ORANGE JUICE

Big Crops, And No Freeze

Fears about a lack of deliverable supplies for the January contract kept orange juice prices supported for much of December. As we reported in last month's issue of Trade Winds, heavy rain earlier this year (due to Tropical Storm Gordon) made this year's oranges sweeter than usual due to a higher sugar-to-acid ratio. While the consumer may enjoy this added sweetness in his or her orange juice, there are specific guidelines regarding the sugar-to-acid ratio fororange juice meant to be delivered on orange juice futures contracts. As of this writing, this dilemma had not been resolved, and may not be until the January contract is deep into the delivery period.

Brazil Receives Additional Rains

The six to twelve inch rains that fell in Sao Paulo state of Brazil during December kept their crop prospects much brighter than they were just 60 days ago (when their citrus areas were in the midst of a major drought). While current crop estimates for Brazil's 1995/96 crop are in the range of 270-280 million boxes, we would expect that the good rains which fell in December could push the size of the crop into the range of 280-290 million boxes.

Florida Orange Crop Looks Safe

Near-record warmth that occurred over the eastern half of the nation during December kept the orange juice market from seeing any "frost scare" rallies this past month. We would expect that to be the case for the rest of the winter. As we have been saying since our November issue, our confidence is quite high that the Florida orange groves will be escaping damage from sub- freezing temperatures again this winter (making it the fifth straight winter without a freeze). All of the analog years that we are currently using went without a freeze in the sunshine state, and the fact that El Ni¤o continues right now should mean that the jet stream will generally stay "split" this winter (meaning that the warm subtropical jet stream will control the weather over Florida, and the cold polar jet stream will stay well to the north). Combine this with the fact that the Florida orange crop is expected to be very big (the USDA made no changes to their crop estimate in December, still looking for this year's crop to be the second largest ever at 196 million boxes), and we remain quite bearish on the market through the rest of this winter.

Orange Juice Strategies

We have nailed the winter forecast for Florida since 1987 each time and this year looks to be nothing different. Excellent rains returning to Brazil should alleviate further crop stress. However, once again, traders were stopped out "barely" out of a position (this time short position) in OJ for a loss of $1950/contract. We remain bearish for a move to 90 cents-$1.00. No new advice. The strength in this market was due to overblown crop problems in Brazil. We did recommend buying this market two months ago only to have traders stopped out with a small profit before prices soared to our objective of $1.20. Then we just missed selling this murexide around $1.25 only to force us to lower our sell price to $1.10 and hence our stop. To bad. No new advice.

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