Orange Juice Futures Surge as U.S. supplies reduced by citrus greening disease

Orange juice futures surged to a record on mounting concern that U.S. supplies may be reduced by citrus-greening disease in Texas and a slowdown in imports as the government tests for a banned fungicide.

Texas confirmed a case of citrus greening on Jan. 18. The disease has caused extensive damage to crops in Florida, the world’s second-biggest grower. On Jan. 9, the U.S. Food and Drug Administration detained juice imports to check for carbendazim, a fungicide used on fruit in Brazil, the top producer. The chemical was linked to liver tumors in animals.

“Citrus greening in Texas and the fungicide issue” are driving the rally, Sterling Smith, an analyst at Country Hedging Inc. in St. Paul, Minnesota, said in a telephone interview. The crop disease “always makes the markets nervous because the methods used to deal with it tend to be pretty draconian,” including tree removal, he said.

On ICE Futures U.S. in New York, orange juice for March delivery climbed by the exchange limit of 10 cents, or 5 percent, to a settle at $2.1065 a pound, the highest ever. The price has surged 25 percent in January, heading for the biggest monthly rally since October 2009. The previous all-time high for a most-active contract was $2.094 on Dec. 7, 2006.

Higher prices may boost costs for companies including PepsiCo (PEP) Inc., the maker of Tropicana, and Coca-Cola Co. (KO), which sells the Minute Maid and Simply Orange brands.

The retail cost of orange juice rose 12 percent in December from a year earlier, according to data from the U.S. Labor Department.

“We are in unchartered waters, with what can take place in Brazil,” James Cordier, the founder and president of Optionsellers.com, said in a telephone interview from Tampa, Florida. “Citrus greening is one more thing that we didn’t need.” Prices may rise as high as $2.50, he said.

The FDA said today that 19 samples of imported juice since Jan. 4 haven’t shown any dangerous levels of carbendazim, while 26 still await analysis.

Agriculture in Texas was ravaged last year by the worst drought in at least a century, while a frost hit the state’s citrus groves in mid-February, reducing output, according to Ray Prewett, the president of Texas Citrus Mutual.

The current crop has not been affected by citrus greening, he said today in a telephone interview. About 75 percent of output is used as fresh fruit and the remainder for orange juice, he said. Texas is the third-largest U.S. grower, after Florida and California.

The main citrus-growing region in California faced freezing weather yesterday and on Jan. 17, Donald Keeney, a senior agricultural meteorologist at MDA Information Systems Inc., said today in an e-mail. Temperatures will be higher the rest of this week, posing no immediate risk of frost, he said.

“California oranges are table oranges and not normally used for juice,” Country Hedging’s Smith said.

On Jan. 12, the U.S. Department of Agriculture cut by 2 percent its forecast for Florida’s crop this season as a dry spell hurt fruit size.

Stockpiles of frozen orange juice monitored by ICE have tumbled 65 percent to 22.8 million pounds (10,335 metric tons) from a year earlier, exchange data show.