The unlikely rise of orange juice as a stock market darling

Orange juice has become the most profitable raw material for investors, according to French daily newspaper Les Échos. While average prices for many raw materials have fallen, stocks for the popular breakfast drink have seen a spectacular rise since the start of the year that shows no signs of slowing.

Issued on: 27/05/2023 - 16:49

"More profitable than oil, traders flock to orange juice," the financial newspaper Les Échos said in an article published on Monday.

Prices for the drink have soared since the start of the year, and investors have been paying attention. "Orange juice is quite simply the most profitable raw material right now," said Alexandre Baradez, market analyst at financial services company, IG France.

The company has listed orange juice as one of the best commodities to invest in over the coming months along with copper and gold.

Market speculators often have a preference for raw materials, the stock prices of which can fluctuate dramatically due to current events. Petrol, gas and wheat prices, for instance, have been significantly impacted by the war in Ukraine. For traders investing in these materials on the stock market, there is significant risk but also the prospect of large returns.

Orange juice, though, has not been impacted by fighting in Bakhmut, sanctions on Russia, or lack of Ukrainian cereal exports. Even so, prices for the drink have soared by 30 percent since the start of the year.

In the same time period, the average price for raw materials overall has fallen by 11 percent, according to Bloomberg. Stock prices for petrol have fallen by 12 percent since January.

"The performance of orange juice is remarkable," said Baradez. "Even more so because the increase has lasted for some time already, which is in itself quite rare."

While prices for raw materials tend to be cyclical with periods of high volatility, orange juice stocks have been high for months and are expected to keep rising.

"Orange Juice rose from circa $90/lbs at the start of 2020 to over $285/lbs last month. While the traditional breakfast drink has now fallen back to $255/lbs, further moves upwards could be imminent," a report from IG said.

The US state of Florida has long been a hub of orange juice concentrate production for North America – a market that strongly influences global prices for the raw material. In recent years, "Florida has been hit by a succession of factors that have pushed prices higher", Baradez said.

Historically, Florida has produced more than 80 percent of US orange crops each year but production has been plummeting for years.

Just over five years ago, the state-wide industry was worth $9 million and employed some 70,000 people. Today, that number has fallen to 32,000 employees and the industry value has fallen to $6 million, according to the Washington Post.

The US Department of Agriculture expects 2023 to bring the worst harvest of Florida oranges in 80 years, producing 16 million boxes of orange juice – down a historic 61 percent on the 41 million produced in 2022.

Poor tree health, the Covid pandemic and harmful weather events have all played a role.

In 2005, orange trees in Florida were found to have a small type of bacteria that was making them sick. This was the start of a bought of yellow dragon disease (also called Huanglongbing) that had spread to almost 90 percent of commercial orange groves in Florida by 2015.

There is no known cure for the disease, which kills trees within five years and makes fruit produced in the interim significantly more bitter.

As Florida has struggled to maintain production, demand for orange juice began to soar. The Covid pandemic boosted sales in the US, as the drink is typically seen as a way to load up on vitamins and ward off illnesses such as colds and flus. By the end of March 2020, US sales of orange juice were up 38 percent compared with the same period the previous year.

Then, another blow for farmers. In 2022, hurricanes Nicole and Ian devastated citrus fields in Florida. Damage caused by Hurricane Ian alone cost Florida's orange juice industry $247 million.

The current situation is "the result of a classic discrepancy between supply and demand", said Baradez.

To try to make up the shortfall, California has increased its orange juice production. Brazil – the largest global exporter of orange juice – has also increased sales to North America. But these measures are not having a significant impact on the financial market, which has its own influence over prices.

Market speculators "have played a role in accelerating this phenomenon", said Baradez.

A small number of powerful hedge funds and traders have an enormous influence on commodity prices. There are around 20 who wield enough power to decide "whether it will rain or shine" on the markets, according to Les Échos. And their influence is even stronger for a stock like orange juice, which has less investors than for traditionally popular markets such as oil, wheat, sugar and coffee.

Looking to the future for orange juice prices, "there is no reason for the trend to reverse", said Baradez. There is still no remedy for yellow dragon disease (which was also detected in California in 2018) and Florida is one of the US states most susceptible to seasonal hurricanes.

As such, price increases look set to persist around the world – bad news for orange juice consumers who, in turn, are likely to see supermarket prices for orange juice continue to rise.

There is also the potential for wider impact public health issue. "This is becoming a problem for many governments which rely on cheap OJ to get vitamin C into the general population," the IG report said.

While orange juice becomes too expensive for some, demand may grow for cheaper alternative sources of vitamin C such as medicines and food supplements. Ultimately this could push prices up for these products too – no doubt creating a ripe new market for stock market investors.