Thursday, May 29, 2008

An Orange Juice Strategy Ahead of Hurricane Season

From Inside Futures:

Hurricane season starts June 1, and I think a speculative bullish options trade in ICE orange juice futures is a seasonal strategy worth considering.

Last week, the National Oceanic and Atmospheric Administration (NOAA) predicted we’d see nine major hurricanes in the Atlantic region. If Florida is hit, we could see damage to the orange crop, and it’s been tight in the past few years due to dry weather and past storms. Florida is expected to harvest 168.5 million boxes of oranges this season, up from 129 million last year. One box of orange juice weighs about 90 pounds. Last year’s crop was at 17-year low, causing prices to rise. If we get weather problems like drought, the oranges are smaller.

And throwing the threat of hurricanes into the mix, I think a good strategy would be to consider buying January 2009 calls or a call spread. Argentina, a key exporter, is having problems with its current crop too. Its citrus production is expected to decline 21 percent this year because of a July frost that damaged blossoming trees, according to the U.S. Agriculture Department....MORE