puts out a negative call on the Duke Brothers’ favourite asset: Frozen Concentrated Orange Juice:
“We initiated a short position in the July Frozen Concentrate Orange Juice futures against a stop around 177. Let is reiterate our warnings about this market: we have liquidity guidelines to judge the suitability of markets for active trading. This market makes the cutoff, but just barely. It is not uncommon to see less than 1,000 contracts trade in the front month, and do not be fooled by the smooth trading in recent history—this market can gap viciously overnight. We are holding a full-size short position and are bidding to cover part of the position around 157.
Historically orange juice contracts have a seasonal bias to rise into the autumn and then soften as the Florida winter crop cycle matures (assuming that no crop-damage is caused by frost/freezes). Initial crop forecast data issued late last year suggested overall supply for the 2010/2011 orange crop would exceed the prior year’s production significantly but remain below recent multi-year averages. The USDA April orange crop forecast for this season showed no significant changes from earlier data, with Valencia crop estimates up slightly. Critically, the FCOJ yield estimates increased from 1.57 to 1.58 gallons per box for all grades and 1.65 gallons per box for Valencia up from 1.62. With supply now stable/slightly improved we are approaching this short position with a degree of confidence tempered by the volatile nature of the market and the knowledge that, as of April 1, as much as 85% of this harvest was still in the fields.”
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