n Long-term contracts with fixed
predetermined prices; n Long-term contracts with or
without a guaranteed minimum price and with price triggers indexed to the audited averages, obtained from the selling prices from the industries to bottlers;
As in other commodities, the orange market is influenced by supply and
processing is a ritual that takes place between April and
demand. However, it’s not only consumption that determines the pricing, since
December. However, there is a heavy concentration from
there have been no major changes in volumes exported by Brazil in nearly a
September to November, when the majority of the crop reaches
decade. The main factor that determines the price of a box of oranges (and
ripeness. The sale of fruit occurs at the factory gate and growers
consequently orange juice) is the supply of fruit, influenced by the world’s two
can choose not only the company they want to sell their fruit to,
major citrus-growing regions: São Paulo (Brazil) and Florida (USA).
but also the type of contract that best meets their needs.
As shown in the graph below, the ups and downs both in oranges by the box
Among the most commonly used types of contract, there are
and orange juice quotes in New York are directly tied to climatic effects that
two major groups: sale on the spot market, whereby growers
impact the supply of the fruit.
receive the quote of the day for their fruit; and medium- and long-term contracts, in which growers may choose minimum and maximum price variables depending on their marketing strategy. Then there are those fruit suppliers that make both
The price that the industry pays for oranges is a result of current and future international juice prices, as well as market expectations regarding future supply and demand of oranges at the time that each orange purchase contract is negotiated.
n Long-term contracts with or
types of bargaining: they lock their costs with medium- and
without guaranteed minimum price directly linked to daily quotes and annual averages of the price of the commodity on the New York Stock Exchange;
long-term contracts and use the spot market as a way to wager
Another factor to be considered in competitiveness is the import tariffs paid
on the market.
in the United States and Europe for entry of Brazilian orange juice, plus the
n Orange purchase contracts during
2007/2008 and 2008/2009, producers with long-term contracts
the harvest at the price of the day, known as the spot market;
logistics and port costs incurred on the Brazilian product to be shipped to these destinations.
were benefitted more than those who chose the spot market.
n Long-term lease or sharecropping contracts.
However, in the 2009/2010 harvest, those who opted to sell oranges in the spot market earned more money. There is no
Comparative analysis of production and consumption of orange juice at 66° brix equivalent and the price of FCOJ on the New York Stock Exchange
perfect model, and each farmer must study the pros and cons most income.
Destination of orange production in the brazilian citrus belt
From the total volume available to industry
14% Fresh fruit for consumption
15% Used for NFC 85% Used for FCOJ
Source: “O Retrato da Citricultura Brasileira”, 2010. Prepared by Markestrat based on CitrusBR data.
Production Demand Production and Consumption of Orange Juice in thousands of metric tons in values equivalent to 66° brix
of each model and choose the strategy that will bring in the
86% Available for industry
31
Each type of contract offers risks and rewards. In the harvests of
Pricing
THE ORANGES MARKET
Example of Contract Types:
The coming and going of fruit: The delivery of oranges for
2.700
2.600
2003/04 Very high inventories of juice due to good harvests in Brazil and Florida keep prices low on the New York Stock Exchange.
Quotation - NYSE 2008/09 e 2009/10 Two consecutive smaller harvests in Brazil and Florida reduce global inventories of juice and raise the stock quotes staring in mid-2009.
$ 180.83
2.500
2.200
$ 170
$ 150
2.400
2.300
$ 190
$ 127.92
2004/05 e 2005/06 Successive hurricanes in Florida decrease the juice production in the region raising NYSE quotes to record highs.
$ 124.30
$ 122.55
$ 130
$ 110 2006/07 e 2007/08 A combination of good crops in Brazil and Florida, plus the drop in demand for juice following the trend started in 2004/05, raise world inventories too high, pressuring the stock quotes for heavy losses in the 2008/09 season
2.100
$ 83.91 2.000
$ 90
$ 85.74 $ 70
$ 66.95 1.900
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
$ 50