Bloomberg News

Orange Juice Tumbles Most in Two Years as ICE Boosts Margins

January 11, 2012

Jan. 11 (Bloomberg) -- Orange juice tumbled from a four- year high, capping the biggest drop in two years, after ICE Futures U.S. boosted the amount of cash that traders must deposit for speculative positions by 95 percent.

Prices soared 17 percent in the past two days on concern that a freeze in Florida damaged citrus groves and that a U.S. probe of a fungicide used on fruit in Brazil, the world’s largest orange grower, may limit imports. The New York exchange almost doubled the initial margin for a speculative contract to $5,040 from $2,590. As of yesterday, each contract for 15,000 pounds (6.8 metric tons) of juice was valued at $31,162.50.

“Margin calls will force some people out of the market,” Sterling Smith, an analyst with Country Hedging in St. Paul, Minnesota, said in an e-mail.

Orange-juice futures for March delivery slumped 9.5 percent to settle at $1.881 a pound at 2 p.m. on ICE in New York. That was the biggest drop for a most-active contract since Jan. 11, 2010. Estimated volume rose to 6,762, the highest in three months.

Yesterday, the contract surged by the exchange limit for a second straight day. Prices advanced 11 percent, the most in five years, to $2.0775, the highest since March 2007. The record was $2.094 on Dec. 7, 2006.

“The market got overdone yesterday,” Jack Scoville, a vice president at Price Futures Group in Chicago, said in a telephone interview.

Imports Halted

U.S. regulators have halted shipments of imported orange juice from all countries, and plan to destroy or ban products if tests find even low levels from a prohibited fungicide. Initial test results are due this week. The imports are being held while they are tested and may be sold if levels are below trace amounts, the government said today.

The U.S. Food and Drug Administration said on Jan. 9 that it will investigate the use of carbendazim on orange trees in Brazil, which supplied about 25 percent of the juice consumed in the U.S. in 2010. Florida is the second-biggest producer.

Still, there is “no shortage anticipated,” Judy Ganes- Chase, the president of J. Ganes Consulting in Katonah, New York, said in an e-mail. This is a “minor disruption or nuisance,” she said.

Inventories, USDA

Slumping U.S. inventories already had helped send orange- juice futures up almost 39 percent in New York since the end of September, just as frigid weather in Florida last week also trimmed the state’s crop outlook, according to MDA Information Systems. Stockpiles at facilities monitored by ICE tumbled 58 percent to 22.785 million pounds as of Jan. 10 from a year earlier, exchange data show.

“While it will be turning cooler in Florida this weekend, temperatures are expected to remain above frost levels in the citrus areas,” Kyle Tapley, a meteorologist at Gaithersburg, Maryland-based MDA, said in an e-mail today. “Fairly dry weather should continue to favor late citrus harvesting.”

The U.S. Department of Agriculture may trim its forecast for Florida’s orange crop by 0.7 percent to 149 million boxes in its crop update scheduled for tomorrow, according to the average of six estimates in a Bloomberg News survey. A box weighs 90 pounds, or 41 kilograms.

Tomorrow’s report was taken through Jan. 1 and will not reflect the potential effect of low temperatures last week, Bill Curtis, an economic research associate at the USDA, said in a telephone interview. Any impact from the frost will be reflected in the February estimate, he said.

--With assistance from Stephanie Armour in Washington. Editors: Millie Munshi, Patrick McKiernan

To contact the reporter on this story: Marvin G. Perez in New York at mperez71@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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