August 22, 2012 / 12:25 AM / 5 years ago

NY juice surges 8 pct on tropical storm warning

* Juice notches biggest one-day gain since January

* Two tropical storms developing in Atlantic Ocean

* Prolonged high prices could hurt demand further

NEW YORK, Aug 21 (Reuters) - Orange juice futures surged over 8 percent to one-month highs on Tuesday as tropical storms develop in the Atlantic Ocean that investors fear could hurt maturing crops in Florida, the United States’ major citrus-growing region.

Prices notched their biggest one-day gains since January, when fears about crimped supplies from Brazil sent prices to record highs.

While it was still early, investors bet on potential damage to Florida’s fruit if the tropical storms strengthen into hurricanes and hit the mainland United States.

The U.S. National Hurricane Center said on Tuesday that Tropical Storm Isaac is expected to strengthen into a hurricane as it moves westward toward the eastern Caribbean.

The agency was also monitoring another system in the eastern Atlantic.

The benchmark November frozen concentrated orange juice on ICE Futures U.S. jumped 8.34 percent to $1.202 per lb, its highest level in four weeks.

Prices garnered strength from technical buying after piercing a key resistance at the 50-day moving average of $1.13, although low trading volumes exaggerated the move upward, traders said.

Just 1,554 lots changed hands on the day, equating to just under 10,600 tonnes of juice, a fraction of the 2.2 million tonne global market.

Some said the buying was overdone given how early the weather warnings are. The last time the state’s citrus farms were hit was in 2005 when Hurricane Wilma struck southern Florida in October.

On charts, juice’s 14 percent rally over two sessions has lifted its relative strength index (RSI) to 64, close to 70, an area that often indicates a market is overbought.

“If orange juice rallies one more day, I’d short it,” said James Cordier, founder and president at Liberty Trading Group in Tampa, Florida.

Even so, any sign of tropical weather building and veering toward Florida, the world’s second-largest growing region, is likely to trigger a fresh rally, traders said.

There may not be much producer hedging to counter the buying momentum either, as many growers sold a large portion of their crop forward at higher prices earlier in the year, a U.S. physical trader said.


The latest jump in prices will likely raise concerns about damage to demand that has already been eroded by elevated prices of the past two years.

Prices hit record levels above $2 per lb in January when U.S. authorities clamped down on imports from Brazil, the world’s largest producer, after discovering traces in juice of a fungicide that is prohibited in the United States.

To be sure, prices are still well below those levels, but a sustained rally could hurt demand further as producers, such as Coca Cola Co, which sells Minute Maid, and PepsiCo Inc , which has the Tropicana brand, pass on the higher costs to their customers.

Juice has traditionally been a favorite at U.S. breakfast tables, but consumers are drinking less due to those price spikes and after the scare over the fungicide in Brazilian juice earlier in the year, the U.S. Department of Agriculture said last month.

Global juice production is expected to drop 9 percent to 2.2 million tonnes in the 2011/12 marketing year, according to the U.S. Department of Agriculture.

But output will still outpace consumption, which is pegged at about 2 million tonnes.

Any price increases could also stoke concerns about food inflation as grains prices hit fresh records on an almost daily basis as the worst U.S. drought in more than half a century grips the U.S. Corn Belt.

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