Americans are drinking less orange juice than they used to, particularly the frozen variety traded in the futures market

August 6, 2013, 5:34 p.m. ET

OJ Market Shrivels as Demand Sours

Orange-Juice Market Is Getting Squeezed by Changing Consumer Tastes



The orange-juice market is getting squeezed by consumers like Susan Zenick. The 45-year-old elementary-school librarian and mother of three from Simsbury, Conn., serves orange juice to her three children “as a treat,” she says. Her pediatrician had warned her about the juice’s sugar content. It is “the dessert in our family,” she adds. Changing consumer tastes are being felt far beyond the breakfast tables and supermarket aisles. In the market for orange-juice futures, traders held just $440.8 million as of Monday, down 60% from $1.1 billion in August 2011. So far this year, average daily trading volume is 2,233 contracts, a 15% decline in the past decade.Americans are drinking less orange juice than they used to, particularly the frozen variety traded in the futures market. One reason for the slide was the revival of the low-carbohydrate Atkins diet in the late 1990s. Also hurting orange juice: greater variety in the beverage aisle, from energy drink Red Bull to Coca-Cola Co.’s Vitaminwater, and juice-based health crazes like pomegranate and açai, says Ross Colbert, global beverage strategist at Rabobank in New York.

Meanwhile, the spread of citrus greening, a disease that chokes off nutrients to fruit and causes them to drop prematurely from the tree, reduced supplies and drove up prices.

Last month, research firm Nielsen Holdings NV reported that domestic retail orange juice sales fell to 39.53 million gallons in the four weeks ended July 6, the lowest on record, according to a Wall Street Journal analysis of the data.

Prices fell 2.8% the day after the report was released, with the contract for delivery in September on the ICE Futures U.S. exchange settling at $1.4205 a pound. On Tuesday, futures ended at $1.4025 a pound.

“The demand report was really the last nail in a slow market,” said James Cordier, president of Liberty Trading Group, a Tampa, Fla., brokerage firm that trades orange-juice futures.

Along with falling demand for orange juice, the Florida condo-building boom in the 2000s and several crop-damaging hurricanes in 2004 and 2005 also have contributed to the industry’s consolidation and shrinking production, which has reduced participation in the futures market, industry experts said.

Output in Florida, the top grower of oranges in the U.S., has tumbled from a peak of 244 million 90-pound boxes of the fruit in 1998 to 133.4 million in 2013, according to the U.S. Department of Agriculture.

The futures market has seen a similar decline. There were 20,636 outstanding orange-juice futures contracts Monday. During a similar day in 2008, open interest in the orange-juice market was 52% higher at 31,391 contracts. By comparison, open interest for benchmark oil futures on the New York Mercantile Exchange was 1.9 million contracts Monday.

Because the market is so thin, it is more vulnerable to violent price swings than other agricultural commodities. This year, the most actively-traded orange-juice contract rose or fell more than 4% on nine days. Arabica coffee has seen just two moves of that size or larger, while raw sugar has had none.

Frozen concentrated orange juice is melted and mixed with water before being consumed. It and juice mixed from concentrate before hitting supermarket shelves comprise 44% of total U.S. retail sales of orange juice. That is down from 53% 10 years ago, according to Nielsen.

Orange-juice futures, which began trading in 1966, once attracted a broader array of investors and juice processors, who for decades traded in rowdy pits on the floor of the New York Board of Trade in lower Manhattan. The contract was immortalized in the 1983 movie “Trading Places”, in which Dan Aykroyd and Eddie Murphy foil a plot by the Duke brothers to corner the frozen orange-juice market.

IntercontinentalExchange Inc. ICE +0.64% acquired the New York Board of Trade in 2007 and then ended so-called open-outcry trading of futures for soft commodities such as orange juice, sugar and cocoa. The options pits were closed in October 2012, making the trade in soft commodities completely electronic. Going electronic may have played a role in the market’s decline, traders and analysts said.

Volume declined sharply after trading migrated to screens, exchange data shows. From 2006 to 2008, after futures trading went electronic, the annual volume dropped by 23% in the orange-juice market.

Joseph Cingari, who has traded orange-juice futures for almost 20 years, said the migration to screens made trading more difficult and flushed some participants from the market. The reason: Trading was stripped of face-to-face contact, which made it impossible for dealers to gauge the intentions of other traders.

“Is he allowing the market to come to him? Is he being ultra-aggressive? You were able to make a determination” in the pit, said Mr. Cingari, who continues to trade orange juice.

The $386.4 million GreenHaven Continuous Commodity Index Fund liquidated all of its orange-juice positions in January. Prices on the ICE Futures U.S. exchange touched near eight-week lows as the fund closed out its long positions, which totaled about $28 million, or 8% of the orange-juice futures market at the time.

“It’s been a difficult market,” Cooper Anderson, manager of operations at GreenHaven LLC, an Atlanta investment firm specializing in commodities, said at the time. “It’s not liquid far out, and it’s just a real challenge to trade out there.”

The fund replaced orange juice with soybean oil, which has an average daily volume about 35 times that of orange juice. “We could really push orange juice around if we weren’t careful,” Mr. Anderson said.

Back in the supermarket aisle, demand has cooled for the beverage, which is another headwind for the futures market.

Coca-Cola, owner of Minute Maid, and PepsiCo Inc., which makes Tropicana, have responded to falling orange-juice demand by adding products made from other fruits.

Not-from-concentrate orange juices, such as Coca-Cola’s Simply Orange or PepsiCo’s Tropicana Pure Premium, also have risen in popularity. Not-from-concentrate juice is perceived as healthier and fresher because it is pasteurized instead of frozen. The category comprises 56% of the domestic retail orange-juice market.

Kristin Butler, 39, said she buys not-from-concentrate orange juice for her two children for its nutritional value. Ms. Butler, of Corning, N.Y., said she would continue to do so “as long as these guys are in the house.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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