Tuesday, January 12, 2010

Orange Juice Jitters

This morning I poured myself a glass of orange juice. I drank it in between bites of toast. That would normally be the end of my thinking about orange juice. But I saw this story headline in the newspaper:

Surprise Fall in the Price of Orange Juice

Without a good math background, you'd be hard pressed (indeed you would be squeezed) to figure out what they were talking about. Here are some details presented in the story - we'll call this group A:
1. The price for frozen concentrated orange juice fell 13% from the previous Friday.
2. The price for frozen concentrate fell 19.3 cents.
3. The price for frozen concentrate is now \$1.3185 per pound
4. Several previous price drops this season were slowed by a 20¢ per day fluctuation limit.
5. The USDA expects Florida's crop to decline by 17% this season compared to last.
6. The USDA expects Florida's crop to be 135 million boxes.
7. Florida is the world's second-largest source of orange juice (after Brazil)
8. A box of oranges weighs 90 pounds, or 41 kilograms.

I decided to do a bit more research before applying math to the frozen orange juice business. (OJ novices can go back to my post in November for more insights.)  I hunted around on the Internet and learned more. We'll call this group B:
1. The price of frozen concentrated orange futures is based on fixed lots of 15,000 pounds, to be delivered in March.
2. Accuweather's forecaster predicted 6% of the total 2009 crop would be lost due to this weekend's cold weather in Florida.
3. Temperatures have to stay below 28 degrees F for more than 6 hours to cause damage.
4. The price on Wednesday was a 2-year high of \$1.4965.
5. The price on Thursday was \$1.4115
6. The price on Friday had risen 7 cents.
7. Last year's crop was 162.4 million boxes
8. Prices may rise to a peak of \$1.5400.
Too much information! may be what you are thinking. Too many numbers!

You're right. Bullet points are useful in reports and overhead presentations, but presenting information as I have here makes it hard to distinguish the meaning and the categories of data. A chart would be nice, but so would a more meaningful display of the data. So let's rearrange our 16 items:

Pricing History
B4 Wednesday's price was 1.4965
B5 Thursday's price was 1.4115
B6 Friday the price went up 6 cents (did it rise to 1.4715?)
A1 Monday's price fell 13% from Friday's level (did it fall to 1.2802?)
A2 Monday's price fell 19.3 cents (or did it fall to 1.2785?)
A3 price is now \$1.3185 (apparently neither of the above were correct)

Production Facts
B7 2008 crop total output was 162.4 million boxes

Future Speculation
A5 USDA expects crop to decline 17% (would it fall to 162.4x.83=134.792?)
A6 USDA expects crop to be 135 million boxes (apparently so)
B2 Accuweather expects 6% to be lost (is that 6% of the 135 million boxes?)
B8 prices might climb to a peak of \$1.5400

Reference information
A4 several recent price drops were slowed by a 20¢ per day limit on trading
A7 Florida is 2nd largest source of juice
A8 a box is 90 lbs or 41 kilos
B1 prices are based on March delivery of 15,000 lbs of juice
B3 temperatures have to be at least 4 degrees below freezing for at least 6 hours to damage the crop

Too much information! may be what you are STILL thinking. Too many numbers!

What have we learned? The price of juice is volatile, especially in winter. What I want to know is how much the price of my morning juice will change if the futures prices change. This data doesn't tell us. But you might be able to get there from here if you want to check out today's USDA forecasts.