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Rising Orange Juice Prices Boost ETFs

by Michael Johnston on November 2, 2009 | ETFs Mentioned: FUD • PBJ

The threat of a swine flu outbreak has the potential to impact numerous areas of the domestic and international equity markets: pharmaceutical companies could get a big boost, or see their efforts to develop vaccines go largely unrewarded. Tourism-intensive sectors and countries could see their revenues plummet, or could go get away unscathed. But concerns about swine flu are impacting the prices of several other assets, including one you might not expect: orange juice.

The market has struggled in recent years, but this flu season anxious consumers have been guzzling orange juice in an effort to ward off the disease that is already widespread in nearly every state. Combined with a shrinking orange crop in Florida, increased demand related to H1N1 has sent juice prices soaring in recent months. Since September, the November frozen, concentrated orange juice contract on the ICE has increased more than 20%, according to the Wall Street Journal.

With flu season still in the early stages, demand for vitamin C-rich food and beverages could continue to rise. Total gallon sales have increased for six consecutive four-week periods, and sales for the four weeks ended October 3 represented an increase of more than 5% compared to the same period in 2007.

There are other factors that could push orange juice prices even higher. Citrus greening disease, a bacteria that can reduce yields or kill trees altogether, has hit orange trees in Florida, with the potential significantly reduce output. Florida is the world’s second largest orange producer, trailing only Brazil.

ETFs Plays On Orange Juice

While there aren’t any exchange-traded products that offer direct exposure exclusively to orange juice prices, there are several ETFs that include orange juice exposure either through futures or indirectly through equities of companies in the food industry, including:

UBS E-TRACS CMCI Food Total Return ETN (FUD): This note is linked to an index that measures the return on on a basket of 12 futures contracts from the agricultural and livestock sectors. The majority of this index consists of futures on wheat, corn, and soybeans, but orange juice is given a small allocation (of only about 2.5%). FUD has gained more than 20% over the last year.

FUD

PowerShares Dynamic Food & Beverage Portfolio (PBJ): This ETF invests in food and beverage companies, including manufacturers such as ConAgra and Archer Daniels Midland, as well as retailers like Kroger. However, PBJ doesn’t hold any shares of PepsiCo, which owns the popular Tropicana line of orange juice products.

PBJ