The weather price premium has returned to orange juice futures this week amid concerns Hurricane Sandy could damage groves in Florida, the world's second biggest grower. Speculators had been winding down storm related positions since the peak of the hurricane between mid-August and late October. Orange juice futures for January delivery are down more than 20% from their best level in September.
Fears are that Hurricane Sandy could combine with a second storm coming out of the Midwest United States to create a storm intensity not seen since the New England Hurricane of 1938. "Certainly it's a concern and that's why the market is reacting the way it is," said Keith Flury, senior commodity analyst at Rabobank.
Market tracking storms
While current forecast suggest Hurricane Sandy may become the worst to hit the US north east in 100 years traders appear to be in wait-and-see mode to see whether the two storms combine to create what some have termed a "Frankenstorm". "We are pricing in now risks associated with that .. [the hurricane], but if everything comes off with little impact this risk premium will come off," Mr Flury said. "At the same time if we do see production actually impacted by the storm then prices would move up." In addition to the reduction in the storm premium prices have also been affected by concerns of declining domestic sales.
A recent report published by the Florida Department of Citrus showed domestic retail sales of from-concentrate orange juice fell 4.8% in terms of volume during September.
