As daily record highs in US coronavirus cases bring us closer to the grim prospects of Lockdown 2.0, products, services and markets best equipped for the ordeal will thrive. Aside from home gym, video conferencing and delivery services, a winner in commodities may be orange juice.
Frozen concentrated orange juice futures had their best rally in four months in October, gaining 3.7%, as adverse weather hit citrus groves in Florida. Since this month began, juice prices have picked up another 1.4% on production concerns.
The orange juice market looks set for more sparkle as people continue to obsess about healthier foods. In fact, juice market watchers say demand for the commodity has been steady since the pandemic broke out in March, although consumption and prices have consolidated over the months.
On the coronavirus front, on Wednesday there were 140,543 U.S. cases reported, making it the ninth straight day where the infection count stood at over 100,000. According to Johns Hopkins University, some 10.4 million Americans have contracted COVID-19 so far and nearly 242,000 have died from complications caused by the virus.
On Thursday, Dr. Michael Osterholm, a top advisor on President-elect Joseph Biden’s coronavirus task force, floated the idea of shutting down businesses over four to six weeks to control the spread of the pandemic.
Jack Scoville, analyst at the Price Futures Group in Chicago, said orange juice will be a market to watch if another lockdown was imposed:
“The coronavirus is still promoting consumption of FCOJ at home. Restaurant and food service demand has been much less as no one is really dining out.”
Mike Seery, who tracks various commodities out of his Plainfield, Illinois office, concurs that juice is a market to stay on top of:
“I have been talking about orange juice over the last several weeks as I will be recommending a bullish position if prices close above the October 13th high of $1.1875 (per lb).”
Phenomenal Run That Began In February
Juice prices had a phenomenal run that began in February, even before the first US COVID-19 lockdown, and ran through June, when they hit an 18-month high at $1.3175. May was a blockbuster month for FOCJ, with the 18% gain for that month being the highest in four years,
In Thursday’s trade, FCOJ’s front-month January contract settled at $1.18—just around the trigger Seery recommended for a long position.
Should you take that call, he suggests you do this as well: Place a stop loss under the spike bottom of $1.0735 set on Oct. 21. He added:
“The risk is around $1,700 per contract plus slippage and commission. I do believe a bottoming out pattern is developing.”
Seery notes that juice prices were trading above their 20-Day Moving Average but still below the critical 100-DMA which stands at the $1.20 level.
He adds:
“The volatility certainly is going to expand as we enter the highly volatile winter season where prices can experience tremendous price swings to the upside, due to a possible frost in the State of Florida decimating the orange juice crop which has happened multiple times historically speaking.”
Charts courtesy of SK Dixit Charting
Sunil Kumar Dixit of SK Dixit Charting in Kolkata, India says FCOJ is strongly supported at the $1.04-$1.05 level.
Like Seery, he sees $1.20 as a must-breach level for more upside:
“A range break above $1.20 strengthens the case for $1.26 and the $1.32-$1.36 premium areas in the coming months, provided the bulls hold above $1.14.”
OJ Fundamentally Supported By Limited Production
Scoville of Price Futures Group notes that while Florida has been spared serious storms in a year that has seen a record number of nearly 30 hurricanes, production prospects for the new citrus crop were still hurt by an extended flowering period, before the weather improved lately with frequent showers to promote good tree health and fruit formation.
Outside of Florida, top citrus grower Brazil has also faced dry conditions that required irrigation, while crops in neighboring Mexico fared better with regular rains.
At Investing.com, our base case for January FCOJ shows three intermediate levels of support: first at $1.1741, then $1.1683 and finally at $1.1646.
Our Daily Technical Indicator shows a “Strong Buy”, with resistance pegged first at $1.1836, then $1.1873 and finally at $1.1931.
As with all projections, we urge you to follow the calls but temper them with fundamentals—and moderation—whenever possible.
Happy Weekend, everyone!
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.