Frozen Orange Concentrate Prices Bullish on Low Supply for 2016

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Spend Matters welcomes this guest post from Liliana Minton, market analyst at Mintec. 

Futures prices for frozen concentrate orange juice (FCOJ) on ICE New York have been bullish over the past two months and prices have risen 24% from the start of 2016.

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The rise in prices is due to a combination of factors: a low production forecast for Brazilian orange juice, lower yields for FCOJ in Florida and the start of the 2016 hurricane season in the Atlantic coast in June.

Brazil is the market leader in production of orange juice. Over time, the U.S. has lost its market share due to the effects of the citrus greening and canker. The outlook for Brazilian oranges was looking positive at the start of the season; however, in late 2015 and early 2016 things started to change. Hot and dry temperatures during September and October 2015, in the key producing regions of Sao Paolo and Minas Gerais, affected fruit in the formation stage.

The yield for oranges for 2016/17 year is now estimated to be down 15% year-over-year, at 1.55 boxes per tree. As a result, production estimates have been cut and prices have risen sharply.

The latest forecast for the 2016/17 production for Brazilian orange juice is expected down 11% y-o-y to reach 885,000 tonnes in 2016/17. The lower production expected will reduce the volume available for exports, down 22% from last year, causing prices to remain high for the time being.

On top of the lower Brazilian output, the latest USDA estimates for FCOJ yield is pegged at 1.40 gallons per box, down from 1.50 gallons per box seen last season. This is mainly a result of lower oranges available for processing as orange trees continued to be affected by citrus greening disease in Florida.

The hurricane season in the Atlantic coast started in June, with the onset of Tropical Storm Colin, and it is expected that there will be a higher number of tropical storms this year as a result of El Niño conditions withdrawing from the Pacific in 2016.

There are a number of factors supporting high prices and, at least in the short term, the situation is expected to carry on — supported by market fundamentals and weather conditions in Brazil and the U.S.

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