Up to double in 2 years  

Futures contracts for frozen concentrated orange juice (FCOJ-A) for July 2024 delivery on the New York International Exchange (ICE) closed at an all-time high of $4.87 per pound on 28 May 2024, reaching an intraday high of up to $4.95. This is an increase of more than 74 per cent compared with the same period last year, when the price stood at around USD 2.82 per pound. Compared to January 2021, the price has even risen by as much as 210 per cent. * It is believed that it could soon surpass $5 per pound, although it faced a slight correction in early June.[1]   

Price trend of frozen concentrated orange juice futures contracts for July delivery over the past 5 years in USD¢. (Source: Investing.com)*

Reasons

It will probably come as no surprise to anyone that the main reason for rising prices is the impact of weather and significant climate change, which also has an impact on the rise in cocoa or olive oil prices. Frequent hurricanes have had a negative impact on the orange harvest in Florida, which is the largest supplier of the orange drink on the US market. The largest global supplier, Brazil, is also affected by extreme heat. Up to 85 percent of the world market is divided between Florida and São Paulo. As with other crops, diseases and pests are also a major concern. According to Foxla.com, Brazilian and Florida farmers are battling citrus greening, a disease that causes the fruit to turn green and not ripen, with the trees dying after a few years. The disease is caused by an invasive insect against which, especially Florida growers have deployed Asian parasitic wasps. Although these are a proven method of control, they cannot eliminate the pests completely, but they do reliably reduce their population.

Yields are gradually declining

Increasingly difficult climatic conditions causing a decline in yields are confirmed by estimates from the Brazilian Citrus Conservation Association Fundercitrus. In a report published on 10 May 2024, they predict that the 2024/2025 season should see a drop of more than 24 per cent in the volume of oranges harvested, to 232 million boxes of 40 kilos each, compared with the previous season in the São Paulo and Minas Gerais regions of Brazil. Fundercitrus' historical data shows an overall decline, as the average harvest has steadily declined from 351 million boxes between 1994/1995 and 2003/2004 to 337 million between 2004/2005 and 2013/2014 and to 308 million in the last ten seasons.

Switching to other fruits

In the context of rising prices and volatile weather, Mintec analyst , Harry Campbell, told CNBC that producers have started to reduce the proportion of orange juice in drinks and use alternatives in the form of pears, apples and grapes. According to research by The Grocer, UK juice suppliers have not reduced the orange juice content in their products, but are focusing on more affordable juices. For example, Coldpress has launched a juice made from Spanish mandarins, which are more resistant to the disease and the company has described them as a fantastic substitute. Purity Drinks Co has also gone in a similar direction, launching Juice Burst Apple Juice along with other flavours that are not affected by the price of oranges. Campbell also said in an interview that this trend is expected to continue in the long term until consumers refuse to pay a high premium for the limited supply of orange juice, whose frozen inventory, which is currently being worked with, is slowly dwindling.

Olivia Lacenova, principal analyst at Wonderinterest Trading Ltd.

* Past performance is no guarantee of future results.

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.