient damage to create a shortage in supply.
Speculators are still heavily long the market and are likely to sit with these positions until at least mid-January. Should cold weather not materialize, we would see this as the time when the proverbial other shoe could drop and the market would skid to new lows on speculative liquidation. Between now and then, daily trading could be downright boring.
The devaluation of south Asian currencies against the dollar will make importing orange juice more expensive. Whether this will have long-term impacts on demand for that region is questionable, given the low price of juice. If prices of orange juice were at all-time highs instead of lows, the situation might be viewed differently. The value of the Mexican Peso declined about 12% this week as well. This makes that juice somewhat more competitive as it helps to offset the appreciation seen in the peso over the past two years. The change is expected to be negligible though and not alter the balance sheet dramatically.
Despite the seemingly cheap price, we still have no fundamental justification to recommend buying the market.
Judith Ganes
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