What the Future of Orange Juice Reveals About Our Global Landscape
Unveiling the global narrative of climate change and geopolitical unrest, the volatile fluctuations in wheat, oil, orange juice, and cocoa futures serve as a stark reminder of how extreme weather patterns and political tensions impact our everyday essentials
This story was initially featured in CNN Business Before the Bell newsletter and an audio version of the newsletter is also available. The volatile prices of wheat, oil, orange juice, and cocoa futures contracts shed light on the tangible consequences of severe weather and geopolitical conflicts on essential commodities.
Cocoa and orange juice futures have reached the highest levels in decades due to the impact of climate change and adverse weather conditions on crops in warmer regions.
In contrast, the prices of oil and wheat, which experienced a surge following Russia's invasion of Ukraine last year, are returning to normal levels despite the ongoing conflict in the Middle East.
Consumer prices may not be affected immediately, as the impact of commodity prices on goods and fuel prices takes time to filter through the supply chain. In order to maintain sales, companies often keep their final prices low despite increasing raw material costs. This could result in cost-cutting measures or reduced profit margins. Here is the latest update from the commodities market:
Orange juice
Orange juice futures have soared to their highest levels since the commodity began trading in 1966.
Following reports of limited production in the US, Brazil, and Mexico due to bad weather and the citrus greening bacterial disease, the jump in prices occurred. Furthermore, Florida, the main producer of orange juice consumed in the US, experienced the impact of two large hurricanes last fall, causing this year's orange juice output projections to be the lowest the state has seen in over a century.
According to MarketWatch, although orange juice consumption in the US is decreasing, it remains a $6 billion industry worldwide.
On Halloween, the contract prices surged to a record-breaking $4.17 per pound, marking an 83% increase compared to the previous peak.
Futures experienced a slight decline from previous peak levels last week; however, they still boast an impressive year-to-date increase of almost 58%.
As of now, the price for the January contract of frozen concentrated orange juice stands at approximately $3.95, marking a substantial rise of nearly 94% since the beginning of this year.
The rally has sparked an increase in speculative wagering, prompting certain analysts to dub orange juice futures as the new GameStop.
Speculators are frequently held responsible for volatile price fluctuations, yet they are not violating any regulations and can facilitate the liquidity of commodity markets, enabling industry participants to execute trades that benefit their businesses.
"Sometimes, these markets go beyond what we could have ever imagined. Could anyone have foreseen the price of orange juice reaching $4? The profit potential from this trade is mind-blowing," remarked Dave Reiter from Reiter Capital Investments, on X (formerly Twitter).
However, he humorously added, "The future crash in orange juice prices will undoubtedly be an unforgettable event."
Cocoa
Cocoa futures set a nearly 45-year high this week as supply fell in Ghana and the Ivory Coast, the worlds top producers of the tasty bean.
The culprit? A lack of rain.
Farmers have said that this season has been particularly dry, limiting the growth of the crop ahead of the dry season, which begins later this month in the region.
This year, the impact of El Niño weather patterns on both Ghana and the Ivory Coast, which together provide approximately two-thirds of global cocoa supplies, is expected to result in an increase in the price of chocolate treats. Mondelez International, a Chicago-based company known for Oreos, has expressed significant concern over the rising cocoa prices.
Its not just cocoa prices that are sending the confectionary industry reeling; sugar futures have risen by more than 30% this year as sugarcane crops in Southeast Asia also dry up.
Crude oil
Energy prices plummeted on Tuesday, experiencing a significant drop of approximately 4% and reaching their lowest levels since July due to concerns about declining demand. The closely monitored Brent crude price dipped below $82 per barrel, while West Texas Intermediate also fell below $80 per barrel. These crude prices have been on a downward trend starting from October 20th.
The ongoing conflicts in Europe and the Middle East pose a threat to oil supply, coinciding with the current situation. Normally, limited supplies would lead to an increase in prices; however, prices are still declining due to China's weakening economy.
"Traders do not anticipate the current Middle Eastern conflicts to escalate and impact the supply. Instead, their attention is on the demand side, with worries about economic downturns in China and other regions restricting prices," stated David Morrison, a senior market analyst at financial services provider Trade Nation.
In the meantime, energy traders eagerly anticipate the release of fresh inflation data from China, scheduled for Thursday.
Wheat
Grain futures soared last year after Russia invaded Ukraine, stoking fears the wheat exports from a region called the breadbasket of Europe would be blockaded.
Prior to the war, Ukraine held the position as the world's fifth-largest exporter of wheat, constituting 10% of global exports, as reported by the Organisation for Economic Co-operation and Development (OECD). However, following the commencement of the war in February 2022, wheat futures experienced a significant decline of 38%. This decline can mainly be attributed to the projected increase in supply and improved crop conditions anticipated from US farmers, as indicated by Nasdaq commodity analysts.
20% of US offices are vacant. WeWorks bankruptcy will make the problem worse
America has a glut of empty offices.
Numerous offices are now at risk of losing WeWork, a real estate company with over 600 locations in major cities.
The future of WeWork remains uncertain as it filed for Chapter 11 bankruptcy on Monday. The company has announced its intention to terminate some of its US leases. This bankruptcy will heighten financial pressure on commercial landlords who have leased substantial portions of their office buildings to WeWork, according to my colleague Nathaniel Meyersohn's report.
Office landlords have long been eager to lease space to WeWork, as they believed flexible office spaces were the way forward. However, these investments have turned sour, resulting in some property owners accumulating debt to survive. Trepp, a commercial real estate data provider, predicts that approximately $270 billion in commercial real estate loans held by banks will mature in 2023.
The bankruptcy of WeWork coincides with a startling statistic from JLL, a commercial real estate giant, revealing that over 20% of offices in the United States are currently unoccupied.
According to commercial real estate experts, the failure of WeWork is likely to result in increased vacancies and potentially lower rental rates for tenants. This could exacerbate the financial difficulties faced by landlords who are already struggling to meet debt payments in a high-interest rate environment. In the worst-case scenario, it could lead to defaults on loans or mortgages by landlords, which would have broader implications for the banking system and further impact city tax revenues.
"On top of existing financial challenges and declining property values, office properties could now be confronted with an unexpected surge in vacancies," stated Ermengarde Jabir, an economist at Moodys, in a report released on Tuesday.
US credit card balances see largest yearly leap on record
Reports from my colleague Alicia Wallace indicate that Americans have been shouldering a significant burden as they strive to sustain the robustness of the US economy. This endeavor, whilst noteworthy, has led to an alarming accumulation of credit card debt. Furthermore, an increasing number of individuals are finding themselves unable to meet these payment obligations.
Credit card balances reached a new peak of $1.08 trillion in the third quarter, surging by $48 billion compared to the previous quarter and skyrocketing by a remarkable $154 billion from the previous year, according to the most recent Quarterly Report on Household Debt and Credit released on Tuesday by the Federal Reserve Bank of New York. This year-on-year rise represents the largest increase since the New York Fed began monitoring this information in 1999.
An increasing number of households are struggling with managing their debt, which is becoming more expensive due to persistently high inflation and interest rates. The latest data indicates that the rate of households falling behind on their credit card payments for 90 days or more is the highest it has been since the end of 2011.
"I think pockets of trouble have started to emerge," said Ted Rossman, senior industry analyst at Bankrate.
