World production of orange juice will drop by 8 per cent this year, led by a 14 per cent drop in No 1 producer Brazil, the US Agriculture Department said in a report that may herald higher prices.

In its first forecast of trade in frozen concentrated orange juice (FCOJ) in 2011/12, USDA withheld judgment of the impact of US checks of Brazilian juice to determine whether it was tainted by a banned fungicide.

Global production of frozen concentrated orange juice will drop by 8 percent 'because of Brazil's sharp decline in fruit for processing,'

USDA said in a semi-annual report on world citrus crops. USDA said Brazil FCOJ production would fall by nearly 14 per cent, to 1.245 million tonnes. The world total would be 2.176 million tonnes.

FCOJ futures prices have see-sawed on concern about whether Brazilian exports would be denied entry to the United States.

Futures soared when the fungicide was discovered in FCOJ shipments, but settled lower in New York for the third day in a row on Thursday.

The US Food and Drug Administration was scheduled to report on Friday on results of its tests.

'We're waiting for the results and that will determine what happens to the (juice) market,' said an FCOJ dealer in New York.

Despite the smaller supply, Brazil will export 3 per cent more FCOJ than last year by drawing down its stocks, USDA forecast. Tight supplies will reduce exports by the No 2 producer, the US, by 19 per cent.

USDA estimated Brazil FCOJ exports at 1.245 million tonnes for this year and U.S. exports at 125,000 tonnes.

The US is the world's largest FCOJ importer. USDA forecast imports of 200,000 tonnes this year, roughly the same as last year.

'Due to the uncertainty regarding the outcome of FDA inspections for carbendazim in orange juice, this January 26th forecast assumes no impact on world trade,' said USDA.

USDA projected a smaller orange crop in Brazil this year, 18.155 million tonnes, compared to 20.645 million tonnes in 2010/11, and a significantly smaller supply for processing -- 12.73 million tonnes, down 11 percent from the previous crop.

Some Brazilian producers prefer to sell their oranges for local consumption as whole fruit as the price is often better than offered by processors. The juice industry is expanding production from its own orchards and says small growers cannot produce at a low-enough prices for juice use.

Oranges can fetch twice the price when sold for whole fruit than for juice but much of the difference reflects the higher quality standard required for whole fruit, said Marketstat, a Brazilian consultancy in a 2010 study. – Reuters