Hot Commodities: Orange Juice Futures Lead Commodities For 2012

With almost an entire month in the books, 2012 is shaping up to be a strong year for commodities, as a number of these investments have produced handsome gains. Futures for gold, cocoa, and silver have garnered a fair amount of attention, delivering eye popping gains in a relatively short period of time. But for those looking for a truly hot commodity, no product has been able to outdo orange juice. While these futures are certainly more obscure than something like gold or oil, their gains for the year are impossible to ignore [see also 50 Ways To Invest In Agriculture].

The Juicy Details

Thus far, orange juice futures have jumped by nearly 26% for the year. These gains have gone largely unnoticed due to the relatively low popularity as well as limited access that this commodity offers to investors. Still, the impressive rally is not without its reason, as there is a lot going on behind the scenes of this favorite fruit. The Food and Drug Administration has very strict policies on imports, and orange juice is no exception. Each import of orange juice needs to be tested for certain chemicals, and a recent shipment from Brazil tested positive for fungicide. Fungicide are chemical compounds used to kill fungi, but they are toxic to humans when consumed in certain quantities. The FDA “said 11 of 80 shipments sampled from Brazil and Canada contained carbendazim [a common fungicide] at concentrations of 10 parts per billion or higher” writes Marving G. Perez.

Brazil is the world’s top producer of this commodity, so the inedible shipment put a real blow on markets. On top of this, Texas, a major growing region for oranges, has been having trouble with a citrus-greening disease that wreaks havoc on crops. This has put a major bottleneck on the supply side of the equation, causing prices to soar. Another factor to consider is the weather patterns that are exhibited through out the country. Thus far, our relatively mild winter has saved U.S. crops from frost damage, but a string of cold days could put even further pressure on this commodity and send futures prices even higher [see also The Ten Commandments of Commodity Investing].

How To Invest

The question still remains, how the heck can one invest in something as obscure as orange juice? There are options for those interested in hopping in on this trend and we outline several of them below [see also 12 High-Yielding Commodities For 2012]:

• FCOJ-A Futures/Options: These investments are offered on the ICE with contracts extending out through late 2014. FCOJ stands for frozen concentrated orange juice and the contracts are given the appropriate ticker of OJ. Each contract represents 15,000 pounds of orange juice solids with prices quoted in Cents and hundredths of a cent to two decimal places. This is the most direct and most appealing way to make a play on current trends.

• Dole Food Company (DOLE): Dole is the largest producer of fruits and vegetables in the world, with orange juice being one of their staple products. Though this will certainly not be a direct play, it is worth noting that the stock has seen some heavy upward momentum over the past few trading sessions which could be attributed, in part, to the spike in this commodity.

• Fresh Del Monte Produce (FDP): This company is based in the Cayman Islands and handles the production, transportation, and distribution of fresh fruits and vegetables around the world. Orange juice and oranges also make up a decent portion of revenues, but it should be noted that FDP’s stock does not appear to have reaped the benefits of this jump, though the potential certainly remains.

Investors may be surprised to not see names like Tropicana and Minute Maid on this list, the two of which are owned by Pepsi and Coca-Cola respectively. Though they are some of the biggest names in orange juice through out the U.S., their influence on stocks like PEP and KO will likely be so minimal that it is not worth utilizing these companies for even the most indirect exposure.

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Disclosure: No positions at time of writing.