Pressure for FCOJ prices to work lower will continue
FCOJ futures in New York continue to work lower on prospects for a bigger US crop and improved growing conditions in Brazil. The weather in Florida has been great so far, warm and dry in orange production areas that should allow for a rapid harvest. USDA in its last production report found that the prospects for a big production year were high. USDA estimated Florida production at 77 million boxes in December, and that is 71% higher than the last year. Early and mid-oranges production is estimated at 32 million boxes, up about 69% from last year, and Valencia production is estimated at 45 million boxes, up 73% from last year. All estimated were unchanged from the previous month. Texas and California estimates were also unchanged, so total oranges production is still estimated at 5.53 million tons, from 3.919 million tonnes in 2018.
The estimates could be lower when the next round of reports is released. We don’t know when the next reports are coming out as just about all USD information has been put on hold due to the partial shutdown of the US government. The shutdown has caused USDA to cancel almost all Ag-related releases, and the annual production updates for grains and oilseeds along with the monthly production estimates for citrus and all monthly supply and demand reports have been cancelled until new funding is approved by congress and signed into law by the President. No one knows when that will happen as meetings between the President’s representatives and members of the House did not resolve anything over the weekend. President Trump wants his wall, and everyone in the US will pay the price for it one way or another, even if the wall is never approved or built.
Even so, there are signs that the estimates could be lower. Florida sources are reporting that there is plenty of fruit, and that is what USDA has been reporting. But, USDA assumes a certain size when putting together these estimates, and there are reasons appearing to doubt that USDA will see quite that much production in the end. Growers report that fruit sizes are small, and processors report that arrivals so far are behind last year on all varieties. That should be a surprise to the trade, but the large USDA estimates imply that the orange will appear in the end. That means it will take more oranges to fill a box, and that means less production. No one has said why the fruit is small this year, but the weather was dry at times during the development season and the irrigation might not have been enough to prevent the smaller fruit from forming instead of normal sized fruit. Many producers have replanted trees in the last few years to replace trees lost due to the greening disease, and the young trees might be producing smaller fruit as well. The smaller fruit should be reflected in the coming production reports. It could be that the oranges crop in Florida is a couple of million boxes less than what has been indicated by USDA so far, but the losses might not be more, at least for now. One day, and we hope sooner rather than later, we will get these estimates.
After that USDA will need to work on the acid content of the fruit as the acid content is at least as important as the volume of fruit harvested in determining the production of juice and FCOJ. The acid content should be high if the small fruit is coming due to the dry weather seen in the state earlier in the year. That means that there could still be plenty of FCOJ available to the market even with reduced production due to the small fruit size. The Florida Mutual FCOJ reports show that there is juice around, so the increased production due to the harvest should serve to keep prices under pressure. The weekly movement and pack reports show that inventories are about 18% higher than a year ago, and the inventory increase should hold or maybe increase as the production in Florida is processed.
Production in Brazil should rebound this year amid much improved growing conditions. Beneficial shows and storms have been reported in Sao Paulo, the biggest production site in Brazil. Temperatures have moderated after being hot earlier in the year. Good to very good orange crops and production are expected. Brazil is the largest producer and exporter of FCOJ in the world, and it looks like the country will have no problem holding onto that position for the current marketing year. They will export to Europe, with the US getting only a few loads of fill in demand at best. That is due to the tariff wars we are in the middle of with China and Europe and just about everyone else except Russia these days.
All in all, it looks like pressure for FCOJ prices to work lower will continue. There should be a lot of support at about $1.05 per pound based on the weekly charts, but these same charts imply that the support area mentioned will be tested, and probably sooner rather than later.