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Orange juice futures have plunged amid waning demand for the perennial breakfast favourite as consumers have shunned an expensive and now bitter drink.
Concentrated orange juice futures traded on Intercontinental Exchange in New York have halved since the start of the year, falling from $5.26 per pound in January to below $2.50 in recent weeks.
The decline marks a sharp reversal from last year, during which orange juice futures skyrocketed to record highs as severe drought and crop disease crushed yields in Brazil, the world’s top exporter.
“Demand has fallen off a cliff” as soaring prices have filtered through to consumers, said Harry Campbell, analyst at commodity analysts Expana.
“Orange juice is moving very slowly off supermarket shelves,” he said. He added that one producer in Europe told him that when they deliver their orange juice to the supermarket, “they deliver it with a duster, because it’s sitting on the shelf [so] long . . . that just goes to show how dramatic the situation is”.
Consumers have not only been discouraged by higher prices as a result of the supply squeeze, but also by poorer quality juice. Disease-ridden trees produce bitter-tasting fruit and the shortage has forced crushers to be less picky.
“If it tastes a bit more bitter that’s going to compound the [demand] problem,” said Andrés Padilla, an analyst at Rabobank. “With so little availability, crushers had to take every orange that arrived; that did decrease the quality — if you don’t have the stocks you can’t really blend that into higher quality [fruit].”
Normally manufacturers can overcome differences in flavours from one season to another by blending stocks of frozen orange juice — which has a two-year lifespan — from the previous season with the newer crop. But three consecutive years of dwindling supply has depleted inventory.
Retail demand for reconstituted orange juice — which uses frozen concentrated juice — has dropped more than 16 per cent in the US over the course of the current season, according to data provider Nielsen.
Brazil’s Center for Advanced Studies on Applied Economics (CEPEA) said this month that the sugar to acid ratio in oranges had fallen below the optimal level for crushing, hurting juice quality. Additionally, excess limonin — a bitter compound resulting from irregular harvesting — has affected the final product. Increased bitterness has diminished the appeal of Brazilian orange juice, particularly in key markets such as the US and the EU, according to CEPEA.
As well as falling demand, anticipation of a larger orange crop in Brazil has knocked prices for the upcoming season, which starts in July.
Rabobank estimates that Brazil will produce about 20 per cent more next season than last, citing improved rainfall this year.
The market was over-extended after the price surge late last year, as investors piled in, hoping to profit from anticipated supply shortages, according to Padilla. As the outlook for Brazil’s next harvest improves, speculators have begun leaving their positions, triggering a heavy sell-off this year.
“The large [long] position taken by traders exacerbated the rally, and now they’re fleeing the market as conditions shift,” said Padilla.
Even with prices falling, demand is unlikely to bounce back quickly, analysts say.
Many retailers, including supermarkets, remain bound by contracts made during the price surge. That has locked in higher purchase prices for orange juice, according to Campbell at Expana. As a result, while the price of orange juice futures has dropped, retail prices remain elevated.
“Retailers are still contracted into those higher prices, so their retail prices haven’t dropped,” said Campbell. This situation prevents any immediate relief for consumers, and keeps demand subdued as prices on the shelves stay higher than the current market value. For the industry, he added, “the situation is dire”.
