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Well, How About Them Apple-Juice Futures?
Wall Street Journal – April 14, 2011
Apple-juice futures could be the next main squeeze for commodities traders.
The Minneapolis Grain Exchange Inc. is gearing up to list a futures contract for apple-juice concentrate, a molasses-like substance that is mixed with water to create the apple juice that lines most supermarket shelves.
Plans for this financial instrument are being finalized as prices across a range of commodities are hitting records and companies are clamoring for ways to hedge against volatility in their raw-materials costs.
PepsiCo Inc., which markets apple juice under its Tropicana and Ocean Spray brands, and global commodities merchant Louis Dreyfus Ltd., long an active orange-juice trader, have thrown their weight behind the move to introduce apple-juice-concentrate futures, giving the contract a better-than-average chance of gaining wide acceptance.
Americans have been substituting apple juice for O.J. in their refrigerators in recent years as prices for frozen orange juice—immortalized in the 1983 movie “Trading Places”—have risen due to a squeeze on supplies. Fewer juice oranges are being grown, especially in Florida, as acres that were once dedicated to orange groves have been turned into real-estate developments. In “Trading Places,” characters played by Dan Aykroyd and Eddie Murphy hatch a plot to reap millions in the futures market for frozen concentrated orange juice.
Americans have soured on orange juice over the past three decades. Consumption has been halved between 1978 and 2008, to 5.5 gallons per capita, according to the U.S. Department of Agriculture’s latest available data. While apple juice is second in popularity to orange juice, the average U.S. consumer downed 2.1 gallons in 2008, more than double the amount in 1978.
But Americans’ tastes are changing, as a wider variety of juices such as acai, pomegranate and blended drinks are available on grocery shelves. Apple juice is easier to use than orange as a base for blended juices because its taste isn’t as acidic.
“The prospects going forward for apple-juice consumption are probably better than they are for orange juice,” said Sterling Smith, a market analyst at Country Hedging in Minnesota.
Like many other products sold in the U.S., apple-juice concentrate is usually made in China. Producers in that nation provide an estimated 70% of the concentrate used in the U.S. annually.
The futures contract could “help us secure our profits” by providing a hedging tool for price fluctuations, said Michael Choi, president of Zhonglu America Corp., the U.S. unit of China’s Zhonglu Fruit Juice Co., one of the world’s top five apple-juice processors.
Cash prices for apple-juice concentrate have ranged from $2 to $20 a gallon over the past 20 years, the Minneapolis Grain Exchange said. With futures, companies can lock in prices to buy or sell apple-juice concentrate at a particular time.
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