The Juice is Loose
Fundamentals
Orange Juice futures have surged the past two sessions, on a sharp downward revision of the Florida crop size by the USDA. The 136 million box estimate fell well short of consensus projections of 151.2 million boxes, driving feverish buying and causing a mass exodus of shorts. The orange crop has been plagued by persistent dry weather and unseasonably cold weather for much of the year, both of which have squeezed supplies. On top of the freezes and drought conditions, orange trees have also been hit by a disease known as greening, which has caused farmers to begin pulling trees, leading to the possibility of further production shortfalls in the future. Up to this point, stocks have not been dropping as quickly as many had expected, leading traders to believe the US could wind up with a rather sizable surplus. The pendulum has now completely swung in the other direction, and we may now be talking about deficits.
Trading Ideas
Given the bullish fundamental and technical developments, some traders may be tempted to enter the long side of the market. However, because of the sharp move in the market the past two sessions, some traders may possibly wish to consider taking a cautious approach and enter the options market instead. For example, rather than diving into a long futures position, some traders may wish to enter into a bull call spread, buying the December Orange Juice 115 Calls (OJZ9115C) and selling the December Orange Juice 125 Calls (OJZ9125C) for a debit of 3.25, or $487.50. The spread risks the initial premium paid and has a maximum profit of 6.75, or $1012.50.
Technicals
Friday's explosive move higher in the January Orange Juice contract resulted in the confirmation of a double bottom formation on the daily chart. The measure of the pattern suggests that the January contract may test the 125.00 area. The RSI indicator has quickly moved above the 70% overbought area, but it is unknown whether this will have any effect on prices in upcoming sessions, given the fundamental news and technical breakout. The fist significant area of resistance the market may run into is near the 117.00 level. This would be a logical area for short-term traders to take profits, which could result in some consolidation or a small correction.
Rob Kurzatkowski, Senior Commodity Analyst
