MERRILL LYNCH & CO.

North Tower, 21st Floor, New York, New York

(October 2, 1997) FROZEN CONCENTRATED ORANGE JUICE: MAJOR USDA REPORT SCHEDULED FOR OCTOBER 10TH–The first USDA Florida orange crop estimate is now just one week away. Ahead of the report, the market is likely to drift sideways. We would be very surprised if speculators decided to unload long positions in advance of the report, especially since they have continued to build on their long positions in recent weeks. More than 90% of the long open interest is held by speculators. Should next week's crop estimate being exceptionally bearish, we are not sure the speculators will even respond and get shaken out of these positions. In fact, for those that were obliged to unload longs, new speculators might emerge. Thus, while the fundamentals might be extremely negative, the relentless speculative buying could prevent the market from slipping or staying depressed in the event it did fall in response to the estimate.

At the same time, however, it is hard to justify buying the market on those grounds. Florida inventories swelled this season based on a 226-million-box crop and could climb even further in the season if the crop is equally large. Should tree yields be “average” output could be as much as 25 million boxes higher and “above average” yields could put the crop to as much as 280 million boxes. We believe it will be difficult to even process that much fruit with bulk storage becoming a serious problem, given the high starting inventories.

At the same time, Brazil too is anticipated to have record output and will need to continue to market their processed product aggressively to Europe and other outlets given the near self sufficiency of the U.S. market.

(Reprinted by permission. Copyright © 1997, Merrill Lynch, Pierce, Fenner & Smith Incorporated.)

Judith Ganes

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