How to trade orange juice

Orange juice trading can be a lucrative alternative to speculating on some of the more conventional commodities markets. Learn how to trade orange juice and some strategies that could help you during your time on the markets.

How to trade orange juice Source: Bloomberg

Orange juice trading basics

Orange juice is largely produced for human consumption. It is a staple on breakfast tables the world over, and is also used as a cooking ingredient in many countries’ cuisines. Aside from their juice, oranges are used for their peels which can be turned into scented oil for candles and perfumes, as well as for their flesh which is extremely rich in vitamin C.

With IG, you have the option to speculate on the price movements of frozen concentrated orange juice (FCOJ) with CFDs and spread bets. While other orange juice products exist, FCOJ is the asset used to benchmark prices for orange juice, and is also the most frequently traded.

Where are oranges grown?

The top five producers of oranges in the world are Brazil, China, the EU, Mexico and the US. Brazil leads the way, having produced 16 million metric tonnes of oranges in 2017.1

Rank Top producers Orange production (in metric tonnes)
1 Brazil 16 million
2 China 7.3 million
3 The EU 6.4 million
4 Mexico 4.6 million
5 US 3.5 million

What moves the price of orange juice?

As with most commodities, the price of orange juice is affected by supply and demand. Some of the key drivers behind supply and demand for orange juice are:

  1. Weather
  2. Diseases in orange crops
  3. Consumer demand
  4. Economic performance of orange producers
  5. Strength of the US dollar

Essentially, if more people want to buy orange juice than sell it, the price will rise because it is more sought-after (the ‘demand’ outstrips the ‘supply’). On the other hand, if supply is greater than demand, the price will fall.

Weather

The weather can affect the supply of oranges by increasing or reducing the yield of a region’s orange crop. As a rule of thumb, orange trees grow best in areas that have 40-45 inches of rainfall annually, and do not do well in regions with extended periods of cold weather.

Exogenous shocks such as hurricanes, or a period of extended drought, in America or Brazil could greatly reduce the global supply of oranges in any given year, which would drive prices up.

Diseases in orange crops

Diseases in orange crops can also affect supply. ‘Citrus greening’ is the most common disease which affects orange groves. It is caused by an insect called the Asian citrus psyllid and there is no cure once a tree is infected. The psyllid infects the tree with a bacterium which inhibits the orange tree’s ability to take in nutrients, which ultimately leads to smaller and less ripe oranges being produced.

Citrus greening is currently rife in Florida and California in the US.

Consumer demand for orange juice

Data from the US Department of Agriculture shows that the global consumption of oranges has been on the decline since 2013-2014.1 Many commentators attribute the drop in consumer demand for orange juice to increased awareness about the sugar content of fruit juices, as well as the fact that people tend to have breakfast on the go rather than sitting down to eat.

The drop in consumer demand, paired with diseases like citrus greening and weather conditions, has caused American orange production to decrease from 6 million metric tonnes in 2013-2014 to 3.5 million metric tonnes in 2017-2018.1

Global orange juice consumption chart

Global orange juice consumption chart

Economic performance of top orange producers

Brazil is the world’s leading producer of oranges, with China and Europe being the largest consumers with 7 million and 5.8 million metric tonnes of oranges consumed respectively in 2017-2018.1 A slump in economic performance in either China or Europe could cause their consumption of oranges to decrease which, assuming that Brazilian supply remained constant, would cause global orange prices to fall.

Equally, during periods of economic uncertainty consumers tend to cut back on all non-essential purchases, which could include orange juice. If such a scenario was to come to fruition in one of the big orange-importing economies, the effects would certainly be felt in the orange growing and orange juice manufacturing industries in key producing nations like Brazil and the US.

Strength of the US dollar

Historically, commodity prices have tended to drop when the dollar strengthens against other major currencies in the world, and increase when the dollar weakens. This is largely because most commodities are priced in US dollars. When the dollar increases or decreases in value, traders tend to have increased or decreased levels of purchasing power on the commodity markets.

This is also true for FCOJ, so traders should keep an eye on forex exchange rates for any drop or increase in the strength of the dollar.

Ways to trade orange juice

Futures contracts

A popular way that traders take a position on the FCOJ market is by arranging a futures contract. Futures contracts enable traders to agree to the delivery of a certain amount of FCOJ at a set date in the future for an agreed upon price. However, with a futures contract a trader may have to take delivery of the asset, which in the case of FCOJ, could be expensive to store.

With IG, you can speculate on the price of a futures contract – without taking ownership of the underlying asset – with a spread betting account.

Options

Aside from futures, traders can use options to buy and sell FCOJ. There are two types of options, puts and calls, and both give traders the right but not the obligation to buy or sell an underlying asset before a certain expiry date.

Contracts for difference

CFDs enable you to speculate on the price movements of FCOJ without taking ownership of the physical asset itself. When you trade CFDs you are entering into an agreement to exchange the difference in the price of an asset from when the position was opened, to when it was closed. With CFDs, you can go short as well as long and benefit from downward movements as well as upward trends in the FCOJ market.

With IG, you can trade CFDs on a spot price – derived from two futures contracts – with no fixed expiry. This gives you the flexibility to take a short or long-term view and to hedge your other active positions.

Learn more about CFD trading.

Spread bets

Spread bets, much in the same way as CFDs, are a financial derivative which enable you to speculate on price movements in the orange juice market without ever taking physical ownership of any FCOJ. With spread bets, you make a prediction on the direction in which the price of FCOJ will move and the extent to which your prediction is correct determines your profit or loss.

With IG, you can spread bet on a spot price with no fixed expiry, or the ICE NYBOT Orange Juice future, which again gives you the flexibility to take a short or long-term view.

Learn more about spread bets.

Orange juice trading strategies

  1. Range trading strategy
  2. Breakout trading strategy
  3. Fundamental trading strategy

Range trading strategy

In a range trading strategy, a trader will identify levels of support and resistance in an asset’s price movements and seek to buy at levels of support and sell at levels of resistance. Range strategies work best in markets with lots of price movements, where there is not any particular long-term trend.

Discover how to identify levels of support and resistance.

Level of support and resistance

Level of support and resistance

Breakout trading strategy

Breakout trading involves trying to spot the early stages of a trend and opening a position during this period. This enables traders to capitalise on profits once the trend moves above a level of resistance or, alternatively, once it breaks below a support level. In the context of orange juice trading, breakout traders will try to make a prediction about global supply for the upcoming year and open a position accordingly.

Fundamental trading strategy

Fundamental trading is a strategy in which traders depend heavily on the factors which affect levels of supply and demand. Fundamental traders will look at company-specific or region-specific events that could affect supply or demand for oranges at the particular point in time. They will then base a trade on their findings.

What are orange juice trading hours?

Location Trading hours*
New York 08:00 -14:00 (New York time)
London 13:00 - 19:00 (UK time)
Singapore 21:00 - 03:00 (Singapore time)

*Hours are set by ICE and may vary. Hours will shift between March and November as the UK and US change to and from daylight savings on different days, while Singapore remains on Singapore Standard Time (UTC+8) all year round.

Five steps to trading orange juice

There are five steps a trader should take before opening a position on FCOJ:

  1. Learn how CFDs and spread bets work
  2. Create an account and deposit your funds
  3. Analyse supply and demand factors in the orange juice market
  4. Choose the trading strategy that works best for you
  5. Open, monitor and close your first position

1United States Department of Agriculture, 2017

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