Orange Juice Trading Strategy – Backtest, Returns, Futures Example
Orange juice OJ futures strategy refers to the methods and techniques you can use to trade FCOJ futures contracts profitably. Orange juice OJ futures are contracts to receive or deliver the specified quantity of frozen concentrated orange juice on a future date, at a pre-agreed price.
Orange juice OJ futures, also known as frozen concentrated orange juice (FCOJ) futures, has gradually gained popularity among soft commodity traders, despite its wild volatility and low liquidity. Launched in 1966, the contract enables orange farmers and orange juice producers to hedge their exposure in the market, but speculators are coming into the market to profit from the price swings. Want to know about orange juice OJ futures strategy?
The contract trades on ICE and is settled by the physical delivery of the specified quantity and quality of FCOJ. An OJ futures strategy would involve fundamental and technical analysis of the market to know when to enter and exit a trade profitably. In this post, we answer some questions about the orange juice OJ futures strategy. We also show you an example of an Orange futures strategy with a backtest.
What are Orange Juice OJ futures?
Orange juice OJ futures are contracts to receive or deliver the specified quantity of frozen concentrated orange juice on a future date, at a pre-agreed price. The contract trades on ICE and is mostly traded by stakeholders in the industry, such as orange farmers and juice producers who use it to hedge their exposure in the market.
On expiration, the contract is settled by the physical delivery of the specified quantity and quality of frozen concentrated orange juice from the seller to the buyer. But traders who just want to speculate on the FCOJ prices without getting involved in the delivery can close out their trades before expiry or roll over their contracts.
FCOJ futures started trading in 1966 on the New York Board of Trade (NYBOT) after the invention of frozen concentrated orange juice (FCOJ) in 1947. Before then, the traditional form of consumption for orange juice was fresh-squeezed, which made the commercial orange juice industry very volatile due to the highly perishable nature of freshly squeezed oranges. FCOJ brought a new standard to the orange juice industry, opening the gates to an international marketplace that was not readily available before.
What is an Orange Juice OJ futures strategy?
An OJ futures strategy refers to the methods and techniques you can use to profitably trade the FCOJ futures market. Your FCOJ futures strategy should include technical and fundamental analyses to find appropriate entry and exit signals.
In performing fundamental analysis, you study the USDA reports for FCOJ, including weather and disease effects, and also consider other macroeconomic factors. With technical analysis, you should be able to look at an FCOJ futures chart and determine the best entry point to purchase a contract so you don’t buy too high and risk a huge loss. In addition to your analysis for entry and exit signals, you need to have some risk management and trade management techniques.
Orange Juice OJ futures strategy backtest
Let’s show you an example of an orange juice backtest.
The trading rules are the following:
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We backtested the strategy using the “OJ=F” ticker in Yahoo Finance (The backtest started in 2021), so there are relatively few trades.
Here is the equity curve:
The x-axis shows the number of trades.
The trading results and performance metrics look like this:
- Total Trades: 90
- Time Spent In The Market: 71.20%
- CAGR: 61.08%
- Win Rate: 55.56%
- Average Win: 5.13%
- Average Loss: -3.00%
- Max Drawdown: -20.88%
Orange juice trading strategy – Python code
We provide the full Python code for the strategy:
What is the seasonality of Orange Juice OJ futures?
In trading, seasonality refers to the tendency of an asset’s price to move in a fairly predictable manner during certain periods of the year, such as months or seasons like winter and summer.
As you can see in the orange juice OJ futures seasonality chart below, FCOJ futures tend to perform better during the Fall season than any other period of the year. The contracts tend to do poorly in The Winter season. Spring and Summer seasons show mixed performance.
What moves the Orange Juice OJ futures market — What affects the Orange Juice OJ futures market the most?
One factor that affects the FCOJ futures market the most is weather conditions. Harsh weather conditions, such as hurricanes, freezes, and tropical storms can cause a huge spike in the FCOJ futures market if they occur at the right time. Over 98 percent of the U.S. FCOJ comes from Florida. Given the geographic concentration, there is usually wild volatility in the orange juice futures markets during the June-December hurricane season.
Since the United States and Brazil contribute the most to global orange juice production, any weather conditions that affect those regions would have a huge effect on the price of orange juice futures prices.
How are Orange Juice OJ futures traded?
Orange juice OJ futures trade on the NYBOT, which is part of ICE. The contract trades from Monday to Friday, from 8:00 AM – 2:00 PM New York Time (ET). There is a pre-open session from 8:00 PM the previous trading day and a post-open session that starts at 2:30 PM and ends at 6:00 PM.
One contract unit is equivalent to 15,000 pounds of frozen concentrated orange juice, and the pricing is in US cents and hundredths of a cent to two decimal places. The contract comes in January, March, May, July, September, and November series. Settlement on contract expiry is by physical delivery, and the last trading day is the 14th business day prior to the last business day of the month.
How do you start trading Orange Juice OJ futures?
To trade the contract, you need a futures broker that will grant you access to the ICE exchange where FCOJ futures contracts are traded. So, you have to register with a futures broker, such as TradeStation, and fund your account. Since futures are a leveraged instrument, you need to have the total worth of the contract to trade it — just have a little above the required margin.
Alternatively, if you just want to speculate on price movements, you may trade the CFD of FCOJ futures contracts via an online CFD broker, such as IG. With CFD, you can trade price fluctuations without having to worry about contract expiry and the rigors of asset delivery that are seen in direct futures trading.
What is the Orange Juice OJ trading at?
As of December 9, 2022, FCOJ futures were trading at 215.15 USX (US cents) per bushel. See the chart here on TradingView. You can check the chart on Yahoo Finance.
Since the price changes from time to time, what is quoted here may not be the price it’s trading when you are reading this post. To get the real-time price from TradingView or Yahoo Finance, click either of those links.
What’s Orange Juice OJ futures hour?
The trading schedule for FCOJ futures on ICE is Monday to Friday, from 8:00 AM – 2:00 PM New York Time (ET). There is a pre-open session from 8:00 PM the previous trading day and a post-open session that starts at 2:30 PM and ends at 6:00 PM. The same time applies in London and Singapore when converted to each region’s local time.
Where can I find trading charts?
You can find the chart on any trading platform that provides chart services. If your platform does provide charts, you can use TradingView, which provides free access to the charts of various instruments. However, to connect TradingView to your broker, you must subscribe to its Pro services.
You can also use Yahoo Finance, which offers free chart services. Alternatively, you can subscribe to a paid third-party trading chart platform like MultiCharts.
What are the trading symbols for Orange Juice OJ futures?
The trading symbol for orange juice OJ futures on ICE is OJ, and the clearing code is FCOJ A.
What is the specification for the Orange Juice OJ futures contract?
One contract unit is equivalent to 15,000 pounds of frozen concentrated orange juice solids (3% or less), and the price quotation is in US cents and hundredths of a cent to two decimal places. The minimum price fluctuation is 5/100 of a cent per pound, which translates to a tick size of $7.50 per contract.
The contract comes in January, March, May, July, September, and November series. Trading terminates on the 14th business day prior to the last business day of the month. Settlement on contract expiry is by physical delivery, and the required quality is US Grade A with a Brix value of not less than 62.5 degrees.
Why should you start trading Orange Juice OJ futures?
You may want to trade FCOJ futures for any of the following reasons:
- To hedge your exposure in the market if you are an orange farmer or run an orange juice company
- To diversify your investment portfolio into the soft commodity market if you are an investor
- To speculate on price fluctuations or benefit from spread trading if you are an active short-term trader
- To hedge inflation, as commodity prices rise with inflation
What is the contract size?
One contract unit is equivalent to 15,000 pounds of frozen concentrated orange juice solids. Given the current price of 215.15 US cents, as of writing, the total USD worth of one contract would be 15,000 x 215.15 US cents = 3,227,250 US cents or 32,227.25 USD.
What is the tick size?
The tick size of one contract unit of FCOJ futures is $7.50.
What is the minimum price fluctuation for Orange Juice OJ futures?
The minimum price fluctuation is 5/100 of a cent per pound.
Are there any ETFs?
There is no ETF that offers a pure play in orange juice. However, there are a few agricultural ETFs that have orange juice in their holdings:
- The Elements Rogers International Commodity Agriculture Total Return ETN — Orange juice represents less than 2% of the holdings in this fund.
- The Direxion Breakfast Commodities Strategy ETF (BRKY) — This offers futures-based exposure to the price of corn, coffee, lean hogs, sugar, Chicago wheat, and orange juice.
What factors affect Orange Juice OJ prices?
Some of the factors that affect FCOJ futures include:
- Weather conditions: Orange is very sensitive to weather. Harsh weather conditions, such as hurricanes, freezes, and tropical storms, often cause a huge spike in the FCOJ futures.
- Diseases: In recent years, citrus canker and citrus greening have been cutting into the yields of orange-juice-producing regions.
What is the all-time high for Orange Juice OJ futures?
Based on the TradingView chart for FCOJ futures (OJ), the all-time high of the OJ futures contracts is 227.50 US cents, which it reached in November 2016.
What are the biggest risks in trading Orange Juice OJ futures?
Because futures trading is a leveraged transaction, the main risks in trading any kind of futures, including FCOJ futures, arise from adverse price movement. When trading a leveraged instrument, losses are calculated using the actual value of the contract size traded rather than the margin deposited. For example, if you use a 20x leverage, a 1% negative movement results in a 20% loss, and a 5% negative movement results in a 100% loss in your account (wipe out your account).
Another concern is the lack of liquidity. FCOJ futures are not always liquid, which might make exiting a position more difficult, as you may not find someone to take the opposite end of your trade. This may also result in wider spreads.
What is the settlement method?
Physical delivery
What is the settlement procedure?
At expiry, ICE Futures US supervises the delivery and quality of orange juice from the seller to the buyer. The last notice day is the 5th business day prior to the last business day of the delivery month. Delivery origins are usually from U.S., Brazil, Costa Rica, and Mexico, while the delivery locations are exchange-licensed warehouses in Florida, New Jersey, and Delaware.
What is the block minimum for Orange Juice OJ futures?
That does not apply to this contract.
What is the difference between Orange Juice OJ futures and the CFD for Orange Juice OJ?
FCOJ futures are standardized contracts that trade on a regulated futures exchange, whereas FCOJ CFDs are contracts offered by online CFD brokers to track the price movement of the futures contracts and exchange the price difference between a trade opening and its closing.
Another difference is that FCOJ futures have expiry dates and may involve the delivery of the FCOJ, while the CFDs can be traded indefinitely, and you don’t have to worry about asset delivery.
Which forex pair is the same as Orange Juice OJ futures
FCOJ CFD
What are some important dates for this market?
Some of the important dates in the FCOJ market include:
- 1947 when frozen concentrated orange juice was invented
- 1966 when FCOJ futures began trading on NYBOT, which is now a part of ICE
- November 2016 when the contract made its current all-time high of 227.50 cents
What is the highest Orange Juice OJ has ever been — its all-time high?
According to the TradingView chart for FCOJ futures (OJ), the highest price the OJ futures contracts has ever reached was 227.50 US cents. This happened in November 2016.
What is the lowest Orange Juice OJ has ever been — its all-time low?
According to the TradingView chart for FCOJ futures (OJ), the lowest price the OJ futures contracts has ever fallen to was 31.90 US cents, which happened in October 1970.
Conclusion
You can use the orange juice OJ futures strategy to diversify your portfolio into the soft commodity market, hedge your exposure in the market, or simply speculate on the direction of the OJ market.
Related reading: Eurodollar Trading Strategy
FAQ
How do Orange Juice OJ futures contracts trade, and what is the settlement process?
Learn about the trading platform (ICE), trading hours, contract units, and the physical delivery settlement process for Orange Juice OJ futures.
How can one start trading Orange Juice OJ futures, and what are the steps involved?
Get a step-by-step guide on starting to trade Orange Juice OJ futures, including registering with a futures broker, funding an account, and understanding leverage.
What are the risks associated with trading Orange Juice OJ futures, and how can they be managed?
Identify the risks involved in trading Orange Juice OJ futures, including adverse price movements and liquidity issues, and learn about risk management strategies.