Who Invests and Trades Orange Juice Futures?
Orange juice futures offer market participants a way to hedge their risk. Producers and Marketers of orange juice can minimize the risk of price fluctuations in the orange juice market by using a short hedge, which locks in a fixed selling price for the orange juice that they produce. Thus futures allow them to get the specified amount in the contract, even if prices fall in the future. Consumers of orange juice, like retailers, can use a long hedge to set a fixed purchase price for a specified quantity of orange juice as per their need.
Orange juice futures are also traded by speculators. Speculators have no vested interest in the underlying asset, that is, they will neither deliver orange juice nor take delivery for orange juice. They trade in and out of orange juice futures only based on speculations about the price fluctuations of orange juice over the trading period. They take on the price risk that hedgers are trying to avoid, because they hope to profit from the price movements.
Orange Juice Futures Contracts
Orange juice futures are traded electronically on the Intercontinental Exchange (ICE) under the symbol “OJ” with a single contract representing 15,000 pounds of orange juice solids (3% or less). The contracts are quoted in cents and hundredths of cents per pound, and contracts are listed for January, March, May, July, September, and November. The minimum price fluctuation is of $0.0005 per pound. The contract is settled by physical delivery of U.S. Grade A orange juice, that has a Brix value (measures the mass ratio of dissolved sugar to water in a liquid) of over 62.5 degrees, as per USDA standards. The Brix system ensures uniformity and quality control across different supplies of orange juice. The orange juice can originate from the U.S., Brazil, Costa Rica or Mexico and can be delivered to licensed warehouses in several locations across the U.S.
The ICE offers both “Frozen Concentrated Orange Juice” and “Not from Concentrated Orange Juice” futures.