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#SaxoStrats
Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Medium term
Trade view / 30 July 2014 at 12:55 GMT

Orange juice breaks below 200-day moving average

Managing Partner / Spotlight Group
United Kingdom
Instrument: OJU4
Price target:
Market price:
Background

As the US markets closed last night, the spot price of US Cents 144.80/lb closed below the 200-day moving average of US Cents 147.59/lb. Usually, this is a highly significant event. However, the same phenomena was witnessed as recently as June 26, 2014.

On that occasion, the collapse in spot price lasted just two trading sessions although the rebound only had sufficient strength to retrace 38.2 percent of the previous range marked as “A – B” in the following chart.
OJ
Source: www.investing.com, ICE, Spotlight Ideas

Florida’s Department of Citrus says that retail sales of orange juice in the US dropped to 37 million gallons during the four weeks to June 7, which was a decline of 12 percent from the same period last year. That news led to a 13.48 percent decline in the commodity price.

Sales have not fallen because orange juice has fallen in popularity; rather, the retail price rose by 15.0 percent in the year to June 23. Retail sales in the US have fallen to their lowest levels in 12 years.

A similar pattern has built in July as orange juice retail sales fell to the lowest level in 12 years as US consumers bought 36.11 million gallons of orange juice during the four weeks ended July 5, down 8.3 percent from a similar period a year ago (Florida Department of Citrus).

• This was the lowest level of total sales since the four weeks ended January 19, 2002.
This is a market that presents quite a conundrum as the weak level of demand has surpassed fears of a hurricane damaging Florida's next crop. Weather patterns show a disturbance in the Atlantic Ocean carries a 70 percent chance of tropical cyclone formation in the next 48 hours, (National Weather Service).

In years gone by, such news would have boosted the price of the orange juice market. It is not unknown for tropical storms and hurricanes that afflict Florida to have ripped the growing fruit from the tree.

Right now, there is nothing in either the immediate future or on the long-term chart that indicates a major storm is going to threaten production. That said, with a capricious natural element such as the weather, all traders of agricultural commodities will be keeping a watchful eye on weather system developments in the Atlantic.

Management and risk:
One has to be aware that supplies at retailers across the US are at low levels. However, I see that just as sensible inventory management. No one will carry large stocks if the demand has diminished. There is more scope for a deeper price retreat.

Parameters: All US Cents / lb
Entry: 144.80
Targets: 141.64…135.89…128.78
Stop: 154.50
Time horizon: Medium-term.


-- Edited by Kevin McIndoe 


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