Orange Juice Concentrate: New Kid on the Block of Insurgents

Orange Juice Futures are up 30% on the lower production around $253.50 for cash settlements and $273.50 for March futures (OJH23 (Mar '23)), reconfirming its bull run set up more than a week ago. Orange juice futures – contracts to buy and sell OJ – have nearly doubled over the last year, which has led to widely encountered price increases at retail stores. But those prices are still driven by the past seasons’ frozen concentrate market.

Orange production in Florida is projected to be down nearly two-thirds from last year and according to USDA at levels not seen since the Great Depression (the relevant general report was released earlier this month). According to the Agency, the 2022-2023 Florida all orange forecast released last week by the USDA Agricultural Statistics Board is 16 million boxes, down 2 million boxes from the January forecast. If realized, this will be 61% less than last season’s final production. The fall is drastic compared to the '90s, when Florida produced 200 million boxes per year.

The forecast consists of 6 million boxes of co-called “non-Valencia” oranges (early, mid-season, and Navel varieties) and 10 million boxes of Valencia oranges. The production shortage, amplified by general food inflation, have driven up the price of orange juice and economists say it may not come down for a while.

Florida was hit with several weather disasters in 2022 including Hurricane Ian and Nicole, a January freeze, and add on top of that disease issues like “citrus greening”. The result has been a substantial cut to the state’s orange production, which makes up 80% of the total U.S. supply of oranges used for orange juice.

Florida producers have a goal of replanting and achieving a 100% replacement rate this season.  However, it takes at least 3 years to get a tree to bear fruit and on average from 6 to 9 years before trees start making a profit.  Plus, Florida citrus growers are still recovering from Hurricane Irma in 2017.  So, rebuilding will be a multi-year process. 

As a result, farmers are looking at a 60% decline in production this season compared to last season, with about 16 million boxes of oranges expected to be produced this season.  Analysts estimate almost $375 million expected in production losses associated with the failing crop.Summary of Outlook:

Summarizing all above said, i.e. bad weather impact, rising “citrus greening” occurrences, constantly downgraded outlooks and extremely low inventories, it would be reasonable to expect an acceleration of the current OJ price hike once old stocks of orange juice concentrate will have been depleted.