09-24-2018: November Orange Juice: Production Bouncing Back

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Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calendar Spread

Level Table
Other Factors
Recommendation

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01     2

3     6

     5     4


Introduction

The U.S. appears to have ceded orange juice production and exporting world dominance to Brazil. This even appears to extend to domestic demand. Florida orange juice producers as well as those in California and Texas are fighting disease, hurricanes, and drought driving up the cost of production and putting many out of business. Orange groves in Florida have been decimated. This has provided an opportunity for Brazilian investors to come in and buy up U.S. production facilities. Demand has been decreasing due toi health concerns about sugary fruit drinks. Even with all this U.S. producers appear to be bouncing back with production in Florida after finding means to conquer disease, but profit margins have been squeezed. All this suggests to us an increasing supply balance with demand and with Brazilian competition, a lessening of prices.


Intermarket Analysis

We fed Orange Juice, Sugar, and Cocoa into a neural network to get the following result:




Parabolic Chart

November Orange Juice:

Parabolic Chart


Nirvana Chart

November Orange Juice:

Initial Chart


News Analysis

Tropicana and Simply Orange drinks are now coming from Brazil. Citrus greening disease arrived in Miami from China resuting in a 55% decline in production over the next decade from Florida. Florida's orange growers raised OJ prices by nearly $2.00/gallon causing bottlers to turn to cheaper Brazilian OJ. The orange juice from Brazil is shipped in specialized fruit tankers from the Port of Santos in Sao Paulo. In 2017, this export market was wroth $1.4 billion U.S. Brazilian orange juice companies used this cash influx to come into the U.S. and buy out Florida's production facilities, making Brazil a financial backer of much of America's orange juice.

Employment conditions in the orange industry in Brazil are horrible. Workers are sometimes unpaid for weeks and trapped in employment contracts that keep them in debt and stuck on a plantation. High plesticide use there leads to unsafe working conditions and even death there. Many U.S. company importers like Pepsico, Louis Dreyfus, and Cocoa Cola have not responded to challenges from labor and environment activist groups. Further, Trump's trade war has provoked an import tax on U.S. orange juice by the EU, Canada, and China, causing exports to fall by 60% in the last five years. The result could be a price increase for U.S. consumers because of increasing reliance on Brazilian juice.

Tropicana has begun un-noticeably to shrink the size of its containers.

China and the Europen Union have both imposed a 25% tariff on U.S. orange juice. This is retalliation for Trump's "carbon and alloy" product tariffs.

One 12-ounce glass of orange juice contains 10 teaspoons of sugar or roughly what is in a can of Coca Cola. Consumers are turning away from orange juice for this reason.

Levels of processed orange juice at Sal Paulo stored currently indicate low orange juice supply. However, ending stocks should be recovered by the end of the 2017/18 season. Crushing forecasts state that 267.33 boxes of oranges will produce one ton of FCOJ equivalent, with 314.47 million boxes to be crushed resulting in 1.107 million tons of frozen orange juice.

The Brazilian Real is recovering in exchange rate versus the U.S. Dollar and other currencies, and this coupled with lower domestic inventories is resulting in higher shipment prices, even as local Brazilian consumer prices for orange juice remain low. The USDA estimates inventory/final consumption in Brazil will be 10/9% lower this year even with reduced importations of orange juice by China.

Despite firm sales prices, lower orange juice production in the 2018/19 citrus belt in Brazil, Sal Paulo and Triangulo Mineiro, should constrain the revenue of farmers who trade with processors, since the lower number of boxes produced per hectare tends to push up the unit price. Only in southwestern Sao Paulo, where production has not changed much, revenues may remain at high levels.

Lower production in Brazil may be due to lack of rains in the first semester of 2018, causing a high rate of flower loss in the blossoming season between August and mid-October. The average weight of all varieties will be lower due to severe drought. Competition from Mexico is constraining raising prices.

After a deadly hurricane and enduring pestilence, Florida's orange productionis bouncing back. Orange production in Florida has been dwindling for years. The Asian citus psyllid, a tiny singed insect has spread a bacterial disease known as citrus greening. Greening has decimated groves and increased costs for crop maintenance. Hurrican Irma smashed into trees and damaged fruit.

Growers are finally developing methods to fight greening disease. An output of 70 million boxes this year would be the biggest in three years. A box weighs 90 pounds. However, the battle with greening disease has come at a time when American demand for orange juice is on the decline. Growers are spending probably about $2,100 per acre per year versus $700 ten years ago. There is no choice between spending more money or else losing an entire grove. A lot of trees went off line from discouraged absentee growers.

Florida growers are questioning USDA forecasts for orange crop size stating that they did not sufficiently take into account the impact of Hurricane Irma. It is believed damage from the hurricane coujld result in 20 million boxes lower than the USDA forecast. The Government has historically had a high margin of error following natural disasters.

The first greening disease showed up in 2005, and since then Florida growers have been struggling to make a profit.

The USDA's current crop size estimate for all areas including Florida, Texas, and California, for 54 million boxes is made up of 23 million boxes of early and midseason fruit and 31 million boxes of Valencias. This is down 16% from last year.

Our assessment of the news is that the U.S. has given up much of its lead in orange juice production to Brazil, but that production in Brazil as well as Florida is bouncing back after tough times resulting in possibly lower prices.


Point & Figure Chart

199.0|                                                                  R  9/21
     | ICE - Nov-18 Orange Juice, 15000 lbs, c/lb. Cm.=0.20  Lim.=10.0
     |
     |
     |O  X
189.0|OX_XO____________________________________________________________________
     |OXOXO
     |OXOXO
     |OXO O
     |OX  O
179.0|O___O____________________________________________________________________
     |    O
     |    OX         X
     |    OXO        XO
     |    OXOX       XO
169.0|____OXOXO______XO______________________________X_________________________
     |    O OXO      XO                              XOX
     |      OXO      XO                        X X   XOXO
     |      O OX     XO                        XOXO  XOXO
     |        OXO    XO                        XOXO  XOXO
159.0|________OXO____XO______________________X_XOXO__XOXO______________________
     |        O O    XO                      XOXO O  XOXOX
     |          OX X XO                  X   XOX  O  XOXOXO
     |          OXOXOXOX                 XO  XOX  O  XO OXO
     |          OXOXOXOXOX               XOX XOX  O  X  O O
149.0|__________OXOXOXOXOXO______________XOXOXOX__OX_X____O____________________
     |          OXO OXOXOXO              XOXOXO   OXOX    O
     |          OX  OXOXOXO            X XO OX    OXOX    O
     |          O   O OXO O            XOX  OX    OXOX
     |                O   O            XOX  O     OXOX
139.0|____________________O____________XOX________OXOX_________________________
     |                    O            XOX        OXOX
     |                    O        X   XO         OXO
     |                    O  X     XO  X          OX
     |                    OX XOX   XOX X          O
129.0|____________________OXOXOXOX_XOXOX_______________________________________
     |                    OXOXOXOXOXOXOX
     |                    OXOXO OXOXO O
     |                    O O   OXO
     |                          O
119.0|_________________________________________________________________________
     |
     |
     |
     |
109.0|----|----|----|----|----|----|----|----|----|----|----|----|----|----|---
      11111111                               111111
      11122222111122233444466667777888899999900011212456799
      01200123011201202011202230123122200012201211000132211
      28917920627726713538491605141015916740223346645602408
Our computer tells us a non-conventional reactive approach works best for orange juice on p&f charts. Therefore the above chart is taken as giving a buy signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical low and a seasonal up period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "Pattern". It is giving a sell signal.

Internal Printout 1 Internal Printout 2

Results of "Pattern" for Orange Juice (blue lines = successful trades, red, unsuccessful): (Always in the market.)

Results


Third System Confirmation

Our third system has triggered a buy signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $150. Initial margin on a single contract is $1,069. Use of options is not advised.


Historic Range

Scale traders are not a factor in this price range.

Historical Chart


Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are getting increasingly-short.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a major downtrend remains intact from the last volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Orange Juice March 150 Put and Sell (1) Orange Juice March 145 Put @ 2.60 to the buy side or less.
The current spread is 2.80.


o 1 o 2

o 3

o 4 o 5


Calendar Spread

What the Nov. - Jul. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up in the long run. The best time to enter or leave the above spread is when it is at -4.00 or narrower selling the far as prices are falling and then buying the near, and exiting or entering when it is at +1.90 or wider buying the far as prices are rising and then selling the near. At this time, we appear to be heading toward the sell the far, buy the near point.





Level Table:

Level Table

The path of least resistance is down.
174.0|                                                                  R  9/21
 ICE - Nov-18 Orange Juice, 15000 lbs, c/lb. Cm.=0.20  Lim.=10.0
     |
     |S
     |RRRS
169.0|RRRRS____________________________________________________________________
     |QQRRRRRRRRSVV
     |DQQRRRRRRRRSVVVVVV
     |DEQQRRRRRSUUUUUVVVVVWWWWWW
     |DDDEEEEEQQRRRSSSUUUUUVVVVVWWWWWW
164.0|DDDEEEEEQRSSSSSSUUUUUUVVVVVWWWWWWX_______________________________________
     |DDEEEEEEQQQSSSSSSSUUUUVVVVWWX
     |DDEEEEQQQQSSSSSTUUVVWWWXXX
     |BDDDEEEQQQQSSSSSTTUVWWWWWXXX
     |BDDDDEEEFFQQQQSSTTUVXX
159.0|BBDDDDDDEEEFFQQQQQSTTTUUX________________________________________________
     |BBDDDDDDFQQQQQSSTTTTTUUUUXZ
     |BBBDDDDDFQQQSTTTTTTUUUUXZZZ
     |ABBBCDDDDFQQSTTTTTTTUUUXXYZZZZ
     |AAABBBBCCCCDDFQSTTTTTTXXYYYZZ
154.0|AAABBBBCCCCCFFQQTTTXXYYYYYYYZZ___________________________________________
     |AAABBBBCCCCCCCFQTTTXXXXXYYYYYYYZZZZZ
     |AABBBCCCCCCCFFFPPTXXXXXYYYYZZZZ
     |AABBCCCCCCCFFFJJPPXXYYZZ
     |AAABBBBBCCCCCFFFFJJPPYZ
149.0|AABBBBBBCCCFFFJJLPYZ_____________________________________________________
     |ABBBBCCFFJJJJJJKLLPZ
     |AAABBBBCFJJJJJJJJKKKKKLLPPZZ[[
     |AAAABFFFJJJJJJJKKKKKKLPPZZ[[   <<<
     |AAAAFFJJJJJJJKKKKKLLPPZ
144.0|AAAAFFHJJJJKKKKKLLLLLLPPPZ_______________________________________________
     |AAAFFHJJJKKKLLLLLLPPPP
     |FHJKKLLLLLLMPPPPPP
     |FGHJKKLLLMMMPPPP
     |FGHLLMMMMMNNNOOP
139.0|FGGHHHLMMMMMMMMNNNOOO____________________________________________________
     |GGHHHHHMMMMMMMNNNNOOOOOO
     |GGGHHHHHHMMMMNNNNNNNOOOOOOOO
     |GGHHHHHHHNNNNNOOOO
     |GGGHHHHHHNNNNO
134.0|GGGGHHHHNN_______________________________________________________________
     |GGGGGH
     |GGGG
     |GGGG
     |GG
129.0|_________________________________________________________________________
     |
     |
     |
     |
124.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO=-0.778
         1 1 1 1 1 1                                                  
       9 0 0 1 1 2 2 1 1 2 2 3 3 4 4 4 5 5 6 6 7 7 8 8 9 9           9
       2 0 2 0 2 0 1 0 1 0 1 0 1 0 1 3 1 2 1 2 1 2 0 2 0 2           2
       6 9 3 6 0 5 9 4 9 2 6 2 6 2 6 0 4 9 2 6 1 5 8 2 6 0           1


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 9/21 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                  OJX8    November Orange Juice

                      High Price:  153.45
                   Current Price:  147.25
                       Low Price:  134.55

                            Risk: -0.086
                     Opportunity: -0.176

                    (O/R) Ratio =  2.048


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis - 1
Parabolic Chart - 1
Nirvana Chart + 1
News - 1
Point & Figure + 1
Cyclicals - 1
Seasonals + 1
Internal System 1 - 1
Internal System 2 0
Third System + 1
Historic Range - 1
Commitment of Traders - 1
Range/Volatility - 1
Level Table - 1
Other Factors - 1
Total - 6
Place 14 November Orange Juice on a Sell Watch with stoploss @ +8.70 above the get-in point when recent price is represented as "147.50".
____________________________________________________________________________________________________________________________________________F.C.