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NEW YORK (Reuters) - Orange juice futures lost almost 10 percent in value on Wednesday, reversing the previous day's sharp gains as traders reckoned fears of an import ban on Brazilian juice were overblown.
The tiny orange juice market, where a relatively small volume of trading can cause outsized moves, rallied on Tuesday on news that a fungicide banned in the United States had been detected in Brazilian juice.
The U.S. Food and Drug Administration (FDA) said it would step up testing for carbendazim and might block imports from Brazil, which supplies over a tenth of the U.S. market.
The agency later clarified that the ban would not apply to those with trace doses below a certain threshold. After the close of trading on Tuesday, the FDA said much of the orange juice tested by the unidentified company that reported the issue in December did not have detectable levels of carbendazim.
The chemical is allowed in other foodstuffs and was approved for use on citrus in Florida between 2002 and 2008.
"Considering some of the wording out of the FDA, I have a feeling some of the new longs probably took profit on uncertainty about any ruling to come," said Bill Raffety, senior analyst for commodities futures brokerage Penson Futures in New York.
While traders in the frozen concentrated orange juice (FCOJ) futures market remained anxious about the risk of a supply disruption, the frenzied buying that drove prices to an all-time high on Tuesday had clearly subsided.
"If they (the FDA) come in with a tough ruling, we could see it go higher again," Raffety cautioned.
The key March FCOJ contract settled some 18.9 cents or 9.13 percent lower at $1.881 per lb, with losses accelerating after an early drop. On Tuesday, the contract hit a record high of $2.07 per lb.
Prices were still up 12 percent from the start of the year and almost a third since the start of October, when OJ trading usually gets busier in anticipation of the harvest.
May and July contracts fell by the 20-cent daily limit, with trading volume in excess of 6,000 lots. The more-than $169 million worth of contracts that changed hands made Wednesday one of the most active days in months for a market with nominal turnover that typically averages under $60 million a day -- less than 1 percent as much as Chicago corn, for instance.
Selling had started early with a sell order of around 100 lots, which represents 1.5 million lb of juice with a nominal value of around $2.8 million, deflating the market within the first 30 seconds of business, traders said.
The tiny market is susceptible to wild swings, although this week's action has been exceptional even by OJ standards. And many traders were still perplexed.
The FDA told Reuters on Wednesday it expects to have initial results of testing as well as information about any juice that is getting turned away at the border by the end of this week.
On Tuesday, the health regulator said it would block any concentrate with levels equal or above 10 parts per billion following the discovery of carbendazim.
James Cordier, president of Tampa, Florida-based Liberty Trading Group, said he had closed his positions on Wednesday morning and would stay out of the market until the FDA issued results of its testing and more information was available about any juice getting turned away at the border.
"We're out. There's too much uncertainty," he said. "For a little market, there's a lot going on and lots of moving parts."
Others were sitting tight until there was more clarity.
"The problem was left open. We're going to have continued volatility for the time being until we get a better handle on this," said Kevin Sharpe of Basic Commodities in Winter Park, Florida.
Any disruption of imports from Brazil would affect juice makers such as Tropicana, owned by PepsiCo (PEP.N), and Minute Maid, from Coca Cola (KO.N), which may use a mix of juices sourced from Brazil and the United States.
"We can't do without Brazilian orange juice. The largest processors in the U.S. all have a Brazilian blend," said Cordier.
The issue is all the more pressing given a drop in output from citrus-rich Florida over the last decade.
World orange juice market: link.reuters.com/dyc95s
Editing by Alden Bentley, David Gregorio and Dale Hudson