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MERRILL LYNCH & CO.
North Tower, 21st Floor, New York, New York
(November 13, 1997) ORANGE JUICE: Just when it looked like the orange market was going to rot and sit in a quiet range for weeks, speculative buying increased and pushed the market up sharply. The funds covered short positions and possibly put on a few long ones, but the markets ability to sustain the rise is rather questionable.
Fundamentals simply have not changed and much of the buying seems to because the market is at historically low levels heading into the winter months when the Florida crop become susceptible to freeze damage. Were it not for this seasonal risk, we believe the market would be sitting at substantially lower price levels. Should the winter pass without a damaging cold snap, speculators might finally abandon positions and the market could sink sharply, between now and then it seems like anything goes with the market gyrating between the recent lows and about 85-87 cents. We would expect the trade to continue to aggressively sell into rallies.
Demand for FCOJ remains rather stagnant with both the movement figures and Nielsen retail data not showing much elasticity due to the lower pricing. We have indicated before that a strong resurgence in demand will probably be necessary to have a meaningful recovery in prices.
The USDA, as always, left the November crop figure unchanged from the initial estimate in October. There does seem to be a greater percentage of smaller fruit this year, but this is already reflected in the crop figure. Typically years of heavy fruit set, the number of pieces per box increases and this season seems to be no exception.
With prospects for a record Florida crop, record Brazilian crop and record Mexican crop, it is hard to view the market favorably.
(Reprinted by permission. Copyright © 1997, Merrill Lynch, Pierce, Fenner & Smith Incorporated.)
Judith Ganes
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