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- CRB Fundamentals - 2008 Commodity Articles

Oranges and Orange Juice

The orange tree is a semi-tropical, non-deciduous tree, and the fruit is technically a hesperidium, a kind of berry. The three major varieties of oranges include the sweet orange, the sour orange, and the mandarin orange (or tangerine). In the U.S., only sweet oranges are grown commercially. Those include Hamlin, Jaffa, navel, Pineapple, blood orange, and Valencia. Sour oranges are mainly used in marmalade and in liqueurs such as triple sec and curacao.

Frozen Concentrated Orange Juice (FCOJ) was developed in 1945, which led to oranges becoming the main fruit crop in the U.S.. The world's largest producer of orange juice is Brazil, followed by Florida. Two to four medium-sized oranges will produce about 1 cup of juice, and modern mechanical extractors can remove the juice from 400 to 700 oranges per minute. Before juice extraction, orange oil is recovered from the peel. Approximately 50% of the orange weight is juice, the remainder is peel, pulp, and seeds, which are dried to produce nutritious cattle feed.

The U.S. marketing year for oranges begins December 1 of the first year shown (e.g., the 2005-06 marketing year extends from December 1, 2005 to November 30, 2006). Orange juice futures prices are subject to upward spikes during the U.S. hurricane season (officially June 1 to November 30), and the Florida freeze season (late-November through March).

Frozen concentrated orange juice future and options are traded on the NYCE division of the New York Board of Trade (NYBOT). The NYCE orange juice futures contract calls for the delivery of 15,000 pounds of orange solids and is priced in terms of cents per pound.

Prices - NYCE orange juice futures prices in February 2007 posted a 30-year high of 209.50 cents (which was just 10.5 cents shy of the record high of 220 cents per pound posted in November 1977) but then sold off during the remainder of the year to close 2007 down -29% y/y at 143.60 cents per pound. OJ prices in 2007 fell to a 2-year low and retraced 60% of the massive 2004-07 upmove. Bearish factors in 2007 included (1) a 29% rise in orange production in 2007-08 to 167 million boxes (which the USDA had previously forecast at 190 million boxes) from the 17-year low of 129 million boxes produced in 2006-07, and (2) the 44% y/y gain in North American orange imports in 2007 from Brazil, the world's number one grower of oranges.

Supply - World production of oranges in the 2005-06 marketing year (latest data available) rose +3.5% y/y to 47.048 million metric tons, but remains below the record level of 50.755 million metric tons seen in 2003-04. The world's largest producers of oranges are Brazil with 39% of world production, followed by the U.S. (17%), and Mexico (8%). U.S. production of oranges in 2005-06 fell -4.2% y/y to 207.450 million boxes from 216.500 million boxes in 2004-05. (1 box equals 90 lbs.) Florida's production in 2005-06 fell -1.3% y/y to 147.9 million boxes from 149.8 million boxes in 2004-05.

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