That was the biggest three-day rise in price in the last 16 years, and a sign that investors believe the price of orange juice will increase dramatically in coming months.
Bad news generally means that the price of any commodity will rise and the drought California has been no exception.
The futures market is a centralized marketplace for buyers and sellers from around the world who meet and enter into futures contracts. Pricing can be based on an open cry system, or bids and offers can be matched electronically. The futures contract will state the price that will be paid and the date of delivery. But don't worry, almost all futures contracts end without the actual physical delivery of the commodity.
The whopping increase in futures prices says little about future demand for OJ, though, and plenty about the troubles that lie ahead for its producers. Americans now drink less orange juice than at any time in the past 13 years, and the driving force behind the recent surge in orange juice futures has been te poor weather conditions. Current predictions for rainfall in California continues to be bleak for both near and long term.
Orange Juice OJT15(May'15) 144.80s +1.28 144.80 146.20 144.20
The US’s citrus regions have suffered from a lack of rain in the past month and another two weeks of dry conditions are expected. Combine that with the nasty citrus-greening disease that has been going around, and you have the perfect conditions for a spike in the price of orange juice futures. This year’s crop is set to be the smallest in over 40 years.
The orange juice industry faces a difficult choice: companies can raise the price of their orange juice to reflect the increased price of oranges, or swallow the difference, and expect lower profits.
Orange juice’s popularity is already waning because of dietary trends that stigmatize sugar. Aside from the drink’s generous helpings of vitamin C, a glass of orange juice contains a healthy dose of natural sugar as well and work habits that mean some Americans are foregoing breakfast entirely.
Raising prices at this stage doesn’t sound like the best plan for a successful move. The result may be a lowered demand from retail buyers.
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