Tropical Storm Isaac Strengthening; Floridians, Citrus Growers Begin to Worry

Aug 22, 2012

The following article was published in The Insurance Journal on August 22, 2012:

Tropical Storm Isaac Strengthening; Floridians, Citrus Growers Begin to Worry

Fears of damage to the country’s top citrus-growing region pushed benchmark November frozen concentrated orange juice up 5.6 percent to a six-week high of $1.2185 per lb in early trade. Prices had already rallied as much as 8 percent on Tuesday when forecasters cautioned about the strengthening tropical storm. Further gains were limited by technical selling after juice futures briefly pierced a 100-day moving average.

The November contract on ICE Futures U.S. came off the session high but remained up 5.24 percent at $1.2145 per lb at 1:08 p.m. EDT (1708 GMT). September prices were at $1.3855 per lb, up 6.13 percent, after rallying to three-and-a-half-month highs earlier in the session and almost limit up.

“This is all weather related. The path is looking like it’ll hit Florida for sure. We’re getting some selling around that level” of the 100-day moving average, said Bill Collard, who heads up Florida-based commodity brokerage firm the Futures Management Group.

Prices remained well below records of $2.2 per lb set in January when U.S. authorities restricted imports of Brazilian juice due to the use of a banned fungicide. Traders said they expected prices to remain elevated unless the storm veers away from the Florida coast. Still, market fundamentals are sluggish amid waning global demand waning and plentiful supplies, they said.

“It probably should be going down because there’s enough supply. (But) November could run to $1.30 before it finds some strong resistance,” Collard said.

Concerns about immediate supplies pushed September prices to a 17-cent premium over November prices — the widest spread between front and second months since January when imports from Brazil, the world’s largest producer, were restricted. Keener buying interest boosted September’s Relative Strength Index (RSI) to 73, above the 70 threshold that signals overbought conditions and up from 68 on Tuesday.

With five days until the storm is due to make landfall, Judy Ganes of commodity J. Ganes Consulting said buying could be overdone, leaving the market was vulnerable to a sharp correction if the storm fades or misses Florida completely. Experts noted that frost and blight have done more damage historically to the Sunshine state’s orange groves than hurricanes.

The last storm to hit the state’s southern farms was Hurricane Wilma in 2005, when some 50 million boxes of oranges were lost as the storm knocked fruit to the ground and damaged trees. To put that in context, that would be a third of the state’s estimated output of 155 million boxes and a quarter of U.S. production for the upcoming marketing year which starts on Oct. 1.

Before Wilma in 2005, storms had not done substantial damage to Florida’s crops since 1960 when Hurricane Donna hit.

Even so, processors and producers, such as Coca Cola Co , which sells Minute Maid, and PepsiCo Inc., which has the Tropicana brand, fear getting caught short of supplies and paying meteoric prices for their raw material. They pass on the cost to the end-product, but that often leads to erosion in demand as households stopping drinking the juice, which has traditionally been a U.S. breakfast favorite.

High street prices shot up by almost a third in 2006 as higher costs after the Wilma’s devastation, experts said.

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