In my Q3 soft commodities report on Barchart, I highlighted the 6.55% rise in ICE FCOJ futures in Q3 and the 52.56% price increase over the first nine months of 2024. Nearby FCOJ futures prices settled Q3 at $4.6105 per pound after reaching a record high above the $5 per pound level. I concluded the quarterly report with general comments about the bullish price action in FCOJ and the other soft commodities, writing:
Soft commodities were the best-performing sector of the asset class in 2023, over the first nine months of 2024, and in Q4 2024. The higher prices rise, the greater the odds of corrections. However, the sector’s trend remains bullish in Q4 and beyond, and the trend is always your best friend.
FCOJ were higher in late December 2024 and were heading for another quarterly gain as the bullish trend continued.
FCOJ futures are trading over $5 per pound
Frozen concentrated orange juice futures on the Intercontinental Exchange were over the $5 per pound level in late December 2024.
The quarterly continuous FCOJ futures chart highlights the price level around the $5.04 per pound level. The continuous contract futures settled at $3.1255 at the end of 2023, and with a few days to go in 2024, the price has appreciated by over 61% and has reached a new record peak.
Brazilian weather has caused supply concerns
Brazil is the world’s leading orange-producing country.
The chart illustrates that Brazil produces twice as many oranges as second-place China. While many believe that California and Florida sunshine produce significant orange crops, the U.S. is the sixth-leading producer, with an output of only 15% of Brazil’s.
Poor weather conditions and crop disease in Brazil have caused supply issues in the orange market, sending prices to record highs. FCOJ is not the only Brazilian agricultural product that has reached record highs in 2024. Arabica coffee futures have soared past the previous 1977 high in December 2024.
The level to watch in FCOJ
Like coffee and cocoa futures, the rally in FCOJ has been parabolic. FCOJ is in backwardation as the January contract rolls to March, the next active month.
The FCOJ futures curve shows progressively lower prices for deferred versus nearby delivery months. Backwardation is a condition in which the market believes producers will increase output at high prices, causing deferred prices to be discounted.
Meanwhile, the March contract just over the $5 per pound level has clearly defined support and resistance levels to watch for those brave enough to trade in the FCOJ arena.
While the daily three-month chart of FCOJ futures for March 2025 delivery shows short-term technical resistance is at around the $5.44 per pound level, support is at the October 10 $4.41 low. On the long-term chart, technical support is at the Q4 2023 $4.2880 high, with resistance at the recent Q4 2024 $5.3305 per pound peak.
Commodity cyclicality could cause a downdraft
Commodity cyclicality can be powerful as it reflects supply and demand fundamentals. During commodity cycles, prices tend to fall to levels where production declines, inventories fall, and prices reach bottoms, resulting in trend changes from bearish to bullish. Conversely, prices often rise to levels where production increases, inventories begin to build, prices find tops, and trends reverse from bullish to bearish.
The FCOJ futures curve indicating backwardation shows that market sentiment believes commodity cyclicality will eventually cause a significant downside price correction. However, picking tops or bottoms in any futures market is virtually impossible as speculative interest and other factors can lead to price levels that defy rational, logical, and reasonable analysis.
No ETF or ETN products and the futures’ liquidity promise high price volatility
The trend in any market is always a trader or investor’s best friend, and it remains bullish in the ICE FCOJ futures market. However, the trend is only your friend until it bends, which could eventually reflect commodity cyclicality dynamics.
FCOJ is the least liquid soft commodity, with the lowest daily volume and open interest. Open interest is the total number of open long and short positions in a futures market. Low liquidity tends to lead to high volatility, as bids to purchase can disappear during downside corrections, and offers to sell can evaporate during rallies. Therefore, FCOJ futures can be dangerous, as prices can gap substantially higher or lower with no exit path for market participants caught with contrary risk positions.
There are no ETF or ETN products that track the FCOJ futures market. Each ICE futures contract contains 15,000 pounds of FCOJ worth $75,000 at $5 per pound. Original and maintenance margins are $6,355/$5,778. A market participant can control $75,000 worth of the commodity with an 8.5% downpayment. However, market differences must be paid daily when the margin drops below the maintenance level.
The forward curve reflects the market’s sentiment that FCOJ will decline in 2025. However, in late 2024, the trend remains bullish, making short positions very dangerous in the commodity that offers limited liquidity. Any short positions require very tight stop-loss levels and the realization that prices could gap through the stop levels, substantially increasing losses.
