Orange Juice Futures at Record Highs as Production Slides

Orange juice futures hit record highs last week, as frozen concentrated juice rose to to $2.2365 a pound, a 50% climb so far in 2016.

A significant, sustained slide in the number of oranges is one big reason why prices are rising.

"Since the early 2000s, the State of Florida wanted to overcome the threat of citrus canker and greening by cutting down all trees that are within a one-mile radius of a tree spotted with a disease," says Burak Kazaz, professor of supply chain management at Syracuse University's Martin J. Whitman School of Management. "That has led to a reduction in the supply side of oranges."

Kazaz says the company that was contracted to perform this task was paid in the number of trees it cut. "Not surprisingly, they spotted many trees and they cut anything and everything around one spotted tree," he adds. "The end result is that the State of Florida lost its growth potential in crop supply."

Risks associated with hurricanes and other natural disasters have also curbed juice production. "In 2004 and 2005, the State of Florida experienced devastating storms that reduced the crop supply for oranges," Kazaz adds. "As a result, prices went up for fresh orange juice, causing consumers to look for alternatives. Often, they switched from consuming orange juice to energy drinks."

All that directly impacts orange futures prices, as those Florida oranges are often consumed as "fresh oranges" rather than being saved for "concentrate," Kazaz explains.

"Orange juice futures are for 'frozen' orange juice," he says. "As a result, there isn't much orange left to be saved and stored for sale in the future and financial markets. There is now a much smaller number of orange growers who supply oranges for the frozen orange juice market."

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