Orange juice prices have every reason to rise right now. There’s just one problem: People don’t really like orange juice.
Orange trees in Florida are being attacked by citrus greening, a disease thatcauses oranges to fall from their trees before ripening. That is one of the reasons many analysts expect Florida’s crop to be extraordinarily low, perhaps the lowest in decades.
Yet surprisingly, despite the tight supply outlook, frozen concentrated orange juice futures have fallen nearly 9 percent in the past two months. And even if the disease gets worse, higher prices may not be a given.
That's because demand for orange juice is at a record low. For the four weeks ending August 2, American consumers purchased just 34.96 mllion gallons of orange juice, according to data published Monday by the Florida Department of Citrus. That is the lowest number since 2012 when such data began being kept.
“Orange juice is one of those commodities that is very cut-and-dried,” explained Gina Sanchez, founder of Chantico Global. “It’s about supply and demand.”
Lower orange supply may be “squeezing” supplies, Sanchezsaid, “but I would point out that the demand side has been falling off even faster. People are replacing orange juice at the breakfast table faster than we are seeing these crop numbers fall down lower. Right now, I would argue there is actually more downside than upside because of that demand falloff.”
However, Sanchez, a CNBC contributor, gives one caveat to her thesis. “We are at the beginning of hurricane season,” she said. “One good hurricane to southern Florida and all bets are off—I think prices will definitely go higher.”
The charts on frozen concentrated orange juice are also pointing toward lower prices, according to Richard Ross, global technical strategist at Auerbach Grayson.
“There is a lot of volatility on a day-to-day basis, but we do see some tried-and-true textbook technical patterns here,” said Ross, a “Talking Numbers” contributor.
He is particularly focused on the contract’s 50-day and 150-day moving averages.
“That gives us a sense for the short-term momentum versus the longer-term momentum,” Ross said. “And what we’re seeing now is a cross to the downside, whereby the 50-day is crossing back down below that 150-day. That tells us that the short-term momentum and the longer-term momentum are pointing negative.”
(Watch: Orange juice gets hammered)
At the beginning of 2014, though, the 50-day moving average crossed above the 150-day moving average. Frozen concentrated orange juice prices subsequently rallied, gaining 22 percent in the first four months of the year, closing April at $1.6475 per pound. But after the chart made a bearish double top pattern, the price of orange juice quickly fell in June. Earlier this month, that brought the 50-day moving average below the 150-day.
“Prices are moving lower, momentum is moving lower, and I have a downside target which happens to be lower,” said Ross. “If you’re trading orange juice at home, you want to be a better seller.”
To see the full discussion on orange juice, with Sanchez on the fundamentals and Ross on the technicals, watch the above video.