Hurricane Hilary Intensifies as Storm Charts Path to California
Comment of the Day

August 18 2023

Commentary by Eoin Treacy

Hurricane Hilary Intensifies as Storm Charts Path to California

This article from Bloomberg may be of interest to subscribers. Here is a section: 

Still, Hilary is expected to bring widespread heavy rain to California and the US Southwest, raising risks of power outages, mudslides and flooding along with disruptions to ground transportation and air travel. The rain could start in the region as early as Saturday, with the worst of it arriving late Sunday into Monday.

A wide area could get 2 to 4 inches, Douty said, which would be similar to the powerful winter storms that sometimes hit California and bring flooding. Desert communities, such as Palm Springs, as well as the many railroad lines that cross the area and pass through the mountains could also be imperiled, he said.

Flood watches cover parts of California, Arizona, Nevada, and Utah, including Los Angeles, San Diego and Las Vegas. Flooding could be worst across Southern California, especially around San Diego, the California Governor’s Office of Emergency Services said in a statement.

Eoin Treacy's view

The cold (bone chilling) water off the coast of California is usually enough to deter the formation of hurricanes in the region. By the time Hilary makes it to Southern California it will have lost intensity. The biggest challenge from storms over the last several years has been rain rather than wind speed. On this occasion, the storm could drop anywhere from 2 to 4 inches of rain on Southern California.

The only reason this is relevant is because of orange juice. Florida’s orchards were badly damaged during last year’s hurricane season. That has propelled the price to previously unimaginable heights. California is the other major US producer of oranges. Most are grown in the Central Valley north of Los Angeles and some are produced in Orange County south of Los Angeles. Any threat to supply in an already tight market environment could propel prices even higher.
The backwardation between the 1st and 2nd months tends to be very cyclical and is currently expanding from the recent lows.
The price firmed again today and a sustained move below yesterday’s lows would be required to check momentum.

Five years ago, the world was concerned with the sugar content of orange juice. It was considered akin to Coca Cola in the damage it might do to one’s health. During the pandemic the health boosting qualities of Vitamin C were popular and everyone forgot about the sugar content.

I mention this only to highlight how fads in the agriculture sector come and go but the price moves resulting from them can be extreme. Orange Juice traded between $.0.70 and $2 for forty years and broke higher last year. There is a strong possibility $2 will be a future floor for the market.   

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