Probably too hot to buy, maybe sell some put spreads.
Frozen concentrated orange juice futures rallied to seven-week highs Monday
on speculative buying linked to strong technicals, the tripping of buy stops
and on fundamental worries that California orange production may be
encountering its most serious threat ever, brokers and analysts said.
September orange juice rose 895 points to settle at $1.2260 a pound on ICE
Futures U.S. in New York, a 7.9% gain on the day. Nearby July, which holds
little open interest, gained 890 points to reach $1.1835 for an 8.1% gain.
"We were poised to move higher, and I think we just hit stops," said James
Cordier, analyst and founder of Optionsellers.com in Tampa.
Cordier said he had anticipated a price breakout but believed the move would
take several days instead of a few hours.
News that the Asian citrus psyllid, which carries the fatal citrus greening
disease, has been found in Tijuana and just two miles from San Diego County,
also sparked buying interest. While greening, which kills citrus trees in about
two years from infection, has not yet been found, the presence of the psyllid
insect makes agriculture officials nervous.
"I've been in the citrus business all my life ... and this is the greatest
threat we've ever seen to the California industry," Ted Batkin, president and
chief executive of the California Citrus Research Board in Visalia, told the
Central Valley Business Times.
If the psyllid becomes established in the state, 20%-25% of total citrus
acreage could be lost, he said.
However, given the production losses in Florida to the disease and the fact
that state has been battling greening since September 2005, Joel Nelsen,
president of California Citrus Mutual in Exeter, said the losses could
potentially go much higher.
While California is mostly a market for fresh oranges and Florida's oranges
are grown mostly for juice, the finding of the psyllid nevertheless suggests
the potential for decreased orange supplies in the U.S. - a bullish
development, a broker says.
"It makes headlines when they talk about production loss in California, and
(with no regard to their specific markets) people just think that California
and Florida produce all the oranges and that's the general perception," said
Cordier.
In addition to the news, extra volatility was also created when traders
exited nearby positions ahead of July's first notice on Tuesday.
In other news, large funds increased short positions by 375 contracts in the
week to June 24, taking them 581 contracts net short, or 1.3% of open interest.
That's compared to just 35 lots net short the previous week, according to the
Commodity Futures Trading Commission's Commitments of Traders report.
FCOJ open interest Friday fell 858 contracts to total 30,020, ICE reported.
Traders liquidated 1,399 July positions but added 515 to September. Just 1,399
positions remained open in nearby July.
Futures volume was estimated at 5,854 lots, with 604 calls and 991 put
options traded.
