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| Daily Jurojin - Wednesday, May 13, 2009 |
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Wednesday, May 13, 2009 It never rains, but it poursThat headline is really the story of two states: Florida and Texas. Central and southern counties of Florida, the world's second largest producer of oranges used to produce frozen orange concentrate, have received between one quarter to one half of the usual rainfall for this time of year. Meanwhile, the rain hasn't given farmers enough chance to plant cotton in Texas, Georgia and Alabama.In both cases speculators have been sharpening their horns and buying futures contracts hand over fist for several weeks now forcing orange juice and cotton futures to seven-month highs. We highlighted both fundamental stories in this very column during the past two weeks. Subscribers to Jurojin Weekly, our commodity futures trading service got long of call options three weeks ago and we're still eyeing the fundamental situation closely for them. As of May 3, according to the U.S. Department of Agriculture, citrus-growing areas of Florida were suffering extreme to severe drought conditions. During trading sessions on Monday and Tuesday, November OJ futures burst through the $1.00 per pound marker for the first time since November, while the July contract broke above 95 cents, which is the highest price for the lead contract since September. Florida's season ending in June might result in crop production at 157.6 million boxes each containing 90 pounds of oranges. That will be 7.4% less than the season the year before. Thanks to an early season freeze, which resulted in the young fruit falling off the trees, analysts expect perhaps 140 million boxes in the 2010 season. But the fact that global commodity prices were so restrained in the deepening recession restrained speculative demand for orange juice until pretty late. But the ongoing arid weather and the apparently better economic conditions around the globe have conspired to force down the dollar, which is increasing the appeal of hard assets. With the planets aligning and shining down on Florida, this is a speculator's paradise! Meanwhile, as we noted some weeks ago signs of ever-weaker textile demand entwined with rising soybean prices were making it a no-brainer for farmers to plant crops instead of cotton. So while farmers purposely chose to plant soybeans and corn in the expectation that cotton prices would be unprofitable they unwittingly denied the market of future supply. And those that stuck to their intentions to plant some have been physically challenged by day after day of incessant rain and floods, hampering the planting process. Cotton prices had rallied for 10 straight sessions through Tuesday bolstered by yesterday's news that the inventory of U.S. cotton stockpiles might shrink 18% by the end of July 2010 to stand at 5.6 million bales. July 2009 inventories are estimated to be 6.8 million bales according to the USDA. With global supplies shrinking and the U.S. being the supplier to the world, local prices are once again in focus, with fund buyers getting in on the act and driving prices higher. With 2010 exports predicted to be 12% lower at 11 million bales, there is significant optimism that not only have prices fallen too far but also that a genuine demand crunch is on the horizon. Call it a chicken and egg scenario, but crude oil prices breached $60 for the first time in five months on Tuesday, while the dollar slipped to its lowest price against eth euro since mid-March. It's impossible to say which is leading which, but what we can say is that traders will have a keen eye on the dollar throughout the day, using any weakness as a reason for buying commodities. Easy money if you're standing in the pits. The Supreme Council of the Secret Order of Jurojin |
