Breakfast club boost: Is orange juice
about to rally?
Friday, 14 Mar 2014 | 10:20 AM ET
Jaewon Kang | Special to CNBC
is starting to look delicious on Wall Street. While
traders are watching the coffee rally—futures are up
86 percent this year—there's another breakfast club
member that's poised to wake up: orange juice.
to stocks big time in 2013, commodities have started
the year with a bang. Lean hogs, oats and milk have
led the lift with solid boosts in their futures prices
– each posting a whopping 37-percent, 27-percent and
22-percent jump, respectively, year to date. It doesn't
look like the entire commodity sphere will be taking
off, however. Laggards in the arena include copper with
a 13-percent drop, as well as gas oil and heating oil
both recording a 5-percent decline so far this year.
futures have jumped 11 percent year to date, according
to CNBC Analytics. Measured as frozen concentrated orange
juice per pound, the commodity is trading at $1.51.
And it could reach $2 per pound later this year, a level
OJ hasn't seen since hitting the record-high $2.26 mark
in 2012, said Shawn Hackett, president of commodity
brokerage firm Hackett Financial Advisors.
A key factor
is supply. U.S. production has been decreasing for years
due to a citrus greening disease in Florida, the second-largest
producer of orange juice in the world after Brazil.
Other than replacing the tree, there's still no solution
to eradicate the disease, which slows root growth and
makes fruits bitter.
disease problem continues to get worse and worse, and
production is just falling off the cliff," Hackett
the U.S. Department of Agriculture recently lowered
its 2013-14 forecast of Florida orange crops to 114
million boxes, down from 134 million boxes a year earlier.
Brazil has been able to make up for the Sunshine State's
low production. But its drought problem—the worst in
decades—may provide the latest push for the commodity's
run. Hackett says Brazil's weather situation will bring
down orange production, making the supply picture extremely
bullish for the next year or two.
Price of the all-American egg and bacon breakfast harder
Though Hackett expects to see a near-term correction,
he still believes orange juice is one of the better
options for investing in commodities.
is putting a little fuel to the fire," said Mike
Seery, president of Seery Futures. He expects orange
juice to follow coffee's upward trend, noting that Brazil
isn't going to produce as big of an orange crop.
"I definitely think there's an upside to orange
juice prices," he added.
Others aren't feeling so rosy for the commodity. The
orange juice market is missing must-have ingredients
for a price rally: frost, demand and a pesticide problem
that could push the market up, according to Citi futures
specialist Sterling Smith.
something goes wrong or causes a surge in demand, I
don't see where we have the driver here," he said.
"If we can't trade $1.60 here sooner than later,
some of the long money may be getting tired now that
it's not frost season."
Smith sees another
hurdle for the commodity—the decrease in orange juice
demand in the U.S.: "The human diet is as much habit
as anything else, and people sort of started to take it
off the table," he said. "Every time you lose
drinkers, they don't necessarily come back. They find
Still, Seery stands by his position that orange juice
will be among the commodities to benefit as investors'
fears about deflation fade.
"Prices were going low across the board for commodities
last year. That's gone," Seery said. "Now,
it's the fear of inflation, which is causing prices
to go up."
Kang, special to CNBC.