Trading CFDs on orange juice isn’t extremely popular among retail traders, as it isn’t a conventional commodity such as oil or gold. Nevertheless, ActivTrades' orange juice futures can present excellent trading opportunities if you know how to take advantage of them. For that, you’ll need to understand what orange juice trading is, what influences the price of this commodity, what the advantages and limits of trading orange juice contracts are, as well as the different ways to invest in it. Let’s get started!
What is Orange Juice trading?
Oranges are now mostly used for human consumption after being squeezed into a juice, often served for breakfast all across the globe. While there are different types of oranges (Valencia, Navel, Hamlin, Cara Cara, Lima, Seville and Blood oranges, for instance), the Valencia oranges are the most popular choice for making orange juice, as they are quite sweet, very juicy, and available almost year-round.
But orange juice, mostly FCOJ or Frozen Concentrated Orange Juice, is also a financial asset that you can add to your portfolio. It is therefore possible to buy or sell contracts on FCOJ to take advantage of the price fluctuation of the commodity. It’s what we call orange juice trading, and it is not only attracting speculators but also farmers and storage houses, among other participants.
Market specifications
Since its creation in 1948 at the University of Florida’s Citrus Research and Education Center, FCOJ has transformed the business of orange juice. As it has quickly become a readily storable and easy-to-ship commodity, Frozen Concentrated Orange Juice has been the industry’s pricing benchmark for a while and is the most frequently traded orange juice financial product.
Today, futures and options on FCOJ are traded on the ICE Futures U.S. exchange and are the reference for the price of orange juice.
According to data from the ICE, the trading hours of the commodity are from 8:00 AM to 2:00 PM in New-York, from 1:00 PM to 7:00 PM in London, and from 8:00 PM to 2:00 PM in Singapore. The ICE FCOJ future contract is priced in cents per pound, and the minimum contact size is 15,000 pounds of orange juice solids that will be physically delivered to warehouses in the US (Florida, New Jersey, and Delaware) from orange juices coming from the US, Brazil, Costa Rica and Mexico.
Most important oranges producers
According to the latest data from Statista, the top producers of orange juice in the world are Brazil, the United States, and Mexico, with Brazil being by far the largest orange juice producer, especially in the state of São Paulo. The United States is another important orange juice producer, especially with the state of Florida. It is also the biggest producer for the American market.
What makes the price of Orange Juice go up or down?
There are different factors that influence the production of orange juice and the quality of the oranges used in the process, which in turn affect its price. Let’s take a look at the most common factors you need to be aware of when trading orange juice.
The law of supply and demand - Like with any financial instrument, the evolution of supply and demand has a great impact on orange juice prices. If there is a shortage of oranges, the offer will be reduced, so prices may rise if the demand stays the same or increases. If there is an increase in demand for orange juice while the offer stays the same or is reduced, then prices may rise. Conversely, if there is an oversupply of oranges or a decrease in demand for orange juice, prices may fall.
The weather conditions - Adverse weather events (hurricanes, heat waves, droughts, or freezes, among others) can impact orange crops, which will influence the level of orange juice available. This event is likely to lead to an increase in the price of orange juice.
The tree disease - There are diseases that can affect citrus trees, with citrus greening, phytophthora root rot, and citrus canker being the most common ones. These, in turn, impact the volume of oranges produced, reducing the yields and increasing the cost for growers.
The changes in production and storage costs - Rising labor costs or the need for more expensive inputs like fertilizer or irrigation can increase production costs, which can in turn increase orange juice prices. Oranges are often stored for a period of time before they are sold, in order to ensure a consistent supply throughout the year. Storage costs, which can include expenses such as refrigeration, transportation, and labor, can therefore sometimes increase due to changes in oil prices, for instance, which might also impact orange juice prices. The amount of oranges in storage can also impact prices.
The evolution of consumer habits and preferences - Modifications in consumer habits and preferences for orange juice, especially in major consumer countries, such as a shift toward healthier beverages, for instance, can impact the demand for orange juice, which can impact its price over time.
The trade policies with major producers - Global trade policies, especially those related to big orange exporters, can impact the price of orange juice by affecting the supply and demand of oranges, such as those limiting the export and import of oranges or imposing tariffs, trade agreements, or other trade policies.
The currency fluctuations - Orange juice is an internationally traded commodity that is priced in American dollars, which means that traders can be exposed to currency risk if they are trading in currencies other than the USD. Usually, when the USD is stronger, it means that orange juice is more expensive and that demand will be lowered. Conversely, when the USD is weaker, traders holding other currencies might find it cheaper to buy orange juice, which can increase demand.
The speculation - Market speculators, especially those with significant funds like hedge funds, can have a considerable impact on the price of orange juice depending on the main sentiment, as they could create artificial demand or supply.
Orange Juice trading - What are the risks?
Let’s take a look at the most important risks you need to be aware of when trading orange juice.
Market volatility - The price of FCOJ is highly volatile, which means that prices can suddenly increase or decrease. The more volatile a financial instrument is, the riskier it is to trade it, as there is a significant risk of capital loss.
Market liquidity - The orange juice market, which is a seasonal market by nature, is also not a very liquid market, as it is a relatively small market compared to other bigger commodities, and it has to follow limited trading hours, which limits the number of participants and affects the level of liquidity of the market. Remember that market liquidity is the ability you have as a trader to buy and sell an asset relatively quickly and at the desired price without having a significant impact on the asset’s price.
Health trends - In recent years, there has been a growing awareness of the negative health effects of sugary drinks, including orange juice, which has led some orange juice consumers to go towards other beverages (water, tea, low-sugar fruit juices, etc.). As a result, the demand for orange juice has declined in some markets, which can result in lower demand over time, and potentially lower orange juice prices.
Climate change - Changes that occur because of climate change can result in changes to weather patterns, such as in rainfall, temperature, and humidity, which are important factors influencing the quality and quantity of oranges produced, which can affect the supply of orange juice and its price. Climate change can also lead to more favorable conditions for pests and diseases that can affect orange trees, lower the production of oranges, and push up the price of orange juice.
Orange Juice trading - What are the growth opportunities?
Let’s have a look at the key advantages and growth opportunities for the orange juice market.
Emerging markets - As emerging markets, such as China and India, continue to grow, it is likely that they will play an increasingly important role in the orange juice market. Rising disposable incomes, urbanization, and changing dietary habits in these markets are expected to drive demand for orange juice in the future.
New product offerings - Because people might turn to healthier drink options, some orange juice producers might shift towards healthier or more natural orange juices, such as organic or cold-pressed juices, non-GMO production, and functional fruit juices. But new product offerings related to orange juice could also be entirely different to provide other types of drinks, like ready-to-drink smoothies, flavored orange juice, sparkling orange juice, orange juice shots, orange juice-infused water, orange juice popsicles, and orange juice powder.
Technological improvements - Advances in technology can improve orange yields and reduce the impact of weather-related risks. New technologies like precision agriculture and GPS-enabled harvesting equipment can help farmers optimize their operations and produce higher quality oranges at a lower cost. Advances in processing technology can help extract more juice from each orange and minimize waste. New packaging technologies can extend the shelf life of orange juice and reduce the need for preservatives.
How to trade Orange Juice
If you want to add orange juice to your strategy, there are a range of financial products you can use.
First, you can use future contracts to agree to buy and see a specific amount of orange juice at a specific price and date in the future. Second, you can use options to make money from the right to buy or sell a certain amount of orange juice at a certain price and date in the future.It is also possible to use ETFs (Exchange-Traded Funds) to profit from the fluctuation of orange juice prices as well as other "breakfast commodities" like coffee and wheat.
Finally, you can use CFDs on orange juice futures to speculate on the direction of FCOJ without having to deal with the ownership and delivery of the underlying asset. With CFDs, you can also bet on the rise or fall of orange juice prices, as well as trade on margin to take advantage of leveraged trading. If you want to learn more about the specifications of the orange juice CFD offered by AcitvTrades, read this page.
If you decide to trade orange juice, always remember to conduct thorough research before entering a position to determine the state of the orange juice market, its trends, and the best moments to open or close your trades. It’s also essential to follow your trading plan and your risk and money management rules to better protect your capital and be more disciplined in your trading.
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