Postcards: Cornering the Frozen Orange Juice Market

When the Duke Brothers tried to corner the entire frozen orange juice market in Trading Places, they couldn’t have dreamed of today’s market conditions.                                                                                                                                                                                                                                                                                                                                                                                                                 Forwarded this email? [Subscribe here]() for more [Postcards: Cornering the Frozen Orange Juice Market]( When the Duke Brothers tried to corner the entire frozen orange juice market in Trading Places, they couldn’t have dreamed of today’s market conditions. [Garrett {NAME}]( Oct 30   [READ IN APP](   "Commodities are agricultural products... like coffee that you had for breakfast... wheat, which is used to make bread... pork bellies, which is used to make bacon, which you might find in a 'bacon and lettuce and tomato' sandwich." - Randolph Duke, Trading Places [Upgrade to paid]( Dear Fellow Expat: When the Duke Brothers tried to corner the entire frozen orange juice market in Trading Places, they couldn’t have dreamed of today’s market conditions. On Monday, orange juice prices shot up another 10%, aided by bad weather, crop disease, and a sharp decline in orchards across the Florida Republic. TradingEconomics.com Prices for orange juice are up more than 270% since 2020, and the publication “The Takeout” featured the headline “[Orange Juice is Now a Luxury Item]( Wells Fargo predicts that this year’s orange crop will be the smallest since 1936-1937, around the time of the second economic depression of that decade. Zerohedge also notes the U.S. Department of Agriculture projects a 33% drop in citrus production this year. Midjourney: “1970s Orange Orchids.” One of the big problems is a “greening disease” spread by tiny insects called citrus psyllids. The bacterial disease in the trees can’t be cured – as it blocks nutrients and water from feeding the tree. One farmer told the Wall Street Journal that he thinks every tree is infected. So, farmers are walking away from the orange production industry. They turn to other crops, raise cattle, or sell the orchards. The latter has been a big trend here in Florida, as there’s a lot of money to be made selling land to home developers. These trends only put more pressure on the supply picture. The greening and weather problems aren’t just hitting the U.S. They’re hitting Brazil, the world’s top producer, and Mexico. However, most articles on the subject are heavily focused on the supply side. This whole other part of economics is demand, which we must eye. Two things: One: The orange juice market is expected to increase by 2.6% annually from 2022 to 2028 due to demographics and growing demand. There aren’t many substitutes for orange juice unless you think your five-year-old likes lemon juice or Gatorade. Two: don’t forget that the United States printed an incredible amount of money in 2020 and 2021. Go back far enough, and the Fed’s monetary policy, Congress’s massive stimulus efforts, and a big increase in the money supply creates a condition of too much money chasing finite goods. It's not just a supply crunch. The financial media can’t let the government and the central bank off the hook for their policy decisions that foster inflation. [Upgrade to paid]( Expectations for Orange Juice So – what will be the course correction here? We could see a sharp drop in demand – as consumers (already watching breakfast prices explode) turn to cheaper alternatives. But again, there aren’t many substitutes – and alternatives like coffee are also surging. It’s not just orange juice that’s making a manic run higher. Commodities like cocoa, coffee, rice, and palm oil also made significant runs higher. We should see a supply increase in reaction to the prices, but that might be several years away. The adage goes that the cure for high prices is high prices, as production should react. But Brazil has said this market will take some time to balance out. In the same article at Zerohedge, the authors cite a conversation between Luis Ribera, an economist at Texas A&M AgriLife Extension Service, and [Yahoo! Finance](. “If you're already part of a big player, you're going to invest more into your orchards," Ribera said, adding, "You would expect that in the next couple of years, things [will] get a lot better." This will take some time to correct course. Americans are looking at higher costs of breakfast staples… For now, it might be cheaper to drink champagne in the morning and leave out the juice at this point. Investing in Agriculture I have a master’s degree in agricultural economics from Purdue University. And despite my knowledge, I’ll tell you investing and trading soft commodities is NOT for the faint of heart. It’s easy to chase prices in this sector. During the war in Ukraine, too many people were trying to chase higher wheat prices, only to experience losses on various ETFs that trade commodity futures. If you don’t know the orange juice industry deeply, it might make sense to sit this out. Even crops like corn and soybeans are notoriously difficult for new traders, and I’ve ALWAYS had more success in the oil and natural gas markets. That said, I generally advise retail investors to avoid the temptation to trade any ETFs with soft commodities. It can go sideways quickly, and there are constant reactions to government reports and weather conditions. Try a different approach. Agriculture is an incredible sector – and there is money to make in the production. Instead of trying to chase orange juice prices higher – consider using our Equity Strength Signals on consumer defensive stocks like Pepsi Co. (PEP) or Coca-Cola (KO)… the two companies that dominate the global orange juice market. That said, I find both companies to be expensive – trading at PE ratios of 27x and 22.5x, respectively. Both are great businesses with a long-term track record of success… and plenty of diversification from any changes in the juice markets. My preferred investment is more conservative and plays the long-term trends in the agricultural market by focusing on the demographics and the production picture. Archer Daniels Midland (ADM) and [Deere (DE)]( are my preferred long-term exposures to agriculture. [Deere's technology will be invaluable]( to a trend of increasing populations over the next 30 years. By 2050, the world population could explode to 10 billion people, increasing global food demand by 50%. Stay positive, Garrett {NAME} Invite your friends and earn rewards If you enjoy Florida Republic Capital, share it with your friends and earn rewards when they subscribe. [Invite Friends](   [Like]( [Comment]( [Restack](   © 2023 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()