(Bloomberg News) Orange-juice futures rose the most in five years as freezing weather damages citrus crops in Florida, and a U.S. government probe of a fungicide used on fruit in Brazil may limit imports.
About 5 percent of the groves in central Florida, the main growing region, were damaged last week as temperatures dropped below freezing, and the weather will turn cooler next week, said Kyle Tapley, a meteorologist at MDA EarthSat Weather. The Food & Drug Administration said yesterday it will investigate the use of carbendazim on orange trees in Brazil, which supplies about 25 percent of the juice consumed in the U.S.
Slumping U.S. inventories already have helped send orange- juice futures up almost 39 percent in New York since the end of September, the biggest gain among the 19 commodities tracked by the Thomson Reuters/Jefferies CRB Index. Retail prices as of Dec. 24 were up 7.9 percent from a year earlier at $6.12 a gallon, according to Nielsen data.
"Orange juice jumped due to the frigid weather that permanently damaged some of the crops here," Jim Garasz, a principal at Transworld Futures in Tampa, Florida, said today in a telephone interview. "And there's more cold weather coming in here late tomorrow. That spooks the market."
Orange juice for March delivery jumped the 20-cent exchange limit, or 11 percent, to settle at $2.0775 a pound at 2 p.m. on ICE Futures U.S. in New York, a record for the contract and the highest for a most-active contract since March 2007. The gain was the biggest since October 2006 and left prices up 23 percent this month.
"The market is starting to factor in that maybe there was more to the damage than initially thought," Michael Smith, the president of T&K Futures and Options in Port St. Lucie, Florida, said in a telephone interview.
Hard Freeze
About 25 percent of the citrus-growing region in Florida, the world's top orange producer after Brazil, suffered a hard freeze during the first week in January, with temperatures in most other areas cold enough to cause frost, Gaithersburg, Maryland-based MDA said after the freeze. Oranges will be damaged if temperatures drop below 28 degrees Fahrenheit (minus 2 Celsius) for three to four hours.
Some forecasters say the weather will improve in the state.
"We will get a cool shot over the weekend, into the low 40s to mid 40s, but we don't see any kind of problem like we saw last week," Joel Widenor, a meteorologist with Commodity Weather Group in Bethesda, Maryland, said in a telephone interview.
Brazil Fungicide
Prices also got a boost from the FDA's decision to study the fungicide used in Brazil, which may lead to a U.S. ban on imports, Judy Ganes-Chase, the president of J. Ganes Consulting in Katonah, New York, said in an e-mail.
"The fungicide is the primary driver," Sterling Smith, an analyst with Country Hedging in St. Paul, Minnesota, said in a telephone interview. The market "is very nervous" about a potential import ban, which may boost the futures price by 20 cents to 40 cents a pound, he said.
About 25 percent of the orange juice consumed in the U.S. comes from Brazil, according to Andrew Meadows, director of communication for Florida Citrus Mutual, the state's largest citrus grower organization, based in Lakeland.
The FDA was notified by a juice company on Dec. 28 that it had detected low levels of carbendazim on some products, Nega Beru, the FDA's Director for the Office of Food Safety Center and Applied Nutrition, said in a letter sent to the citrus industry yesterday. The U.S. Environmental Protection Agency has not approved carbendazim for use on oranges.
FDA Study
While a preliminary EPA risk assessment concluded "that consumption of orange juice with carbendazim at the low levels that have been reported does not raise safety concerns," the FDA is "conducting its own testing," Beru said.
"FDA is also sampling import shipments of orange juice and will deny entry to shipments that test positive for carbendazim," Beru said in the letter.
Inventories of frozen orange juice at facilities monitored by ICE tumbled 58 percent to 22.785 million pounds as of Jan. 6 from a year earlier, exchange data show.
The U.S. Department of Agriculture will release a new estimate for Florida's orange production on Jan. 12. Last month, the agency raised its forecast by 2 percent to 150 million boxes, citing bigger fruit size. A box weighs 90 pounds, or 41 kilograms.
The USDA estimate this week may include some of the damage from cold weather, Smith said. A more complete assessment will be made in the February report, he said.