US PCE and Euro CPI in focus

Since our last update on frozen concentrated orange juice (FCOJ) in early March, the prices of FCOJ futures prices have trended higher than expected. The lack of favourable weather and clinical progress against citrus greening disease has led to supply expectations drying up. However, as we approach the halfway point of 2024, bullish liquidity may dry up in the second half of the year.

Since our update on FCOJ in early March, the price of the contract for difference (CFD) has risen from ~$360/lb to around ~$480/lb, equivalent to futures prices of $3.6 and $4.8 per pound. This is not unexpected and as discussed in the previous update, while there are still bullish factors, there is little reason for prices to fall. While the US market produces juice that is mainly consumed domestically, producers such as Brazil have struggled to meet export targets. Brazil, the clear leader in orange juice production, reported a stunted outlook for 2024. More specifically, Fundecitrus, an association of citrus growers and juice producers based in São Paulo, reported its growth outlook for the 2024/2025 season. Compared to the previous season, the orange crop is expected to decrease by 24.36%, a result like the low crop of 1989. Furthermore, of the different sub-regions in São Paulo, only two regions have seen an increase in the number of fruits per tree. For the region, the number of oranges on trees has fallen by 29% compared with the 2023/2024 harvest.

A factor that negatively correlates with the number of oranges described above is the maximum temperature in the growing regions. The regions with the lowest number of oranges per tree also have the highest median maximum temperatures, around 34-35 degrees Celsius. Given this negative correlation with high temperatures, it is not ideal that we are about to enter the warm phase of the El Niño phenomenon. As mentioned in the previous update, this phase is associated with prolonged warm temperatures in the São Paulo region. Another factor negatively affecting the crop is fruit drop, which is positively correlated with citrus greening disease. Fruit loss due to greening is expected to increase from 3.08% in the 2022/2023 season, to 5.48% in the 2023/2024 season, to 8.4% in the current 2024/2025 season. This is partly due to a new psyllid that spreads the bacteria that cause greening. The insect is resistant to insecticides, highlighting the need for Invaio Sciences' Trecise technology as mentioned in the previous report.

All in all, FCOJ futures prices have rightly risen as the supply outlook looks bleak. There has not been enough progress in the fight against greening, which means that a large percentage of the crop never makes it to the juice factories. In addition, the weather has not been conducive to growing citrus and, consequently, to juice production. On the demand side, the question is how much of the cost will be passed on to customers. Orange juice in particular accounts for the bulk of all juice sales. It is reasonable to expect empty shelves in the summer as this is the more intense part of the juice consumption cycle. In terms of how futures prices will move, it is possible that liquidity in the futures markets will squeeze out investors, like what was seen in cocoa. However, in terms of "organic" negative price pressure, there are not many triggers that could push prices down. So, while prices are likely to fluctuate as volatility is high, there are more factors pointing upwards than downwards for the second half of 2024.

Orange Juice (USD/Lbs) CFD, one-year daily chart