Hurricane Frances Sparks Rallies on Commodity Markets

U.S. commodity traders on Thursday braced for Hurricane Frances (search) to hit Florida this weekend by racing to lock in prices in the likes of orange juice and lumber, fearing damage from back-to-back storms would severely limit supplies of those staples and push prices up.

The massive storm barreling toward southeast Florida could deal the second of a one-two punch to the state's $9.1 billion citrus industry, the nation's largest, which only three weeks ago was decimated by Hurricane Charley (search).

At the New York Board of Trade (search) Thursday, the benchmark price for frozen concentrated orange juice (FCOJ) futures rose almost 8 percent on worries about supply, hitting a nine-month high at 85 cents a pound.

"If this storm does hit where people are expecting, I think we still have higher to go," Jim Cordier, a broker at Liberty Trading Group, in St. Petersburg, Florida, said of the juice market.

Earlier this summer FCOJ (search) was languishing at it lowest prices since 1976. Florida has produced near record crops in recent years and dealers said after Charley that there were enough stocks in cold storage to avert a shortage.

Still, Cordier said the market was rising on "panic buying" along with the buying back of earlier short sale positions.

Juice futures have been rallying since Charley tore across the west coast of the state and into the citrus belt on Aug. 13, uprooting trees, stripping them of fruit and causing at least $150 million in damages.

The height of the hurricane season is just beginning and the back-to-back arrival of two powerful storms — both rated category 4, the second strongest on a scale of five — is unprecedented, experts said.

The insured damages from Charley have been estimated at $7 billion, the second costliest in U.S. history after Hurricane Andrew's $15.5 billion bill in 1992.

But Frances, packing winds up to 145 mph, is a much bigger storm than Charley was and could damage wider areas.

On Thursday it was moving northwestward over the Bahamas, and almost the entire east coast of Florida was under a hurricane watch, meaning hurricane conditions would be expected in the coming 36 hours.

In the southern counties of West Palm Beach and Broward, 550,000 people were told to leave low-lying coastal areas and mobile homes. Volusia County told 125,000 people to leave their homes, and Brevard County told 185,000 to evacuate.

At the same time, there was a rush for plywood to board up homes and business. In response, at the Chicago Mercantile Exchange (search), lumber for September delivery was up $9.20 at $455.50 per thousand board feet.

A further squeeze on timber was expected after Frances passes, with Florida then rebuilding from two storms.

Commodity traders were also watching Frances to see if the storm would head northward cotton-growing regions. The cotton industry was especially nervous that Frances could head toward Georgia, a key cotton state, and Alabama.

December cotton on the NYBOT was up 2.2 percent Thursday morning, trading at 55.1 cents a lb. But it remained below Wednesday's 2-1/2-month high at 56 cents.

"Unlike Hurricane Frances, the market is in a little holding pattern," said Keith Brown of cotton merchants Keith Brown and Co. in Moultrie Georgia.

"We are waiting to see what it does. The last track says it comes to the southeastern cotton belt, which is Georgia and Alabama. Over the years those things really do more psychological damage than physical damage."

With cotton plants now spouting open bolls, a severe drenching could decimate yields and quality just before the fiber is harvested. Heavy rains would have been beneficial if the bolls were closed.

Coffee futures at the NYBOT rose to a seven-week high at 75.10 cents a lb on worries about 100,000 bags of beans stored in warehouses in Miami.

Futures contracts are agreements to deliver an amount of goods, usually commodities, at a specific price at a certain time in the future. The purpose of the futures exchanges is to allow people who do want to assume risk, such as farmers, to transfer that risk to speculators who are willing to take the risk in hopes of making big profits.