For a 15,000 pounds contract, he will receive $21,900. An increase in consumption in the country where the oranges are grown could reduce the export supply. Start trading with IFC Markets We are ready to support you with any kind of questions, 24 hours a day. FCOJ traders must carefully monitor climate conditions in key growing regions; Growers in Florida harvest 96% of the crop by hand using wooden ladders and canvas pick sacks. Source: United Nations Statistical Database, 2005 figures. By paying a fraction of the cost in the form of an option premium, the producer and consumer can effectively protect the downside risk and yet keep the upward profit/saving potential high. Once the hurricane passes, prices will adjust to reflect the actual damage suffered by the crop. Consumers could stop viewing orange juice as a health drink and move on to other beverages, as has been happening in the United States. They are also a little easier on the wallet when it comes to commissions and fees. Trading orange juice options is advisable only for experienced traders who have sufficient knowledge in options trading. The orange and orange juice demand and supply report from U.S. Department of Agriculture covers estimates across all orange-producing regions in the United States and abroad. One such futures contact is worth 15,000 pounds of concentrated orange juice solids. The value of a CFD is the difference between the price of FCOJ at the time of purchase and its current price. Orange juice futures CFDs are quoted in US dollars per 100 pounds (1 CFD includes 100 pounds, 1 lot contains 800 of 100-lbs equivalent juice packs). His net cost will be 114.5 cents * 15,000 pounds = $17,175. Our commodity experts created two sets of guides. Because oranges are perishable, the futures contract tracks frozen concentrated orange juice (FCOJ). It is a staple on breakfast tables the world over, and is also used as a cooking ingredient in many countries’ cuisines. Multiple financial instruments, like futures and options, are available for trading orange juice. The VanEck Vectors Agribusiness ETF focuses on investing in the stocks of companies that operate in agriculture. Since this month began, juice prices have picked up another 1.4% on production concerns. American Options Allow Investors to Exercise Early to Capture Dividends, If the price of orange juice declines to 110 cents per pound, the long orange juice put option will come. This particular form is suitable for storage and fits one of the criteria for inclusion in the futures arena: that the underlying commodity be deliverable. Aside from their juice, oranges are used for their peels which can be turned into scented oil for candles and perfumes, as well as for their flesh which is extremely rich in vitamin C. Because oranges are perishable, the futures contract tracks frozen concentrated orange juice (FCOJ). Around 98 percent of U.S. oranges come from Florida, where the crop is susceptible to extreme weather events like hurricanes or unexpected cold snaps that can wipe out the entire season’s crop. This futures contract will give him the right to sell the oranges at this predetermined price (135 cents/pound X 15,000 pounds=$20,2500). The orange farmer selects the option contract with strike price of 135 cents and the expiry in June, which is when his crop will be ready. Government policies, local labor laws, and international trade developments can impact orange production and supply. He will sell his orange crop at market rates of 133 cents. If the price of orange juice stays around the same levels (say at 133 cents) at the time of expiry, the option will get exercised. Hedging is accomplished by derivative products like futures and options which can be efficiently used by producers as well as consumers to accomplish risk management. If the price of orange juice rises to say 150 cents at the time of expiry, the option will expire worthless (as the current price is higher than strike price of the put option). Apart from hedging scenarios, traders actively make speculative bets on orange juice contracts to benefit from price changes and arbitrage opportunities. Ratio spreads using options fits those instruments which have high volatility skew (i.e., high levels of variations in volatility between ITM, ATM and OTM options). If the price of orange juice stays around the same levels (say at 137 cents/pound) at the time of expiry, the option will get exercised (as the current price is higher than strike price of the call option). The lockdowns may be over, but not for orange juice. a revolution in orange juice extraction VSS – Vertical Squeezing System, a unique internationally patented system able to squeeze the oranges separating the bitter oils of the peel from the juice, maximizing the yield and avoiding waste, with the highest standard of cleanliness and hygiene. In fact, the majority of oranges for orange juice are grown in two locations, Florida and Brazil. Frozen concentrated orange juice futures had their best rally in four months in October, gaining 3.7%, as adverse weather hit citrus groves in Florida. An American option is an option contract that allows holders to exercise the option at any time prior to and including its expiration date. The current price of one unit of FCOJ is 135 cents. The ICE exchange report (Source: CRB-Infotech) provides the following illustration: Traders should also be aware of how changes in consumption habits can affect orange juice prices. Deducting the 4 cents he paid as option premium, his net sale price is 131 cents/pound (133 + 2 - 4 = 131 cents/pound). The offers that appear in this table are from partnerships from which Investopedia receives compensation. Brazilian orange juice companies used this cash influx to come into the U.S. and buy out Florida's production facilities, making Brazil a financial backer of much of America's orange juice. However, he will be able to sell the orange crop at market rates of 150 cents per pound. Orange juice options on ICE futures exchange are taken as examples cited throughout the article. Brazil also suffers from droughts from May to June which can affect the orange crop. She selects an option with strike price of 135 cents and expiry date of six months in the future. No. The farmer will not be able to exercise the option and will not get the short futures contract. These futures are traded in the Intercontinental Exchange. Orange Juice Put Option Calculations at Expiration. Orange juice futures CFDs are quoted in US dollars per 100 pounds (1 CFD includes 100 pounds, 1 lot contains 800 of 100-lbs equivalent juice … Aside from home gym, video conferencing and delivery services, a winner in commodities may be orange juice. I explored many different concepts when I first decided to invest in a franchise, but I was immediately drawn to Booster Juice because of the companies vision for future growth, head office support and easy operations processes. Brazil is by far the largest producer of oranges, although the United States — primarily Florida — is also a major player. Brazil tops the orange-producing nations list followed by the United States. A common grocery orange that comes in several varieties including Cara cara, Bahia and dream navel. What is an Orange Juice Options Contract? The hurricane season common in the Florida region, for example, can have a significant impact on the prices of oranges both on the spot market and in the futures market. Hurricane forecasts can result in steep price rises as traders anticipate damage to the orange crop. Long options also limit the losses (capped to option premium paid), while futures have unlimited loss potential on both long and short positions. Orange juice futures hit record highs last week, as frozen concentrated juice rose to to $2.2365 a pound, a 50% climb so far in 2016. If the damage from bad weather turns out to be less than expected, prices can retrace back to where they started. Many scientists attribute increased hurricane activity in Florida to global warming. The buyer will get the long futures position at 135 cents. Investing in Orange Juice through Future Market Contracts, What to Consider When Buying Put Options in Stock Trading. The FCOJ contract is available for trade on the New York Board of Trade (NYBOT). In anticipation of the winter freeze damaging the orange crop and reducing supply, prices often go up in November. A soft commodity is a grown agricultural commodity such as coffee, cocoa, sugar, and fruit. There are several styles of juicers but they operate on similar principles. She can square it off at the converging price of 150 cents, as gaining (150 – 135) = 15 cents from the futures position. Plain Celery Juice In A Blender Recipe. However, she will be able to buy the oranges at the market rate of 110 cents per pound. ETFs Plays On Orange Juice While there aren’t any exchange-traded products that offer direct exposure exclusively to orange juice prices, there are several ETFs that include orange juice exposure either through futures or indirectly through equities of companies in the food industry, including: Here are the contract specs for both: Oranges are widely grown in the western hemisphere, particularly in Florida and Brazil. Scroll down this page and follow the links. The farmer is nervous about a price drop in oranges in near future, so he wishes to secure the minimum sale price of oranges (to say around 130 cents/pound) for when his crop is ready. Orange juice is largely produced for human consumption. They serve as a juice price benchmark and provide provide opportunities for portfolio diversification and hedging. His net cost will be 134.5 cents * 15,000 pounds = $20,175. Factors impacting orange price and orange option valuations: Any agricultural commodity is affected by weather and disease. -Cut and squeeze the juice of the lemon into your strained juice. She will buy her oranges at market rates of 137 cents. Although orange juice remains primarily an ingredient in the composition of low-juice drinks, the annual growth of volumes sold locally has been more than 20 % in the past 10 years. He pays upfront an option premium of 4 cents per pound (4 cents X 15,000 pounds=$600). Orange juice futures CFDs are quoted in US dollars per 100 pounds (1 CFD includes 100 pounds, 1 lot contains 800 of 100-lbs equivalent juice packs). The physical settlement of one contract equal to 15,000 pounds of orange solids is done through delivery in drums or tanks. Buying the put option will give the orange farmer the right, but not the obligation, to take a short position in one orange juice futures contract at the predetermined price of 135 cents at the time of option expiry. Commodities Analysis by (Barani Krishnan/ covering: Orange Juice Futures. Orange juice is one of the few actively traded contracts in the futures markets that’s based on a tropical fruit. The reduction in consumption can lead to price declines. Soft Commodities, which include cotton, cocoa, orange juice, coffee, sugar, are now finding place in trading portfolios of active market participants as an alternate class of tradable securities. As daily record highs in US coronavirus cases bring us closer to the grim prospects of Lockdown 2.0, products, services and markets best equipped for the ordeal will thrive. Those who are hell-bent on green juice will have to shell out a little more for a cold-press juice extractor. The farmer is looking for a hedge or price protection on his crop. Both countries are impacted by hurricanes and unseasonable freezing and frosts. She can buy oranges at the market price of 150 cents, taking the total buy price to 139.5 cents/pound (150 – 10.5 = 139.5 cents/pound). Among its top holdings, you'll find companies in the farm equipment, seed and fertilizer, animal health, and food transport and processing industries. Mentions of oranges or orange juice refer to one unit of frozen concentrated orange juice. Orange juice trading has become popular globally and trading volumes continue to increase. Already America’s favorite breakfast staple along with eggs, bread and ham, orange juice won new love from commodity investors through the height of their stay-at-home as it handily beat oil, copper and corn to deliver double-digit gains on the year.. In orange juice options trading, the underlying asset is one FCOJ-A futures contract. This comes at the cost of the option premium of 4 cents/pound. Aside from home gym, video conferencing and delivery services, a winner in commodities may be orange juice. Orange Juice ICE Futures Contract. Orange Juice Call Option Calculations at Expiration: In this case as well, using orange juice options guarantees a maximum capped buy price in all scenarios, with the benefit of lower buy price in case of market price declines. The orange juice maker will get the long futures contract at a predetermined 135 cents and can square it off at 137 cents, giving her a profit of 2 cents/pound. Looking for Orange Juice: How to make and bottle your own homemade canned orange juice in 2020? The production of oranges is very sensitive to weather. A put option gives the farmer the right to sell the underlying asset at a specified sell (or strike) price within a certain timeframe. His risk is limited on the downside with a guarantee of minimum price level (131 cents), plus he is able to benefit from the upward price moves. Orange juice option traders should be aware of these dependencies. Short options do require margin capital. Get detailed information on the TR/CC CRB Orange Juice including charts, technical analysis, constituents and more. Ingredients-1 bunch of organic celery, ends and leaves chopped off, washed and chopped -1/2 cup water. The ICE Exchange has FCOJ A options available for trading across the cities of New York, London and Singapore, ideally covering all geographical locations across APAC, Europe, and the United States during the 24-hour cycle. He can then use that futures contract to take one of several actions: trade (sell/buy) the futures contract, exchange the contract for physical orange juice, or roll over the contract to the next term futures contract. Here is the volatility graph as available from ICE exchange report (Source: CRB-Infotech): Such varying volatility leads to high volatility skew, which makes orange juice option contracts suitable to trade ratio spreads. A stock option gives an investor the right, but not the obligation, to buy or sell a stock at an agreed upon price and date. To gain price protection, the processor can buy one orange juice call option. Make sure to take into consideration weather and seasonality when investing in FCOJ futures. Lack of storage and processing capabilities before 1950 restricted the orange juice to what was called a same-day consumption commodity or a perishable commodity. The ICE (Intercontinental Exchange) Orange Juice futures contract, tracks the movement of frozen concentrated orange juice that is delivered to a regulated Intercontinental Exchange delivery points, in Florida, New Jersey, and Delaware. She paid the upfront option premium of 4.5 cents taking net profit to 10.5 cents/pound. A long position conveys bullish intent as an investor will purchase the security with the hope that it will increase in value.