VOL. 109 | NO. 52 | Monday, December 18, 1995
12/18 jts invest. foc.
Frozen juice futures explosion points up commodities growth
By JAMES SNYDER
The Daily News
This week, blood covered the floor of the New York Cotton Exchange, the center for commodities trading.
But it wasnt exactly blood, not quite. Try orange juice. Frozen concentrate, to be exact.
Tuesday afternoon the Department of Agriculture released its annual crop production report, which showed a decrease from last year in juice yield from the fruit. Orange production overall posted a 1 percent increase over predictions for the year.
The result: trading volume in frozen concentrated orange juice commodities nearly septupled as traders poured into futures and options to capitalize on increasing prices under decreased production.
The frozen OJ concentrate futures soared past the last volume record of 10,292. The average daily volume for frozen OJ concentrate futures contracts is 2,675, according to Ann Bruch, assistant vice president of marketing for the Citrus Associates of the New York Cotton Exchange (CANYCE). Calls and puts for juice options scored their respective second and third largest volume in history.
All that with the second largest orange crop on record.
Futures in this particular commodity are very active this year, up 7 percent over 1994, according to CANYCE.
Commodities as a whole are growing, paced by a swelling, consuming global economy. Demand in the Far East for wheat, soybean and corn continues to grow as the economies expand.
But when economies grow, demand for commodities increases and supply becomes tight. Thats a formula for intense price volatility, which follows growth, as the concentrated OJ market shows.
Commodity prices usually follow the most volatile element of all the weather. The crop production report had as much impact on orange juice as did the recent Siberian Express cold system that moved through the South and hit Florida last week.
Other variables, such as pest infestation, impact production and continue along to hit the commodities market.
"There are so many (variables), theyre sort of hard to count," said Glenn Kiersky, a financial consultant for Merrill Lynch in Memphis.
When following commodities, if you read about something in the newspaper or see something on television, its probably too late, Kiersky said.
"You have to anticipate what you think is going to happen in each commodity with all the variables out there and try to make some sort of intelligent judgment," Kiersky said.
But the market is difficult thats what makes it volatile.
"Its a very humbling market. You are wrong a lot of times," Kiersky said. "Thats the nature of the beast."
A trader can anticipate and forecast only so far, Kiersky said, when elements take over.
"All of a sudden, it rains," he said. "Everything that you thought is right out the window and youve got to go back to square one."