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THE HIGHTOWER REPORT
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ORANGE JUICE: There remains a huge, apparently small spec interest in orange juice. Near-record open interest continues to flock into play because of the concept that prices are “cheap.” The last four juice reports on production showed ever increasing supply with cold storage levels massive. A number of traders are attempting to play the seasonal move associated with January frost potential in Florida production regions. In reality the straight price seasonal derived mathematically prices are down sharply until mid- to late December. Therefore, whatever windfalls expected from frost fears might simply allow longs to recapture losses the beginning of the trade. While the current fundamental condition of supply and demand needs to be defined some long-term changes should be mentioned. First of all consumption trends in juice have changed because of competition with other beverages and because of product composition. The proliferation soft drinks, juice drinks and coffee products has attacked the stronghold historically held by orange juice at the breakfast table which in some ways increases the number of products requiring citrus inputs! We stress citrus inputs because orange juice used to prevail and is now sharing the table with grapefruit, pineapple, banana, guava, apple and others. Furthermore, the proliferation of products has allowed manufacturers to escape the “real juice” input thereby using more water and other substitutes!
As for current supply and demand statistics: Trade sources expect the fourth consecutive record Florida orange juice crop somewhere between 240 to 260 million boxes well above last year's 226.2 million record. The last USDA estimate placed U.S. production at 330.6 million boxes and Florida at 254 million boxes with a 1997-1998 yield of 1.55 gallons per box. Use these figures to determine if an when the bear condition is modified. The next USDA report on juice is expected on November 12th or 13th, they have not set the exact date as of this writing. While the OJ is certainly pricing a number of bearish conditions getting long is about the same thing as selling the stock market as you are standing in the way of a strong trend with hope in your pocket and no evidence of change.
SUGGESTED TRADING STRATEGY–Buy March orange juice at “72.30 or lower” with an objective of 80.90. Risk the trade to close below 69.90.
For daily market updates of the Hightower Report of Comprehensive Commodity Research, call 900-225-2200 extension 6 for Softs Markets Forecast. The cost per minute is $1.33.
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