Orange Juice futures run to record highs on fungicide fear

KO, PEP

US Orange Juice futures rose almost 11% to an all-time high Tuesday, after US 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 10% of US 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 (NYSE:PEP) Tropicana and Minute Maid, from Coca-Cola Co (NYSE:KO).

The benchmark Mar frozen concentrated Orange Juice contract on the ICE Futures USexchange rose the 20-c daily limit to 2.0775 at 9:46 a.m. EST, taking 2-day gains to nearly 17%.

The most-active Mar contract was already trading up between 0.03-0.04 at 2.10-2.12 per lb in synthetic options trade. A near doubling in ICE exchange margins announced after the close of trade could also fuel more covering by traders who are Short.

The latest rise 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.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.