Orange Juice

Orange juice trading has become a popular alternative to traditional soft commodities, providing opportunities to hedge against inflation and speculate on emerging market demand. This guide explores the risks and rewards of trading orange juice, the factors that affect prices and well-known strategies. We also list the best orange juice brokers:

How Orange Juice Trading Works

Orange juice trading refers to the process of buying and selling orange juice products to speculate on price movements. However, prices are highly volatile due to factors such as consumption habits, disease, global warming and health concerns.

Orange juice trading attracts investors from a range of industries including farming, processing, and supply chain. For retail investors, the commodity can be traded through several vehicles, including futures, options, and CFDs.

Orange juice is typically traded as frozen concentrated orange juice, under the ticker FCOJ, which is used as a benchmark for prices. FCOJ represents a futures contract worth 15,000 pounds of concentrated orange juice solids. The Intercontinental Exchange (ICE) trades FCOJ futures and options.

Aside from its typical food and beverage consumption, oranges are often used in cooking and to produce scented oils and perfumes. As such, orange juice has become one of the most widely used fruit juices in the world.

History

Oranges were first introduced in the 15th century by Spanish explorers, with the consumption of orange juice following later. It was not until the 20th century that large-scale orange juice production began.

Before the 1940s, orange juice was a perishable commodity with a short shelf life. However, the introduction of frozen concentrated orange juice, revolutionised the commodity. A longer shelf life meant that it could become viable as a tradable commodity.

Today, orange juice is a multi-billion-dollar industry with FCOJ traded globally at numerous brokers and exchanges.

Price Chart

Largest Orange Juice Producers

Factors That Influence Orange Juice Prices

• Weather threats: Hurricanes, frosts and heavy rainfall in growing regions can destroy orange groves, so traders need to keep track of forecasts that could lead to price volatility. For example, hurricane forecasts in Florida can cause steep price increases, though once the threat has passed, prices tend to restabilise. Ahead of winter, and anticipation of frosts and cooler temperatures, prices often rise in November and then recover again in January.
• Crop disease: Orange tree diseases can kill off crops and heavily impact suppliers. Reduced supply means people are competing for less produce which can lead to price hikes. Conversely, when crops recover, or supply exceeds forecasts, prices tend to fall.
• Consumption habits: New trends or influences can also drastically inflate or deflate consumption and demand for a product. In recent years, more education around sugar content in fruit juices has led to a decrease in demand for orange juice in countries like Germany and the US.
• The US dollar: Florida, the home of world-renowned brand Tropicana, is responsible for a large percentage of orange juice production. Orange juice is also priced in USD, so should the USD weaken, this will be reflected in market prices for FCOJ.
• USDA forecasting errors: The United States Department of Agriculture (USDA) is responsible for publishing orange production forecasts every October for the following year. However, these estimates are sometimes wrong, since they rely largely on inaccurate methods such as satellite imaging.
• Chemical farming concerns: Growers that use pesticides and harmful chemicals to protect their crops are often met with bans on orange imports and a rise in prices. Many nations have food safety restrictions in place which can impact supply.

How To Trade Orange Juice

• Futures contracts, such as the ICE FCOJ-A Futures U.S., enable investors to set an agreed price and date for a point in the future. They are often used for speculation or hedging, popular amongst traders looking to capitalise on high liquidity and volatility. Futures contracts often stipulate the physical exchange of the asset, which can be inaccessible for retail traders. With that said, leading brokers such as IG Index allow you to speculate on the price of a contract without taking ownership of the underlying commodity, in this case, orange juice.
• Options contracts give traders the right but not the obligation to buy or sell orange juice before a specified expiry date. These can be used to limit losses as it is not possible to lose more than initially staked, also known as the premium. The ICE offers options on futures of frozen concentrate orange juice.
• Contracts For Difference (CFDs) are straightforward agreements that require traders to take a position on the direction that FCOJ will move. CFDs enable traders to speculate on price movements without taking ownership of the physical asset and for that reason are popular amongst retail investors. CFDs can also be leveraged and both long and short positions can be taken. Popular brokers such as Pepperstone and City Index offer orange juice trading via CFDs.
• Spread betting enables traders to speculate on price movements within the orange juice market without taking physical ownership, similar to CFDs. Traders predict a price movement and the extent to which they are correct determines the profit or loss. Spread bets are tax-free in the UK.
• Stocks allow investors to buy and sell shares in companies involved in the processing and sale of orange juice products, such as Pepsico. However, directly trading stocks in orange juice production companies is not generally possible, as most firms are privately owned.

Comparing Brokers

• Trading Vehicles: Look for brokers that offer FCOJ trading via a range of vehicles. CMC Markets, for example, offers orange juice via CFDs and spread bets.
• Fees: Compare any fees, such as spreads, commissions, account inactivity fees or overnight charges. Pepperstone, for example, offers orange juice with a 0.34 minimum spread.
• Trading Platform: The best orange juice brokers should provide access to market-leading trading platforms with comprehensive charting features, such as MetaTrader 4 (MT4). Proprietary platforms are also available at some firms.
• Practice Accounts: Demo accounts allow you to practice trading in a real-time virtual environment without risking any capital. Demo accounts are available at most leading orange juice brokers.
• Regulation: UK brokers are overseen by the Financial Conduct Authority (FCA). The FCA implements protective measures for clients such as compensation schemes, negative balance protection and fund segregation. Top UK brokers such as IC Markets and IG Index facilitate orange juice trading and are FCA-regulated.

Trading Strategies

Each trader should consider their trading style, appetite for risk and capital requirements ahead of choosing a strategy. Popular strategies include:

Range Trading

When an asset trades consistently between a high and low price over a period of time, a trading range is established. Range traders will look for support and resistance levels in an asset’s movements and buy and sell at those points.

Range trading strategies favour markets with high volatility and no clear long-term trends, making them suitable for trading orange juice.

Breakout Trading

A breakout trader looks to enter a trade early, ideally before a trend has taken hold. This enables them to benefit when movements surpass a resistance level or drop below a level of support.

In the orange juice market, breakout traders will usually try to forecast supply over the year, looking to capitalise on positions as seasonal changes come into effect.

Fundamental Trading

Traders adopting a fundamental strategy will look at the factors that influence the supply and demand of orange juice. Forecasts, historical data and current global events are key sources of information for fundamental traders.

For soft commodities like orange juice, which are strongly influenced by factors such as weather, politics and disease, yield can be impacted greatly, which in turn affects prices.

Drops in yield can lead to sharp price increases, as demand outstrips supply. Usually, once a threat has passed, prices will stabilise.

Benefits Of Orange Juice Trading

• Portfolio diversification: Traders may look to trade orange juice alongside other commodities to create a diverse portfolio. This can protect against the volatility of individual assets.
• Speculate on emerging markets: Emerging orange juice markets including Russia and China can create opportunities to participate in the growing demand. Orange juice futures are a popular way to invest in such markets.
• Speculate on global warming: The impacts of global warming have been significant for orange growers, with unusual weather decimating crops unexpectedly. For example, hurricanes in Florida are thought to be caused by global warming, leading to supply shocks.
• Inflation hedge: Traders can invest in orange juice to hedge against the risks of inflation.

Risks Of Orange Juice Trading

• Global health concerns: Obesity and diabetes have been major concerns in many Western countries. This has put orange juice under the spotlight in recent years, due to its high sugar content.
• Unpredictability around global warming: It is difficult to predict whether global warming is the true cause of unusual weather conditions in orange-growing countries.
• Unpredictability around crop diseases: Similarly, questions around whether certain tree diseases can be eradicated can make orange juice trading economics unpredictable. If efforts are successful, this could lead to an oversupply of crops.

Trading Hours

FCOJ futures on the ICE are open Monday to Friday, 1.00 pm – 7.00 pm GMT with a pre-open start time of 1.00 am GMT.

Note that some orange juice brokers have their own platform trading times.

Bottom Line On Orange Juice Trading

Traders looking to diversify their portfolio beyond traditional investments may consider orange juice, especially if they want to bet on emerging market demand. Popular ways to trade orange juice are futures, options and CFDs, available at the top brokers. However, changes in consumption, health concerns and global warming, amongst other factors, mean that prices can be volatile.

FAQ

Article Sources

Top 10 Orange Juice Producers (2022)

ICE FCOJ-A Futures Fees

Pepperstone Orange Juice Trading Conditions