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Bill Radke: Frozen orange juice prices have been swinging wildly the last week and a half. Frigid weather in Florida is the reason why. Prices fell sharply Monday on signs the orange crop will escape severe damage. Yesterday, the USDA made no change to its forecast for Florida orange production, but the department warned estimates do not account for any damage from cold weather in recent days. Is any of this ringing a bell? It did for Marketplace’s Sally Herships.
Sally Herships: For me, the real star of the 1985 movie Trading Places wasn’t Dan Aykrody or Eddie Murphy. It was the Department of Agriculture’s crop report on orange juice production.
In the movie, the corrupt Duke Brothers bought an early peek at the crop report. It told them whether their trader should buy frozen concentrated orange juice or sell.
Trading Places: We want you to buy as much OJ as you can the instant trading starts. Don’t worry if the price starts going up. Just keep buying.
I went downtown to the World Financial Center to meet a real-life orange juice trader. Jonathan Kleisner trades for Rex Capital. He was also an extra in the movie. He says there are a lot of similarities between Trading Places and what happened in the market this week.
Jonathan Kleisner: It’s actually pretty interesting how close those stories are. The only difference being that one was a crop report story, the movie, and this was a weather phenomenon.
Kleisner doesn’t actually buy and sell orange juice. And neither did the Duke Brothers. They trade in futures. A future is an agreement to deliver a certain amount of a commodity — in this case orange juice — on a certain date.
Traders like Kleisner buy and sell those contracts. But they never actually take delivery of the juice itself.
Kleisner: I don’t want orange juice, I don’t want to take delivery of orange juice.
Herships: You want to sell it before you get it.
Traders make their money by betting on supply and demand. When the weather’s bad in Florida, it creates a lot of uncertainty about supply. And that can make the price of OJ bounce up and down.
Kleisner: Last week, it was up about 20 percent, and on the opening, it was down 12 percent, which I think makes for that kind of drama you saw in the movies.
In Trading Places, the Duke brothers were expecting a shortage of oranges, so they bought lots of futures. Just like some real-life traders did last week.
In the movie, the report turned out to be bad, not the weather, and the Dukes lost a bundle. This week’s crop report also took a lot of traders by surprise. It said the Florida freeze won’t hurt production as much as many expected.
Herships: If the Duke Brothers were here and if they had made their bet last week, they would have lost everything all over again?
Kleisner: Many of the folks who tried to predict higher prices coming into this morning have a lot less money than they did on Friday afternoon.
Kleisner: Yes, indeed ouch.
In New York, I’m Sally Herships for Marketplace.
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