What orange juice futures tell us about the state of our world

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The quickly changing prices of wheat, oil and even orange juice and cocoa futures contracts are telling a story about the real-life impact of extreme weather and how geopolitical turmoil affects some of the staples of our society.

Cocoa and orange juice futures have hit multi-decade highs as climate change and harsh weather takes their toll on crops in warmer climates.

Meanwhile, the prices of oil and wheat, two commodities that soared higher on the back of Russia’s invasion of Ukraine last year, are normalizing even as war rages in the Middle East.

That doesn’t necessarily mean that consumer prices are changing. At least not yet. While the prices of commodities can impact the prices of goods at the stores and gas at the pump, they take time to trickle down the supply chain. Sometimes companies will keep final prices low even as raw materials rise to keep people buying their goods. That can mean cutting costs elsewhere or squeezing profit margins.

Here’s the latest in the commodities market:

Orange juice

Orange juice futures have soared to their highest levels since the commodity began trading in 1966.

The jump followed reports of limited production in the US, Brazil and Mexico, where bad weather and an aggressive bacterial disease called citrus greening have put a damper on this year’s crops.

Plus, Florida, which produces about 90% of the OJ consumed in the US, was hit with two large hurricanes, Ian and Nicole, last fall, making projections for this year’s output of orange juice the lowest the Sunshine State has seen in more than a century.

And while orange juice consumption is on the decline in the US, it’s still about a $6 billion industry globally, according to MarketWatch.

On Halloween, prices of the contract peaked at an all-time high of $4.17 per pound – that’s 83% more than the previous high.

Futures came down a bit from recent highs last week but are still up by nearly 58% year-to-date.

The January contract for frozen concentrated orange juice is currently sitting around $3.95, up nearly 94% so far this year.

The rally has led to a rise in speculative betting, leading some analysts to call orange juice futures the new GameStop.

Speculators are often blamed for wild price swings, but they’re not breaking any rules and they can help keep commodity markets liquid, allowing industry players to make trades that help their businesses.

“Occasionally, these markets exceed our wildest expectations. Did anyone predict $4 orange juice?” The profit potential from this trade is staggering,” wrote Dave Reiter of Reiter Capital Investments, on X (formerly known as Twitter).

But “the eventual crash in the price of orange juice will be one for the record books,” he quipped.

Cocoa

Cocoa futures set a nearly 45-year high this week as supply fell in Ghana and the Ivory Coast, the world’s top producers of the tasty bean.

The culprit? A lack of rain.

Farmers have said that this season has been particularly dry, limiting the growth of the crop ahead of the dry season, which begins later this month in the region.

Ghana and the Ivory Coast provide about two-thirds of global cocoa supplies, but both countries have been impacted by El Niño weather patterns this year.

That means chocolate treats could soon become more expensive. Chicago-based Mondelez International, the company behind Oreos, said that cocoa prices were a major concern this year.

It’s not just cocoa prices that are sending the confectionary industry reeling; sugar futures have risen by more than 30% this year as sugarcane crops in Southeast Asia also dry up.

Crude oil

Energy prices fell sharply on Tuesday, dropping by about 4% to their lowest levels since July on worries about falling demand.

Brent crude fell below $82 per barrel and West Texas Intermediate fell under $80 per barrel, a closely watched level by traders. Crude prices have been declining since Oct. 20.

All of this is happening as the ongoing conflicts in Europe and the Middle East threaten to further constrain the supply of oil.

Constrained supplies would typically send prices up, not down. Yet prices are still falling. That’s because of China’s weakening economy.

“Traders still don’t see the current Middle Eastern hostilities spreading out and affecting supply. Instead, it’s the demand side which is the focus, with concerns of economic weakness in China and elsewhere capping prices,” said David Morrison, senior market analyst at financial services provider Trade Nation.

Energy traders, meanwhile, are anxiously awaiting new inflation data from China, which is expected on Thursday.

Wheat

Grain futures soared last year after Russia invaded Ukraine, stoking fears the wheat exports from a region called the breadbasket of Europe would be blockaded.

Before the war, Ukraine was the fifth-largest wheat exporter globally, accounting for 10% of exports, according to the Organisation for Economic Co-operation and Development.

But wheat futures have fallen by 38% since the initial invasion in February 2022. That’s largely because more supplies and healthier crops are expected from US farmers, according to Nasdaq commodity analysts.

20% of US offices are vacant. WeWork’s bankruptcy will make the problem worse

America has a glut of empty offices.

Now, some offices face losing WeWork, which has more than 600 locations in major cities.

WeWork filed for Chapter 11 bankruptcy Monday, throwing the future of the real estate company up in the air. WeWork said it would terminate some of its US leases. WeWork’s bankruptcy will increase financial stress on commercial landlords that have rented large chunks of their office buildings to the co-working company, reports my colleague Nathaniel Meyersohn.

Office landlords for years rushed to rent out space to WeWork, viewing flexible office spaces as the future of office life. But these bets have soured, and some property owners have taken on debt to stay afloat. About $270 billion in commercial real estate loans held by banks will come due in 2023, according to Trepp, a commercial real estate data provider.

WeWork’s bankruptcy comes as more than one-fifth of offices across the United States remain vacant, according to commercial real estate giant JLL.

The loss of WeWork will increase vacancies and might lower rent for tenants, meaning less cash for some landlords already struggling to make debt payments in a high interest rate environment, commercial real estate experts say. In the worst case scenario, it may prompt landlord defaults on loans or mortgages, which could more broadly affect the banking system and hit city tax revenues even further.

“Office properties – already facing financing hardships and [lower] values – now face a potential new wave of unexpected vacancies,” Moody’s economist Ermengarde Jabir said in a report Tuesday.

US credit card balances see largest yearly leap on record

The resilient consumer has kept the US economic engine running, but it’s coming at a big cost: Americans are piling up record credit card balances, and more and more are falling behind on those payments, reports my colleague Alicia Wallace.

During the third quarter, credit card balances hit a fresh high of $1.08 trillion, rising $48 billion from the prior quarter and leaping by a record $154 billion from the year before, according to the Federal Reserve Bank of New York’s latest Quarterly Report on Household Debt and Credit released Tuesday.

The year-over-year increase is the largest since the New York Fed started tracking that data in 1999.

Now a growing number of households are having difficulty wrangling that debt, which is increasingly more costly amid an environment of painfully persistent inflation and high interest rates.

The latest data also showed that the rate of households becoming delinquent or entering serious delinquency (behind by 90 days or more) on their credit cards was the highest since the end of 2011.

“I think pockets of trouble have started to emerge,” said Ted Rossman, senior industry analyst at Bankrate.

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