Orange Juice Futures Price
The orange juice price in the cash (physical) market is different than the
orange juice futures price. Generally, the price of a commodity for future delivery is higher than the cash price due to carrying
costs (insurance, interest, and warehousing fees). This is called contango. The opposite of contango is backwardation. Backwardation
is when the price of a commodity for future delivery is lower than the cash price. Backwardation occurs in a “seller’s
market.”
When you trade orange juice futures, your
futures price depends on where you get into the market. After you post your initial margin, your profit or loss depends on
where you enter and exit the market (minus transaction costs).
For
example:
The contract size for orange juice is 15,000lbs.
So each $.01 move equals $150. As the market moves your account value adjusts. If your account value drops below the maintenance
margin, a margin call is due. A margin call can be met by offsetting positions or adding money to your account.
If you have very deep pockets or deal with the physical orange juice product
then futures may be for you. Trading orange juice futures is like driving a car without insurance. You may save the insurance
premium, but if you crash you will wish that you were insured.
