Orange juice futures dived almost 10 percent on Wednesday, completely reversing the previous day's sharp gains as traders reckoned fears of a U.S. import ban on Brazilian juice were overblown.
The tiny orange juice market, where a relatively small volume of trading can cause outsized moves, rallied on Tuesday on news that a fungicide banned in the United States had been detected in Brazilian juice. The U.S. Food and Drug Administration (FDA) said it would step up testing for carbendazim and might block imports from Brazil, which supplies over a tenth of the U.S. market.
The agency later clarified that the ban would not apply to those with trace doses below a certain threshold. After the close of trading on Tuesday, FDA said much of the orange juice tested by the unnamed company that reported the issue in December did not have detectable levels of carbendazim.
The chemical is allowed in other foodstuffs and was approved for use on citrus in Florida between 2002 and 2008.
While traders in the frozen concentrated orange juice (FCOJ) futures market remained anxious about the risk of a supply disruption, the frenzied buying that drove prices to an all-time high on Tuesday had clearly subsided.
The key March FCOJ contract fell 9.19 percent at $1.8865 per lb at 12.59 p.m. EST (GMT 1759) , with losses accelerating after an initial early drop. On Tuesday, the contract hit a record high of $2.07 per lb.
Prices remained up 17 percent from the start of the year and more than a third higher than the start of October, when OJ trading usually gets busier in anticipation of the harvest.
May and July contracts fell the 20-cent daily limit, with trading volume in excess of 6,000 lots making it one of the most active days in months for a market with nominal turnover that typically averages under $20 million a day -- about two-tenths of a percent as much as Chicago corn, for instance.
Selling had started early with a sell order of around 100 lots, which represents 150,000 lb of juice with a nominal value of around $280,000, deflating the market within the first 30 seconds of business, traders said.
The tiny market is susceptible to wild swings, although this week's action has been exceptional even by OJ standards. And many traders were still perplexed.
"I don't know what that's based on. I haven't heard a thing. People are extremely tight-lipped today," said James Cordier, president of Tampa, Florida-based Liberty Trading Group.
The FDA told Reuters on Wednesday it expects to have initial results of testing as well as information about any juice that is getting turned away at the border by the end of this week.
On Tuesday, the health regulator said it would block any concentrate with levels equal or above 10 parts per billion following the discovery of carbendazim, a fungicide that is banned in the United States.
Cordier said he had closed his positions on Wednesday morning and would stay out of the market until the FDA issued results of its testing and more information was available about any juice getting turned away at the border.
"We're out. There's too much uncertainty," he said. "For a little market, there's a lot going on and lots of moving parts."
Others were sitting tight until there was more clarity.
"The problem was left open. We're going to have continued volatility for the time being until we get a better handle on this," said Kevin Sharpe of Basic Commodities in Winter Park, Florida.
Any disruption of imports from Brazil would affect juice makers such as Tropicana, owned by PepsiCo, and Minute Maid, from Coca Cola, which may use a mix of juices sourced from Brazil and the United States.
"We can't do without Brazilian orange juice. The largest processors in the U.S. all have a Brazilian blend," said Cordier.
The issue is all the more pressing given the drop in output from citrus-rich Florida over the last decade.
(World orange juice market: http://link.reuters.com/dyc95s ) (Reporting By Rene Pastor and Josephine Mason; Editing by Alden Bentley and David Gregorio)