Orange juice prices on the rise thanks to ‘perfect storm’

John Dimsdale Jan 12, 2012

Orange juice prices on the rise thanks to ‘perfect storm’

John Dimsdale Jan 12, 2012

Steve Chiotakis: The Orange juice commodity is trading at near record levels this morning, after some troubling news about Brazilian oranges. It’s gonna take a while for that Brazilian news to sour prices here in the U.S. But what’s happening with orange juice is a perfect example of what’s happening in the global commodities market.

Marketplace’s John Dimsdale is with us live from Washington to explain. Hey John.

John Dimsdale:Good morning Steve.

Chiotakis: So explain to me — what’s going on with the orange juice market in the first place?

Dimsdale: One trader is calling it “the perfect storm.” The weather in Florida, where most juice oranges are grown, has been really cold — close to freezing. And when that happens, many juice makers turn to imports from Brazil. But there’s a problem there: the Food and Drug Administration has found traces of a fungicide that’s used to combat mold. And there are rumors the government might ban Brazilian imports and pull existing imported juices from grocery shelves.

Chiotakis: So John, why is orange juice so sensitive to these influences like weather and disease?

Dimsdale: Well, it’s a delicate fruit. California and Florida have the climate for it here; Brazil has the same climate in the southern hemisphere. And like many commodities, the price closely follows supply.

But Kevin Kerr, an orange trader at Kerr International and senior analyst at Money and Markets, says at some point consumers push back against the cost.

Kevin Kerr: There’s an old saying in commodities trading: the cure for high prices is high prices. Of course, if we see prices go too high people are going to switch to alternatives. Orange juice is not a required staple for people to live. So they will turn to other things and that will bring down prices eventually.

He says that when customers start drinking tomato juice instead, the cost of orange juice eventually will come back down.

Chiotakis: Marketplace’s John Dimsdale reporting. John, thanks.

Dimsdale: You’re welcome.

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