Many crops can be traded on futures markets before they are ever harve

Question

Many crops can be traded on futures markets before they are ever harvested. If a poor harvest of oranges is expected, the prices of orange juice futures rise. If a bountiful orange harvest is expected, then the prices of orange juice futures fall. Over the last month, two hurricanes have ravaged the orange growing region of Florida, destroying thousands of acres of orange trees. Despite this fact, experts indicate that the prices of orange juice futures will fall in the coming weeks.

Which of the following, if true, explains why the experts mentioned above are correct?

A. The two hurricanes took different paths across Florida, affecting separate orange growing regions.
B. Futures for orange juice are priced higher this year than they were last year.
C. The second hurricane that affected Florida also hit parts of Louisiana.
D. A new report came out this morning that shows harvests of California oranges will be more than double normal levels due to above average rainfall in that state.
E. Most people who trade orange juice futures do not ever take possession of the orange juice.

Dooperman · Answer

A. The two hurricanes took different paths across Florida, affecting separate orange growing regions.
 Doesn’t matter. The damage is done.

B. Futures for orange juice are priced higher this year than they were last year.
 This gives Out the current price of the future contracts. But doesn’t help explain why prices will fall from here on.

C. The second hurricane that affected Florida also hit parts of Louisiana.
  Same as A

D. A new report came out this morning that shows harvests of California oranges will be more than double normal levels due to above average rainfall in that state.
  Matches with the premise. OK.

E. Most people who trade orange juice futures do not ever take possession of the orange juice.
 Doesn’t help us understand the reason for the expected change in price.

Abhishek009 · Answer

Generally when Quantity ↑ Price ↓,(FOR Orranges) BUT this time 2 hurricanes ravaged ravaged Florida and destroyed thousands of acres of orange trees YET Price (Orange Juice)↓, {When it is expected that production would fall and Price would have risen considerably.}

PRETHINK :

1. Oranges are not made from real fruits , may be some artificial edible flavours are used.
2. Oranges are not made from Florida Oranges.
3. May be there are surplus oranges from last year.

Now move to options.

(A) two hurricanes took different paths - out of scope , we are not concerned with course of hurricanes
(B) than they were last year - Last years price have no role to current /future years prices.
(C) The second hurricane that affected Florida also hit parts of Louisiana - Location of hurricanes is irrelevant.
(E) trade orange juice futures do not ever take possession of the orange juice - Plays no role for Orange and Price increase.

(D) harvests of California oranges will be more than double normal levels due to above-average rainfall in that state.

If there is surplus production in some other area then it will definitely reduce price, Answer must be (D)

Keshav1404 · Answer

Hi Experts  GMATNinja   egmat   Bunuel   AndrewN   KarishmaB   DmitryFarber

I agree that Option D is the best in the lot. But I think there is some amount of flaw in the option D as well. As experts mentioned with surety that the price will fall - usage of 'will'.

What if the increase in the production of oranges in California is less than the decrease in oranges in Florida, resulting in the overall decrease in the amount of quantity produced. This situation should lead to decrease in the prices.

Is there anything i am missing with my evaluation of the argument? Please explain.

Thanks in advance.

Davronjon · Answer

D. A new report came out this morning that shows harvests of California oranges will be more than double normal levels due to above average rainfall in that state.

This statement, if true, explains why experts predict the prices of orange juice futures will fall despite the damage to Florida's orange crops. The expectation of an unusually large harvest in California would offset the losses in Florida, leading to lower orange juice future prices due to the anticipated abundance of oranges.

Explanation for other options:

A. Although this statement describes the paths of the hurricanes, it does not explain why the prices of orange juice futures would fall despite the damage they caused to Florida's orange crops.

B. This statement provides information on the historical pricing of orange juice futures but does not give a reason for the experts' prediction of falling prices in the face of hurricanes affecting Florida's orange crops.

C. The fact that the second hurricane also affected parts of Louisiana is irrelevant to the pricing of orange juice futures, as it does not provide any information on the overall supply of oranges.

E. This statement explains the behavior of traders in the orange juice futures market but does not address why the experts believe the prices will fall after the hurricanes' damage to Florida's orange crops.

Posted from my mobile device

KarishmaB · Answer

You are given that what the experts mentioned is correct. So the prices of orange futures will fall. So bountiful orange harvest is expected. This means that it is expected that the harvest of California oranges will make up for losses in Florida. Option (D) tells us why despite the losses in Florida, we expect orange crop to be plentiful - because California is producing much more than normal. 
What actually happens doesn't matter. We know why the prices of futures will fall in the coming weeks. Because bountiful orange harvest is EXPECTED.

AbhishekDhanraJ72 · Answer

A. The two hurricanes took different paths across Florida, affecting separate orange growing regions.
This option suggests that the hurricanes affected different orange growing regions, which could imply that the overall impact on orange production might not be as severe as initially assumed. However, it does not directly explain why the prices of orange juice futures will fall in the coming weeks. Therefore, this option is not the correct explanation.

B. Futures for orange juice are priced higher this year than they were last year.
This option provides information about the pricing of orange juice futures but does not explain why the prices will fall in the coming weeks. It does not address the impact of the hurricanes or the expectations regarding orange harvest. Thus, this option is not the correct explanation.

C. The second hurricane that affected Florida also hit parts of Louisiana.
This option mentions the second hurricane affecting parts of Louisiana in addition to Florida. While this information provides additional context, it does not directly explain why the experts believe that orange juice futures prices will fall. Therefore, this option is not the correct explanation.

D. A new report came out this morning that shows harvests of California oranges will be more than double normal levels due to above-average rainfall in that state.
This option provides crucial information that explains why the experts believe orange juice futures prices will fall. It states that a new report predicts abundant harvests of California oranges due to above-average rainfall. This implies that despite the poor orange harvest in Florida due to the hurricanes, the expected surplus in California oranges will compensate for the reduced supply and lead to lower prices. Therefore, this option is the correct explanation.

E. Most people who trade orange juice futures do not ever take possession of the orange juice.
This option provides information about the nature of trading orange juice futures but does not directly explain why the prices will fall. It is not directly related to the impact of the hurricanes or the expectations regarding orange harvest. Thus, this option is not the correct explanation.

VerbalBot · Answer

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Many crops can be traded on futures markets before they are ever harve

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