After years of discussion between industry participants and US Regulator the previously conservative apple juice industry has entered the 21st century with the launch apple juice concentrate futures and option contracts last month by the Minneapolis Grain Exchange.
According to the exchange, the launch of apple juice concentrate futures contracts will offer both producers and end-users a regulated benchmark within the global market, which can be beneficial during periods of dramatic price swings.
Participants previously used the process forward contracting as a means of managing risk which left them vulnerable to counterpart risk.
Over the last five years the Rotterdam apple juice concentrate spot prices has ranged from around E0.75 per kilogramme to above E2.00 per kilogramme shortly before the implosion of the US sub-prime market.
But while the introduction will no-doubt reduced some of the cloudiness of the apple juice market analysts at Rabobank believe the contract faces some obstacles avoided by its cousin the ICE-listed frozen concentrated orange juice, immortalized in the 1980's comedy Trading Places.
While the orange juice and apple juice markets share some similarities - such as similar fundamental balances and high fluctuations in yields which heightens then need for hedging tools - there are some notable differences which Rabobank believes will limit the effectiveness of apple juice concentrate in becoming the industry standard that New York orange juice futures have.
"The effectiveness of apple juice concentrate futures and options will be lower than for frozen concentrated orange juice because of the larger variety within apple juice concentrate, such as the degree of cloudiness or sourness... frozen concentrated orange juice is a fairly homogenous product"
Rabobank also highlight the implication of import duties on apple juice contracts given that China is a leading exporter of apple juice concentrate.
"For Europeans, the relationship between the apple juice concentrate price on the Minneapolis Grain Exchange and the spot price is further disturbed by import duties on Chinese apple juice concentrate."
Long in the pipeline
While the launch of apple juice concentrate (AJC) products is a long time coming - some 46-years after the launch of frozen concentrated orange juice began trading on the New York Cotton Exchange - the Minneapolis Grain Exchange has been moving to keep pace with the ever evolving number and availability of exchange based products.
Last year, the exchange, also known as MGEX, opened the door to Canadian wheat growers to hedge against its spring wheat contracts, taking it into competition with Ice's Winnipeg-based contracts particularly aimed at the Canadian industry, following the deregulation of the country's grain sales.
In a statement from the exchange, president and chief executive Mark Bagan, said: "It is great to see market participants finally having the opportunity to utilise this new risk management tool.
"MGEX is pleased the operational foundation for the AJC contract was proven successful," he added.
Growth of China
Information on the Minneapolis Grain Exchange places the apple juice concentrate industry value at roughly $3.2bn per year.
The sector has seen considerable change over the past two decade with China evolving as a major producer, absorbing as much as a quarter of its domestic apple crop.
The US and European Union are among the largest consumers of apple juice products.
Trade of the apple juice contracts has been relatively light since its launch on August 13, available data suggests just 17 contracts have been traded during the first two weeks.
According to exchange data, futures for November delivery closed on Friday at $9.10 per gallon, unchanged on the day.