Orange juice futures up 7 pct to 2-1/2-mth top on USDA outlook
* USDA slashes 2012/13 crop output estimate by 2 mln boxes
* May futures surge as traders expect further estimate cuts
* Florida oranges drop rate highest in 8 of last 10 yrs
NEW YORK, March 8 (Reuters) - U.S. orange juice futures soared on Friday to their highest level in 2-1/2 months after the U.S. Department of Agriculture released a report showing a 2.0 million box drop in its monthly outlook for this year's crop in Florida, the top growing state.
Juice futures surged before the data release in anticipation of the crop drop and then continued their rally on expectations that USDA will cut their projections further in future months.
"The orange crop is extremely small and reports of increased demand was a surprising switch given the recent trend in orange juice consumption. It's turning a bear market into a bull," James Cordier, Head Portfolio Manager at Liberty Trading Group.
USDA lowered its expectations for Florida's 2012/2013 crop production to 139 million boxes in its March supply-and-demand report, a 5-percent decline from last season's crop and the lowest level since the 2009/2010 output of 133.7 million boxes.
In February, USDA had projected the current crop at 141 million boxes. Its latest forecast marks a steep decline from the actual output of 146.6 million boxes in the 2011/2012 yield.
The most-active May contract on ICE Futures U.S. raced up to $1.3455 per lb, exceeding its daily 10 cent limit to its highest level since Dec. 26.
The contract finished at $1.3315, with gas of 8.60 cent or 7 percent gains, to its highest closing level since Dec. 24.
"There was some early buying based on the trade believing they were going to get a cut in the crop and that triggered some stops (buy orders) and that attracted some speculative buying that drove it up to the highs," said an juice trader in Florida.
The USDA's first estimates for the current season came out in October at 154 million boxes.
"We were supposed to have a bigger crop this year, but the trees are diseased and we haven't had much rain. So the trees are dropping the fruit at a much higher rate than they normally do," said an orange juice trader in Florida.
A bacterial disease called greening has caused widespread damage to Florida citrus groves. In October, the government warned that droppage rate will be the highest since 1969-70 due to the bacterial disease that attacks trees and stunts orange growth.
Within the USDA's latest report, it said the fruit has been dropping at the fastest pace in the last 10 years, excluding the two seasons that the groves were wracked by hurricanes.
The USDA's trimmed estimates include a 1-million box increase to 67.0 million boxes of non-Valencia oranges, the early and mid-season fruit, which the USDA said had been 99 percent harvested by late February.
But, the USDA slashed its estimate for late season fruit Valencia oranges by 3 million boxes to 72 million boxes, citing a sharp rise in prematurely falling fruit.
"The projection of 22 percent droppage is above the maximum," the USDA said in its report, referring to its analysis of the last 10 years excluding damage inflicted by hurricanes in the 2004/2005 and 2005/2006 seasons.
USDA reports had not shown a droppage rate for Valencia oranges until now as the Valencia crop became ready for harvest. The 3-million box cut was greater than most juice market participants had expected.
"Valencia were thought to be pretty much unscathed and it turns out they're not. So, it's a fairly bullish set up," said Cordier. (Editing by Marguerita Choy)
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