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MERRILL LYNCH & CO.
North Tower, 21st Floor, New York, New York
(November 26, 1997) ORANGE JUICE: Trading in the juice market has been more two-sided of late with several strong sessions followed by a quick retreat. Speculators continue to be the major buyers, amassing as much as 85% of the total open long position while the trade remains a persistent seller. This is likely to continue through the freeze season. If the winter passes without incident in Florida, the market could turn south again and make new lows by mid-January.
Record output in Brazil, Florida and Mexico and only a modest improvement in demand are the primary reasons for remaining negative on this market despite the low prices. Attention is beginning to shift forward, however, to the development of the Brazilian 1998-99 crop. Although reliable estimates are not going to be available until early 1998, most sources concur that the crop could be lower. The cyclical nature of production where a large crop is followed by a somewhat smaller crop, erratic weather and disease are all reasons cited for the expectation of reduced output. While production in Brazil could be lower, if production slips only marginally, then will be little cause for concern and the market is not apt to stage a strong rebound, just yet. Longer term the outlook should improve as many of the young nursery rootstock is infected with disease so new plantings will be minimal. The full impact of this will take time to be felt by the market, especially since Florida production is likely to continue to expand as all the trees planted in southern Florida over the past decade continue to flourish with increased box counts as the trees mature.
(Reprinted by permission. Coypright © 1997 Merrill Lynch, Pierce, Fenner & Smith Incorporated.)
Judith Ganes
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