America’s favorite citrus is exploding off the charts.
From a gloomy headline like “Orange Is the New Red” by Bloomberg two months ago, when prices were hitting 2016 lows, orange juice futures have suddenly flipped into uncharted bullish territory, with smaller-than-expected fruits and worries of dry weather turning pessimistic investors into buyers.
The turnaround has been nothing short of stunning.
OJ is on track to a 12% gain on the week, a rally almost three times as strong as that of crude oil.
Orange juice futures lost a combined 9% in the first two months of this year, due to a bounty crop. In December, it suffered an even bigger plunge of 13%.
But with the current rally—it’s biggest in three years—it is now showing a modest year-to-date gain.
And technical charts suggest things could get better.
At Thursday’s settlement, the front-month May OJ contract on ICE Futures U.S. closed at $1.2493 per lb.
Technical analysts on Investing.com are recommending May OJ as a “Strong Buy”, pegging its strongest upside potential at $1.3171—or another 5% above current levels.
The irony isn’t lost on commodities chart-watcher and independent trader Mike Seery, whose response to this week’s rally was a blog entitled: “What is going on with orange juice?”
The founder of Seery Futures in Plainfield, Illinois, said:
“I have been talking about the orange juice market for quite some time as the breakout occurred above the $1.2280 level.”
“However prices ran up so quickly, I was hesitant to get suckered in, so I'm still sitting on the sidelines.”
Seery added that, should the $1.22 level return, he would be a buyer.
While a bottom certainly seems to have formed on OJ, Seery also suggested that longs place a stop-loss under the $1.1490 multi-year low as exit strategy, should the market turn direction.
So, what are the weather fundamentals for OJ, and can they trip up the market again?
Jack Scoville, analyst for soft commodities at The Price Futures Group in Chicago, said the orange harvest in top growing state Florida remained active but the weather was mostly dry.
Unseasonably warm, or even cold weather, can result in dry oranges as trees under stress work to repair such conditions before improving their yield.
Scoville said fruit availability was abundant in Florida but added that producers were seeing both “small sized to good sized” oranges, and irrigation was being used all over to overcome the dry weather.
Flowering for the next crop was ongoing, he said, and new fruit was starting to form on some trees. Good weather conditions were also reported in top citrus growing country Brazil, Scoville pointed out, and some beneficial rains were expected there this week—a sign that the market could come under selling pressure again if such benign conditions continued.
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