A Fresh Squeezed OJ Strategy
Orange juice futures may see a short-term rebound after falling three of the past four sessions, but I see fundamentals as bearish and recommend using a bounce to establish a short position. A government report on June 20 was pretty bearish, showing frozen orange juice concentrate in cold storage rose to 1.4 billion pounds at the end of May from 960.7 million pounds a year earlier. That’s a huge increase. Retail volume has dropped 6.1 percent from a year ago, to 397 million gallons. We have a large crop and drop in consumption, a classic bearish setup.
I recommend buying the November 105 put for about 5 ½ cents. Multiplying that by $150 (ICE OJ futures are a 15,000 lb contract), you’ll pay $825 plus your commission costs. That’s your defined risk on the trade. If you lose half your premium on this trade, I’d reassess whether or not fundamentals have changed and if so, you might want to exit the trade. Watch for a close above $1.20 a pound to determine a shift in trend. However, I see $1.00 more likely.
Of course, it is hurricane season, and we had damaging storms rip through grove areas in 2004 and 2005, but so far, the season isn’t off to a strong start and the Gulf of Mexico and Florida panhandle remain calm. The options I’m recommending expire October 17, which is when hurricane season generally starts to heat up, so we’ll be out by then.
There are some forecasts calling for Brazil to experience colder-than-normal weather, which is giving a little reason for orange juice to rally. However, I’m fading that forecast. It’s a bit speculative and I don’t think it will be an overwhelming longer-term factor in prices.
Feel free to call me to discuss these ideas further, or for ideas in other markets. Ask about our special half-off offer for new clients.
Phillip Streible is a Senior Market Strategist with Lind Plus. He can be reached at 800-803-8037 or via email at pstreible@lind-waldock.com.
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