Orange juice futures have fared terribly in the aftermath of El Nino periods and have lost an average of 7.9% three months later, according to analysis conducted by S&P Dow Jones Indices.
Orange juice remains one of the worst commodities following a hurricane or an El Nino event, which occurs when water temperatures in the sea rise higher than normal, according to the National Oceanic and Atmospheric Administration. Even six months after an El Nino event occurs, orange juice futures decline an average of 5.6%, according to the S&P GSCI Orange Juice Index, said Jodie Gunzberg, global head of commodities and real assets at New York-based S&P Dow Jones Indices.
In the wake of Hurricane Matthew, which made landfall last week, the index declined by 5.6% on October 7, but could recover in the nine months and 12 months after El Nino since historically it has risen 1.2% and 5.1% on average, respectively, she said.
"Orange juice is the worst of all single agricultural commodities in the three-month post El Nino period, but cocoa is worse in the six-month period post El Nino period losing 9.9% on average," Gunzberg said.
November orange juice futures ran from 197 to 206 (cents per pound) two days before Hurricane Matthew emerged as a serious threat to the east coast of Florida, said K.C. Ma, a CFA and director of the Roland George investments program at Stetson University in Deland, Fla.
Orange juice futures prices dropped back to 197 two days after the hurricane made landfall, "at the expense of disappointing a handful of futures speculators," he said.
Unlike the majority of other commodities, the production of frozen concentrated orange juice is nearly "concentrated" geographically around the central Florida region. Inventory for frozen orange juice is not vast, so production and prices are "invariably affected by the weather in a single location such as central Florida," Ma said.
"Studies show that orange crops and frozen orange futures prices are more negatively affected by the cold temperatures than the lack of rainfall," he said.
Futures traders should find out what information they need to know besides the other side of their trade, Ma said.
"Retail investors should always be wary of trading publicly available information and weather is probably the most publicly available information there is," he said. "Actually, OJ futures prices are more responsive to the temperature surprises than the actual forecasts. This is why top meteorologists work for large hedge funds but not for National Weather Service."
Another issue affecting the prices of orange juice futures is the continued decline of demand from consumers, Gunzberg said.
"More supply disruptions are likely needed to support the price going forward as more consumers avoid its relatively high natural sugar content and prefer fresh orange juice," she said. "Too much disruption on the supply side could potentially close down some of the few remaining suppliers and that could be the death of the business if it becomes more difficult to hedge and uneconomical to produce."