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US: Orange juice firms face slowing demand

Florida's 2008-09 season for orange juice is rife with challenges, not the least of which are futures prices that have sunk to four-year lows and a U.S. economy that is grinding toward recession. The current Florida orange crop is about 10 million boxes higher than many in the trade had anticipated. Combined with high retail prices and slack demand that may worsen as the economy slows, futures prices have incurred steep losses. This begs the question: Where's the good news?

"The good news is that we still have a significant market share for consumers that are still purchasing orange juice. Maybe not as much as they used to, but they continue to be interested in orange juice," said Bob Norberg, chief economist at the Florida Department of Citrus in Lakeland. But lower demand is still one of the industry's biggest challenges. "I think demand is going to be capped here regardless of competition, not only in orange juice but commodities in general with what's going on in the economy," said Boyd Cruel, senior softs market analyst at Alaron Trading.

Demand for orange juice has stumbled about 30% to 35% over the past five years, hurt by dietary concerns and the exploding alternative-beverage industry, which includes energy and blended drinks containing only 10% orange juice. While retail orange-juice prices have edged off their peaks, they remain high by historical standards and therefore an obstacle to demand growth. Not-from-concentrate orange juice averaged $6.77 per gallon in the four weeks ended Sept. 27, up 1.5% from the same period last year, the latest AC Nielsen data showed, while gallon sales during the period were down 4.5% from last year.

That has led to an estimated 619.4 million gallons of orange juice in inventory on Sept. 30, the end of the 2007-08 season, according to FDOC estimates. It equals 29.6 weeks of supply, the highest level of weekly supply at the end of a season since 2004, just before destructive hurricanes shredded groves in back-to-back years. The U.S. Agriculture Department projects the 2008-09 Florida orange crop at 166 million boxes, with each box weighing 90 pounds. That figure is down from 170.2 million boxes last year, but up from 155 million boxes the trade had anticipated.

As a result of no hurricane damage, a commodity-wide selloff, a good-sized crop and weak demand, January FCOJ futures traded on ICE Futures U.S. fell to 75.40 cents in October, the lowest in four years. Prices have since recovered somewhat. January FCOJ on Friday closed at 86.55 cents a pound. In early September, futures traded near $1.1600 a pound. There are some signs that demand may pick up.
Florida FCOJ movement, an indicator of demand, is expected to rise 8.3% from the 2007-08 season, based on an anticipated decline in imports.

Source: online.wsj.com

Publication date: 11/12/2008


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