Orange juice futures are headed for their biggest loss in eight months as the year winds down. Yet, long-only investors in OJ, as the market is commonly known through its trading symbol, are also looking to book their first annual gain in five, thanks to the COVID-19.
One of the few commodities that directly prospered as a result of the pandemic, OJ could have a bright 2021 as people continue to seek nutritional foods and drinks amid the health scare generated by coronavirus.
Mike Seery, who pores over commodity charts at his Seery Futures office out of Plainfield, Illinois, says OJ looks poised for a move higher.
He observes that the benchmark U.S. orange juice futures contract for March delivery trades at a near two-week high above $1.20 a lb now, after dropping to a low of $1.13 in a recent bearish streak.
Prices Bottoming From Recent Selloff
Adds Seery:
“I do believe that prices are forming a bottom as the downside is very limited. If you take a look at the daily chart, the $1.15 level has held on multiple occasions. I will only be looking at another bullish position as the highly volatile winter season is upon us.”
The winter outlook is always a crucial one for OJ, as extreme cold can lead to frost that freezes citrus groves, stunting crop development. While that’s bad for production, the supply squeeze created is good for juice prices.
Conversely, an unseasonably warm winter could lead to an abundance in harvest that weakens the market.
The 2020/21 winter has so far been the latter.
Says Seery:
“If you take a look at the 7/10 day weather forecast, there is no frost in sight, as that is why prices remain depressed, as historically speaking prices are very discounted.”
“Juice prices are trading below their 20- and 100-day moving averages as the trend still remains to the downside, as this commodity has been unable to join the party of several other agricultural sectors. But I think eventually prices will move higher, and if you are a long-term investor, I see no reason not to be a buyer.”
OJ is down almost 8% month-to-date—the biggest deficit since April’s near 10% slide.
Even with that loss, it is on track to finish 2020 with a 22% gain—almost an identical reversal of 2019 when it lost 22%.
It would be the first annual gain after the drop last year and declines of 8% in 2018 and 31% in 2017. The last previous yearly gain for OJ was in 2016, when it rose 41.5%.
Strong Consumption Of OJ Amid COVID-19
Jack Scoville, analyst at the Price Futures Group brokerage in Chicago, also has a favorable outlook on OJ.
Observing that the market had closed higher for a second day in a row on Tuesday, on follow-through buying from last week, Scoville adds:
“The coronavirus is still promoting consumption of OJ at home. Restaurant and food service demand has been much less as no one is dining out. The weather in Florida is good with frequent showers to promote good tree health and fruit formation.”
Weather Generally Supportive
Internationally, the top citrus grower Brazil has had near drought-like conditions, broken only by recent rains that could dry up again. Brazilian juice output typically has a major impact on U.S. production and prices of the commodity.
This year, the weather in Florida, the Orange State of America, has remained mostly benign. Floridians have been spared hurricanes or other serious storms this year— during a very active year for tropical storms.
The bullish impact of the dryness in Brazil has been offset somewhat by the weather in Florida. But as Scoville notes, that could only be temporary:
“Showers are falling in Brazil now and these need to continue to ensure good tree health. However, it could turn warm and dry again next week.”
Technically, on my end, the Investing.com charting models that I use suggest a “Strong Buy” for March OJ, with a three-tier Fibonnaci resistance that begins at $1.2143 and goes through $1.2164 before topping out at $1.2197.
On the other hand, if the bullish streak does snap and the market reverses, then the appropriate three-tier Fibonnaci support will begin at $1.2077 and extend to $1.2056 before full-scale buying is anticipated again at $1.2023.
In any case, the pivot-point between the two is $1.2110.
As with all projections, I encourage you to follow my calls but temper them with fundamentals—and moderation—whenever possible.
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. He does not own or hold a position in the commodities or securities he writes about.