Here is this week’s edition of Futures File, our weekly commodities wrap-up:
Orange juice spikes
As hurricane season looms, orange juice prices have risen sharply on speculation that storms could cut into orange production. Scientists at the National Oceanic and Atmospheric Administration (NOAA) have projected a hyperactive hurricane season, increasing the likelihood that a major storm could damage Floridian orange groves. Florida is the world’s 2nd-largest orange producing region, second only to Brazil.
Even without hurricane damage, there are concerns that Florida’s crop will fall short due to citrus greening, a disease that is causing trees to prematurely drop fruit. Since last October, the USDA has downgraded its estimate of the size of Florida’s orange crop by more than 10 percent, helping to lift prices higher. During that same period, futures prices have risen by more than 50 cents per pound (+48%). As of Friday morning, frozen concentrated orange juice for delivery in July was worth $1.55 per pound, the highest price in over a year.
China loves pork
China’s insatiable appetite for meat was further exemplified this Wednesday when a Chinese meat processor tendered an offer for Smithfield Foods, the world’s largest producer of pork. This purchase, if consummated, would be the largest Chinese takeover of an American company, representing an expansion of China’s commodity control beyond metals and energy.
China is the second-largest importer of US pork, second only to Mexico, and this deal is expected to give the Chinese greater access to American meat production. China currently consumes nearly half of the world’s swine population, and demand for meat continues to rise in that nation as it industrializes.
Hogs for June delivery traded over 95 cents per pound this week, the highest price in over 10 months.
Interest rates rise
To stimulate the economy, the Fed has been pulling interest rates lower over the past few years, dropping short-term interest rates near zero and pushing long term rates, like mortgages to extreme low levels. As financial markets prepare for the US Federal Reserve to begin reducing its multi-year stimulus effort, interest rates have been climbing. Over the last six months, interest rates have rebounded, with the average 30-year mortgage rising from 3.5% to 4.0%.
The Federal Reserve is not guaranteed to withdraw stimulus in the coming months, so many traders are closely watching Fed statements and economic data to discern if and when stimulus may stop.