KEVIN KERR
Got juice?
Commentary: Orange juice, a risky but hot commodity
PrintE-mailDisable live quotesRSSDigg itDel.icio.usBy Kevin Kerr, MarketWatch
Last Update: 11:55 AM ET Mar 8, 2007


NEW YORK (MarketWatch) -- One market that you can always count on as a good source of weather-based action is orange juice. It often springs to mind when people think of the "wild and wooly" futures markets. It's right up there with pork bellies in the folklore department.
In reality, OJ futures can be an incredibly lucrative market to trade -- if an investor knows how to play it.
Not getting squeezed
The commodities markets are not for the faint of heart, but then again none of the markets are lately. For the investor who wants to get involved in the commodities markets, OJ can be a good place to start -- using extreme caution however.
One cardinal rule that I always teach my clients and readers is that these markets are not for capital that is simply earmarked "high risk and fully disposable." It must be truly disposable.
In other words, you could take this cash and put it in the garbage disposal or fireplace and not have to change your lifestyle. At the most, perhaps a little discomfort, like after eating a big meal -- but if you're reaching for the Bromo, this is probably not for you.
Does that mean that these aren't good investments? Absolutely not. It means that risk capital needs to be just that. Risk often involves losses even if you finish with profits at the end. Once you've established that you're truly using risk capital, then you are ready to proceed.
Why juice and why now?
Florida's orange crop and orange industry has been decimated over the last several years and the situation is getting worse. It may never get better. Hurricanes ravaged the citrus groves and wiped out whole areas of growers. Citrus diseases, spread by wind from hurricanes, have taken a toll too and still are. Citrus canker has eaten away many viable groves and damaged others.
Some growers have simply given up and sold their land to aggressive real estate developers. Those are trees that will never come back on line; a permanent loss.
Another major problem is that migrant workers, once abundant and a staple to the harvesting industry are now scarce. The Immigration and Naturalization Service and Homeland Security crackdowns have intimidated workers and led to many of them fleeing. The hurricanes have done the same thing. Growers are beside themselves when they have oranges on the trees, literally money growing on trees, and nobody to pick them. Usually the fruit falls to the ground and rots.
Last year, OJ prices surged as the crop has gotten smaller and smaller. The picture is no brighter for 2007. Citrus disease is till spreading and predictions for an active hurricane season due to La Nina have growers nervous and exhausted. Not to mention the fact that the freakishly warm weather in the early part of winter gave rise to new buds blooming on trees early in Florida. The recent late cold snap sent temps in Florida's growing region down into the 20's some nights. The delicate buds and the current oranges on the tress waiting to be picked have certainly had damage. The citrus grower organizations have been saying that there was no damage, but it seems highly unlikely.
Numbers game
The United States Department of Agriculture tracks all the crops in the U.S. and this Friday it will release its latest crop production report for OJ. Estimates are for the number to come in lower than the 140 million 90 lbs. boxes estimated by the USDA. Some expectations are for around 5 million to 7 million less. I think it's a lot lower, around 10 million to15 million -- maybe more.
If the report will actually reflect that, it's hard to tell. Government numbers often leave more questions than answers.
One thing is certain: Florida's crops have been severely impacted and the citrus industry is struggling. Much of the crop that was relied on in the past is simply gone and never to return. The hard freeze for citrus in California, while no dire