OJ surges 11 percent to record on Brazil fungicide fears
U.S. orange juice futures surged almost 11 percent to an all-time high on Tuesday, after U.S. health regulators announced a clampdown on imports from top producer Brazil following the discovery of small doses of a fungicide that is not approved in the United States.
Fears that more than a tenth of U.S. supply could be abruptly cut off, alongside concerns about the impact of a brief freeze in Florida last week, triggered a frenzy of short-covering in the tiny market, threatening to spur a rise in retail prices and crunch margins for brands like Pepsico Inc’s (PEP.N) Tropicana and Minute Maid, from Coca-Cola Co (KO.N).
“If we take Brazilian OJ out of the market, it has not reached its peak certainly. We’re in uncharted waters,” said James Cordier, president of Tampa, Florida-based Liberty Trading Group. “We lost oranges on the freeze last week but this certainly trumps that.”
The benchmark March frozen concentrated orange juice contract on the ICE Futures U.S. exchange — one of the smallest futures markets, which achieved fame in the 1980s movie Trading Places — jumped the 20-cents daily limit to $2.0775 at 9:46 a.m. EST, taking two-day gains to nearly 17 percent.
The most-active March contract was already trading up between 3 and 4 cents at $2.10-2.12 per lb in synthetic options trade, said Bill Raffety, senior analyst for commodities futures brokerage Penson Futures in New York. A near doubling in ICE exchange margins announced after the close of trade could also spur more covering by traders who are short.
The latest surge came after the Food and Drug Administration told juice makers that it would step up testing for the fungicide carbendazim, which is used in Brazil to protect against black spot but is not authorized for use in the United States. FDA said it would block imports that tested positive.
The investigation was prompted after a juice company alerted the FDA to the discovery of low levels of the substance in orange juice sold in the United States. It was unclear how much juice could be affected. The United States imports about a quarter of its supply, with Brazil accounting for nearly half of all frozen and fresh OJ imports, according to government data.
Brazil has been using the fungicide for more than 20 years to fight blossom blight and black spot, a type of mold that grows on orange trees, and shipments have never been stopped before because of the fungicide, said Christian Lohbauer, spokesman for CitrusBR, which represents Brazil’s four main producers.
“Any shipment (of orange juice) will test positive,” he said. “I don’t know what is the level that they will decide is the maximum level,” he said.