Are Commodity Bulls Getting “Juiced Up” In 2013

OptionsXpress
updated | Author's Website

Wednesday, March 20, 2013

Speculators, both large and small,have been adding to their net long positions recently, with the most recent Commitment of Traders report showing a combined net long position by non-commercial and non-reportable traders of 5,964 contracts as of March 12th. Some commercial traders have been using the recent rally as an opportunity to increase short hedges, which will need to be overcome in order for prices to breakout beyond the highs of the recent consolidation range.

Fundamentals

Traders of the “softs” have been mired in a bear market the past several months, after a general bullish tone for commodities has come to an end. Recently, we have seen some signs of life in a few of these markets, with Cotton trading at 11-month highs, and now the Frozen Concentrated Orange Juice market (FCOJ) is beginning to draw some bullish interest. The story here is the effects of citrus greening disease on the Florida citrus crop. This disease, also known by its Chinese name Huanglongbing, is thought to have originated in Asia and is primarily spread by insects. Once a tree is infected, the disease causes leaves to turn yellow and causes fruit to not develop properly and fall off the tree prematurely. The disease has cut the size of the Florida orange crop, with USDA estimates calling for a harvest of about 139 million 90-lb boxes. Though this total is similar to last year’s harvest, this is well below the 154 million box estimate by the USDA at the start of the season. In addition, juice yield estimates were also lowered to 1.61 gallons, vs.1.63 gallons last season. With no current cure for greening disease available, the effects on the Florida citrus crop will likely continue to worsen, with the average affected tree-life shortened considerably and producers being forced to remove affected trees to help prevent the disease from spreading further. Until scientists are able to successfully create a disease resistant rootstock for citrus trees, we may continue to see citrus and juice volumes decline.

Technical Notes

Looking at the daily continuation chart for O.J. futures, we notice prices trading near the highs of the 45-cent consolidation range the market has been in since May of last year. Prices have moved above both the 20- and 200-day moving averages (NYSE:MA), and the RSI looks strong, with a current reading of 69.12. A close above resistance seen at the December 20th high of 144.00 sets the stage for a test of the 150.00 price level. Support is seen at the 20-day MA, currently near the 130.50 area.

Mike Zarembski, Senior Commodity Analyst

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