The majority of orange juice is generated for human consumption. It’s a morning staple throughout the world, and it’s also a culinary element in many countries’ cuisines. Apart from their juice, oranges are valued for their peels, which those may use to make fragrant oil for candles and perfumes, and their meat, which is high in vitamin C.
Brazil, China, the European Union, Mexico, and the United States are the top five orange producers. Brazil leads the way, with 16 million metric tonnes of oranges produced in 2017.
The introduction of frozen concentrated orange juice (FCOJ) transformed the orange juice business in the 1950s. Orange juice became the world’s favourite fruit drink and a commodity due to processing, freezing, and flavouring agents. While there are other orange juice products, FCOJ is the asset used to benchmark orange juice pricing and is also the most widely traded.
The Intercontinental Exchange trades frozen concentrate orange juice futures and options (ICE). The ICE orange juice futures contract is priced in cents per pound and calls for 15,000 pounds of orange solids delivery.
Ways to trade orange juice
Futures contracts:
A futures contract is a popular option for traders to take a position on the FCOJ market. Futures contracts allow traders to agree to deliver a specific amount of FCOJ at one special price at a future date. However, with a futures contract, a trader may be required to take delivery of the asset, which might be costly to hold in the case of FCOJ.
Options:
Traders can purchase and sell FCOJ using options in addition to futures. The holder of an option agreement has the privilege (but not the commitment) to purchase or sell the underlying asset at a typical price (called the strike price) on or before the contract’s expiration date (called the expiry).
Contracts For Difference:
CFDs permit traders to bet on the price swings of FCOJ without having to hold the actual asset. When people trade CFDs, they agree to swap the difference in an asset’s price from when the position was opened to closed. With CFDs, traders may trade short and long, profiting from negative and positive moves in the FCOJ market.
CFDs can be traded with no set expiry on a spot price determined from two futures contracts with IG. This allows people to adopt a short or long-term approach while also hedging their other active holdings.
A contract for difference (CFD) derivative instrument is a common approach to investing in orange juice. Investors may speculate on the price of FCOJ using CFDs. The contrast between the price of FCOJ at the time of purchase and its present price is the value of a CFD.
Orange Juice Strategies
Range trading strategy
A trader using a range trading strategy will look for support and resistance levels in an asset’s price movements and try to purchase at those levels and sell at those levels. Range strategies operate best in markets with a lot of price volatility and no discernible long-term trend.
Breakout trading strategy
Breakout trading is spotting the early beginnings of a trend and entering a trade during that time. This allows traders to benefit when the movement goes over a level of resistance or, conversely, when it falls below a level of support. Breakout traders in the orange juice market will attempt to forecast world supply for the future year and open a position appropriately.
Fundamental trading strategy
It is a method in which traders emphasize the elements that influence supply and demand levels. Fundamental traders will look at the company- or region-specific factors that might alter orange supply or demand at a given point in time. They’ll then make a transaction based on what they’ve learned.
Weather and illness have an impact on every agricultural product. Oranges are no different. In truth, most oranges used to make orange juice are cultivated in three places: Florida, Mexico, and Brazil. This implies that a single severe weather or illness event can disrupt or perhaps kill a large portion of the worldwide FCOJ supply. Hurricanes, as well as unseasonably cold temperatures and frosts, influence these places. Droughts hit Brazil from May to June, potentially affecting the orange harvest. These weather occurrences influence the orange yield, which in turn has an impact on FCOJ and options prices.
Merchants must closely monitor seasons and weather forecasts. As traders expect harm to the orange crop, hurricane projections can lead to sharp price increases. After the hurricane passes, prices will reflect the crop’s actual damage.
Orange juice traders should also be mindful of how variations in consumption patterns might impact prices. Increased consumption in the nation where the oranges are cultivated might lower the number of oranges for export. Consumers may abandon orange juice as a health drink and shift their attention to other beverages, as in the United States. Prices may fall as a result of lower usage.
Orange production and supply can be influenced by government policies, local labour restrictions, and worldwide trade events.
Futures trading in frozen concentrated orange juice began in 1945 and is credited with helping oranges become one of the most famous crops in the United States. 2 The ICE exchange now trades frozen concentrated orange juice futures contracts. One contract for 15,000 pounds of orange solids is physically settled by delivering drums or tanks. The United States, Brazil, Costa Rica, and Mexico are the only nations whose oranges are permitted.
As of 2021, Brazil is the leading orange-producing country, followed by China and the United States. These three marketplaces are the most important in influencing worldwide orange pricing. Around 55 per cent of U.S. oranges are grown in Florida for the 2019-20 growing season, where the crop is vulnerable to extreme weather events like hurricanes and sudden cold snaps, which can wipe out the whole season’s harvest.
The concentration of the majority of the crop in a single region and the possibility of extreme weather events and other comparable situations in Brazil has resulted in a high level of uncertainty and, as a result, a high level of volatility in orange prices. The value of orange options reflects this volatility.
Due to interest and diversification needs, traders explore outside the traditional asset classes of stocks, bonds, and plain-vanilla commodities. In recent years, orange juice has been a positively volatile soft commodity, gaining it a high-risk trading asset.
Only experienced traders with proper knowledge of options trading should trade orange juice options.
