Spike in orange juice prices? It's pulp fiction

[March 13, 2012]  CHICAGO (AP) -- Orange juice drinkers can relax. Fears of a spike in the price of the breakfast favorite appear overblown.

Juice tainted with fungicide used in Brazil and other countries and cold weather in Florida raised the specter of an OJ shortage in the U.S. in January. Orange juice futures hit an all-time high. That could have translated into sharply higher prices on store shelves, leading more consumers to shop for alternative beverages.

Just a few weeks later, those concerns have abated after the government said the juice is safe to drink and the weather has improved. There should be plenty of oranges, and juice, to go around.

Here's what consumers need to know:

PRICE CHECK: The cost of your morning OJ was rising even before the tainted juice scare. Prices have risen in four out of the last five years, largely because of dwindling supplies of oranges and the rising cost of producing and processing the fruit and transporting products to stores.

Shoppers paid an average of $2.76 for a 12-ounce can of frozen orange juice concentrate in December, compared with $2.53 in December 2007, Labor Department statistics show.

The average retail price from October to Feb. 18 was 7.4 percent more than a comparable period a year earlier. Total orange juice sales dropped 10.4 percent in the same timeframe, according to data from The Nielsen Co.

FEARS OF A SQUEEZE: In January, orange juice tainted with fungicide was discovered on store shelves. This raised fears of a ban on imports from Brazil and other countries, and a recall of products on store shelves. Also, a cold snap threatened the orange crop in Florida, which produces about 80 percent of the domestic orange juice supply. Futures prices soared to all-time high of $2.1995 per pound on Jan. 23.

James Cordier, head portfolio manager at Optionsellers.com, says he thought at the time that retail prices would jump at least an additional 10 percent to 15 percent.

The U.S. Agriculture Department said Friday that it expects Florida's orange production to be about 5 percent more than it was than it was at the end of the previous growing season. The yield for Florida frozen concentrated orange juice is forecast to increase 3 percent. Florida's citrus season runs from October through September.

That report and the Food and Drug Administration's recent decision not to recall juice products that contained low, but safe levels of the fungicide should allay concerns about a shortage of juice on store shelves.

Futures prices have dropped accordingly. Orange juice for May delivery ended down 3.1 cents at $1.857 per pound on Monday. The price has fallen about 11 percent since Jan. 10, the day after the fungicide issue was made public.

Spencer Patton, founder of the hedge fund Steel Vine Investments LLC, expects futures prices to continue to fall because of the higher crop production estimate. But that doesn't mean consumers will see lower prices on store shelves anytime soon. He noted that futures prices are up about 9 percent for the year, and retailers aren't as quick to pass along lower prices to consumers.

TEA, WATER OR ENERGY? While orange juice has been on the decline, more people are drinking water -- bottled, enhanced with flavors and vitamins or just from the tap. Tea and energy drinks are more popular, too.

Bottled water consumption rose to 20.9 gallons per person per year in 2010 from 20.6 gallons in 2009, says John Sicher, editor and publisher of Beverage Digest. Tea consumption increased to 7.5 gallons per person per year from 7.3 gallons and sports drink consumption increased to 4.3 gallons per person per year from 4 gallons in 2009.

[Associated Press; By SANDY SHORE]

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.