Weekly Highlights (01 August – 07 August)

Section I:  Weekly Highlight on Fundamentals

South American soybean stocks fall 22.5 million MT below last year’s level

Due to higher soybean exports and crushings which exceeded expectations in June and July, the stocks of soybeans have rapidly dwindled. At the beginning of August combined soybean stocks in Argentina, Brazil, Paraguay and Uruguay had plummeted to only an estimated 45.4 million MT, a staggering 22.5 million MT or one third below a year earlier. Soybean crushers are reportedly facing increasing difficulties in acquiring soybeans, considering that a large portion of the physically available stocks is already committed.

There was talk recently that Brazilian crushers are considering to purchase soybeans from neighbouring countries. An estimated 0.2 million MT was apparently purchased from Bolivia, but it is unlikely that any noticeable quantity will be imported from Argentina and/or Paraguay, where soybean supplies are currently unusually tight, too. As a result, demand has shifted from South America to US origin. However, it would be very difficult for US producers and exporters to satisfy foreign and domestic demand considering the recent severe deterioration in US soybean crop prospects as well as the prospective small US soybean stocks of 4.3 million MT as of end-August 2012 without risking a depletion of US soybean stocks by early 2013.

Japan’s palm oil imports seen at record high after soybeans rally

A rally in soybeans is spurring Japan, Asia’s second-largest buyer, to seek record imports of palm oil, which is displacing soybean oil in margarine to potato chips. Imports of the tropical oil may expand to 600,000 MT from last year’s 557,937 MT said Yoshinori Komura, Managing Director of the Japan Oilseed Processors Association. Soybean crushing may decline more than 3% to 2 million tons from 2011, he said in an interview in Tokyo.

Food producers are facing difficulties in passing on higher raw-material costs to consumers as the world’s third-biggest economy is mired in deflation. Soybean’s 14 percent rally this year, coupled with a strong yen against the dollar, boosted demand for palm oil as soybean oil makers including Nisshin Oillio Group Ltd. and J-Oil Mills Inc. proposed raising wholesale prices in April, the first increase in a year.

“Palm oil consumption in Japan is expanding while demand for vegetable oils is declining,” said Masayuki Kumagai, head of the oil and fat division at the Ministry of Agriculture, Forestry and Fisheries. “Palm oil is increasingly used as a substitute for soy oil or rapeseed oil.”

Record purchases by Japan will boost palm oil exports from Malaysia, the second-biggest producer, which supplied 95 percent of imports last year. Reduced soybean imports will mean lost sales for the U.S., the largest shipper, which supplied 67 percent of Japan’s purchases in 2011. “Palm oil consumption in margarine production is rising as manufacturers are looking for cheaper raw-materials,” said Tsutomu Ueda, Executive Director for Japan Margarine, Shortening and Lard Industries Association.

Section II: Other Weekly Highlights

1. Asia Pacific

a.        China

Yihai Kerry raised edible oil prices by 5% over the country

Ever since the government implemented price cap on edible oil products, domestic oils and fats manufacturers suffered big losses in the three past quarters. However, Yihai Kerry (Wilmar China) boosted the price on the edible oil products of soybean oil, rapeseed oil and blended oil by 5% since 1st August 2012. Yihai Kerry is the leading company in domestic edible oil market which accounts for around 40% and that the company became one of the four major edible oil manufacturers subjected to the price controlling. The price rally was ratified by National Development and Reform Commission, indicating that Chinese government will probably ease the policy of price cap on edible oil.

COFCO, which is another major oils and fats manufacturer in China, still did not submit the requisition of price rally to National Development and Reform Commission. But most local companies suffered a huge loss due to the price reversion in domestic market. With the approaching festivals in September and October, more enterprises will raise the retail price of edible oil products in order to make up losses and assure sufficient supplies.

China’s soybean import decline in coming months

The National Grains and Oils Intelligence Center (NGOIC) estimates that China’s soybean import will decline to 4.5 million MT in August and will further decrease to below 4.0 million MT in September and October.

NGOIC also indicated that the monthly soybean import in the next three months would be less than the average import monthly of 4.84 million MT in the first half of the year. The skyrocketing price of soybean caused by U.S. drought has limited China’s soybean import.

b. Indonesia

RSPO cooking oil hits Indonesian shelves

Retail chain giant Carrefour has launched the first RSPO trademarked product in Indonesia with its own-brand cooking oil ECOplanet. The cooking oil is made from RSPO-certified 100% Indonesian grown palm oil. The trademark signifies sustainable plantation cultivation, sourcing and environmentally-friendly production.

The move has been described as ‘significant’ by the Roundtable on Sustainable Palm Oil (RSPO) as Indonesia is the second largest palm oil consuming market in the world.

Darrel Webber, secretary general of RSPO, said that the move “should blaze the trail in inspiring other players within the Indonesian palm oil supply chain to transform the palm oil industry into a sustainable industry”.“The RSPO trademark which was introduced a year ago provides the right momentum for Carrefour to intensively educate the public on the benefits and values of a product that contains certified sustainable palm oil.”

Carrefour has pledges to achieve 100% Certified Sustainable Palm Oil (CSPO) by 2015 and has been purchasing RSPO GreenPalm certificates for its own-brand products sold in France since 2010.

Palm-Oil shipments from Indonesia set to increase on lower duty

Palm-oil shipments from Indonesia, the largest producer, may have climbed 23 percent in July from a month earlier as companies took advantage of a lower export tax to book cargoes and demand rose ahead of a Muslim festival. Exports will probably gain to 1.4 million metric tons from 1.14 million tons in June, according to the median of five plantation executives in a Bloomberg News survey.

“Exports will increase as some shipments were delayed to July” because of the lower tax, Joelianto, a Jakarta-based trader at Sinar Mas Agro Resources and Technology, a unit of Golden Agri-Resources, said by e-mail, adding that demand for the Eid festival also supported overseas sales.  The Indonesian government reviews the tax rates and base export prices every month, based on average rates in Kuala Lumpur, Rotterdam and Jakarta. The tax will remain at 15% in August, Deddy Saleh, Director General of foreign trade at the Trade Ministry, said on July 27. The base price to calculate the levy was raised to $950 a MT for August from $944. Indonesia exported 1.14 million MT of palm oil last month, 17% less than May, the Indonesia Palm Oil Association, or Gapki, said July 27.

That was lower than the median estimate of 1.5 million MT from five companies in a Bloomberg survey. Indonesia’s shipments of palm kernel oil rose 49 percent to 111,640 MT in June from a month earlier, Gapki data show, bringing total palm and lauric-oil exports to 1.25 million MT last month, down 13% from May.

Exports of palm and kernel oils to India fell 30% to 311,850 MT last month, while shipments to China rose 18 percent to 311,030 tons, data show. European countries bought 240,560 MT in June, 17% less than a month earlier.  Output and exports from Indonesia may decline in August as activities slow during the Eid holiday, said Susanto, head of marketing at the palm oil association. Shipments may rebound in September and October in line with higher production, said Teguh Patriawan, President Director of Nusantara Sawit Persada.

c. Philippines

Filipino legislator seeks trans fats law rewrite

A Philippines lawmaker has introduced a new bill in the country’s Congress that would make it mandatory for food makers to label food products containing industrial trans-fatty acids (TFAs). Republican Maria Theresa Bonoan-David said current labelling requirements provided for in the ‘Consumer Act of the Philippines’ do not expressly require information on the fat and cholesterol content of food products.

“Thus, not all consumer food products contain such information,” said Bonoan-David adding that heart disease and hypertension are among the leading causes of death and morbidity among Filipinos. Bonoan-David stressed that strict compliance with dietary restrictions is crucial in the prevention of illness due to hypertension and heart disease, for which consumer awareness is necessary. “Many consumers are gradually becoming more conscious about nutrition and the nutritional contents of the food they purchase and eat. In this regard, better informed consumers are better able to make choices,” said Bonoan-David.

The Bill provides for a fine of 50,000 pesos (US$1,195) to 200,000 pesos (US$4,780) or imprisonment of six months to four years, or both, as penalty or penalties for violations.

The bill defines trans-fatty acids or ‘trans-fats’ as a type of unsaturated fat found when oils are hardened by partially hydrogenating them to make them more solid. They are most commonly found in baked products.

Partially hydrogenated oil are found to be more stable and does not go rancid easily like regularliquid vegetable oil. It remains solid at room temperature and is found in foods from animal meats to dairy products.

2. Sub Continent

a. India

Government bans export of branded edible oil in small packs

The Indian government has banned export of edible oils in branded consumer pack of up to five kilos on concern that productivity of some oilseeds may take a hit on account of 20 per cent deficit rains so far. “Export of edible oils is permitted only in branded consumer packs of up to 5 Kgs, within a ceiling of 10,000 tonnes, for the period November 1, 2011 to October 31, 2012. Now, with immediate effect, even such export of edible oils is prohibited,” the Directorate General of Foreign Trade ( DGFT) said in a notification issued yesterday. Export of the consignments handed over to the customs up to August 1, 2012 will be permitted, it added.

To ensure domestic supply and contain price rise, India banned export of unbranded edible oils in 2008 and extended it year after the year till September 2012. Last year, exporters were however given relaxation on branded small consumer packs.

Market experts said the ban on export of branded edible oil in small packs would be irrelevant as the country exports a meagre quantity. The government has taken this step fearing price rise in some of the edible oils in the wake of poor monsoon likely to hit Kharif production including some of the oilseeds like groundnut, they said.

3. Europe

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a. Russia

EFKO officially joins the German Institute of Food Technologies (Deutsches Institut für Lebensmitteltechnik. – DIL)

In June 2012 the “EFKO” officially joined the Association of DIL. This Association was  established on the basis of the German Institute of Food Technology in Kvakenbryuke which is a non-government research institute that works in the food industry since 1983. So far, out of the 140 members of the association “EFKO” is the only Russian company, which cooperates with the German Institute of Food Technology.

The “EFKO” – Russia’s vertically integrated manufacturer of vegetable oils, food ingredients and branded food products. The company leads the market of food ingredients used in the confectionery, bakery and other food industries. “EFKO” is also one of the leading manufacturers of mayonnaise and vegetable oil in Russia.

Ban of tropical oils in dairy products

Due to the numerous requests of the dairy market participants Ministry of Agriculture of the Russian Federation proposes to tighten control over unauthorized use of vegetable fats of tropical origin in the production of dairy products. According to the results of monitoring of the quality of dairy products, implemented by the National Milk Producers Union, more than 50% of tested samples of butter, 60% sweetened condensed milk, 30% sour cream and cottage cheese, and more than 70% of the cheese does not meet the requirements of the Federal Law of 12.06.2008 № 88-FZ “Technical regulations on milk and dairy products.”

Milk Fat Replacer [MFR] allowed only in milk products, presence of MFR must be clearly labelled on the packing.

In order to prevent violations of the requirements of the Technical Regulations, and to prevent free use of edible oils [tropical oils] without labeling, the Ministry of Agriculture calls on Russia to tighten control over the implementation of the requirements of technical regulations on milk and dairy products.

Russia completes WTO accession procedures and will formally join WTO on August 23

Russia sent a note to the World Trade Organization (WTO) on Monday indicating that it has ratified the accession protocol – the final step on its path towards becoming a full member, head of the Russian Economic Development Ministry’s trade negotiations department Maxim Medvedkov said. Russia’s ratification of the protocol of accession to this organization and after 30 days, ie from 23 August, the Russian Federation legally becomes the 156th member of WTO. Thus, from August 23, Russia will have to reduce the number of import duties, which were raised during the 2009 crisis. Following this, a new Customs Union tariff will have to be published, which will become effective a month later, on August 23.

Russia’s Economic Development Ministry estimates that after all of the transition periods for lowering import duties to their final levels are complete, around half of all rates will remain at a level no lower than the Customs Union’s current effective unified customs tariff. Around 30% of the rates will be lowered by no more than 5 percentage points.

5. Africa

Africa’s Growth Accelerates in the medium term

According to African Development Bank (ADB), Sub-Saharan Africa’s growth is expected to increase from 5.1 % last year to 5.3% this year and to 5.3% last year. However, a raft of forecasts has downgraded South Africa’s growth estimates to about 2.6% this year. Last week, the Bureau for Economic Research revised the country’s growth down to 2.5% from 2.9%. ADB chief economist Prof Mthuli Ncube said at a briefing that youth unemployment was “the biggest challenge” to Africa’s growth, added to a short-term labour market and the Eurozone crisis. The ADB economic report cited export and commodity prices as well as export volume as external drivers of growth in the continent. Prof Ncube said that internal drivers of growth in Africa included domestic consumer demand, micro economic policies, and growth sectors including mining, agriculture, construction and manufacturing.

According to the local trade estimates, South Africa’s total oils & fats imports for July 2012 registered to 49,967 tonnes. For period of Jan-July 2012, the total oils & fats amounted to 408,088 tonnes compared to 414,181 tonnes during the corresponding period, decrease by 1 per cent. Palm oil products and its fraction contributed about 55 per cent of the requirement.

6. Americas

a. Paraguay

Paraguay: Soy producer mired by cut-throat politics

The world’s fourth largest exporter of soy is wavering into uncertainty. Paraguay’s political condition is both the cause and effect of its macroeconomic soy boom. President Fernando Lugo was impeached last month as a victim of the decades long land-soy war waged between the powerful landed elite and poverty-stricken farmers. After decades of cronyism and corruption, 77 percent of Paraguay’s arable land is owned by just 2 percent of the population. Globally in the past 10 years, deals have been settled for 203 million hectares of land – nearly six times the size of Germany – at a pace and scale that outstrips the ability of governance structures to respond.

With surging demand, driven primarily by China and Europe for cattle feed and biofuels, 1.2 million hectares of Paraguayan agricultural landscape have been converted to soy growing than food and other crops. On the back of $1.6 billion in soy exports,  Paraguay’s GDP expanded by 15 percent in 2010 – the second fastest growing in the world and astounding in a country where 40 percent of the population still live in poverty. However Paraguay is rarely counted as soy powerhouse where in the same year 5.7 million tons of its total harvest was exported as raw bean while only 1.5 million tons were processed.

More than half of the soy grown in Paraguay is exported to Argentina, and much of this is converted into diesel either in Argentina, or in Europe. The IMF estimates that Paraguay’s economy will grow next year by 8.5%. Should Paraguay ever address its socio-economic inequalities and political instability, and develop local refineries, it has the huge potential to globally compete among soy giants United States, Argentina and Brazil in feeding the world.

Section III: Weekly Data

Palm Oil Prices

  • Average CPO price fell by RM13.60 from RM2,902.60 to RM2,889.00.  Malaysian crude palm oil touched its lowest in more than a week on Tuesday, as traders priced in wetter weather in the U.S. Midwest that eased concerns about further damage to new-crop oilseed supplies.
  • Easing supply concerns also weighed on prices. Palm oil stockpiles in Malaysia probably rose to a five-month high in July due to falling export demand at a time when production in Malaysia has been improving.
  • End-July inventory levels in Malaysia, the world’s biggest producer after Indonesia, could surge past 2 million tons “if export numbers turn out to be weaker than expected,” Kenanga Investment Bank analyst Alan Lim said in a note. Palm oil exports in July probably eased 14% from the previous month to 1.32 million tons, while production reached 1.65 million tons, an increase of 12% from the June, Mr. Lim further said.
  • In the cash market, refined palm olein for August was offered at $965/ton, while cash CPO for prompt shipment was offered at MYR2,830/ton.
  • Cargo surveyor Intertek Agri Services said July outbound sales fell 15% from the previous month to 1.23 million tons, while another surveyor SGS (Malaysia) Bhd. put July shipments at 1.19 million tons, down 19%.
  • Brent crude oil prices rose above $110 a barrel on Tuesday, on hopes that Europe would take further action to tackle its intractable debt crisis, while supply worries stemming from North Sea maintenance and Middle East tensions added further support.



International Prices

  • CPO average price gained by USD2 from USD992/MT to USD994/MT (cif Rotterdam) during the week. Price hit a low on 3 August 2012 at USD990/MT in a week amid cautious sentiment due to rising inventory levels and forecasts for rain in the drought-hit U.S. Midwest.
  • Market participants remain wary that weakness in export demand, at a time when palm oil production in Southeast Asia is seasonally higher, will drive up stockpiles to 2 million tons in coming months.
  • Prices of most other oils traded mixed during the week in both South American and European markets. Average soybean oil price (fob Dutch remained unchanged at USD1,122  while soybean oil (fob Brazil) fell by USD8 from USD1,180 to USD1,172.
  • Analysts expect USDA to lower its forecasts of U.S. soybean production, yield and harvested acreage, as well as ending stocks for both 2011/12 and 2012/13.
  • Soybean stocks in the leading South American producers have dropped by about a third since one year ago, shifting global demand to the United States at a time of concern the U.S. soy crop will also fall.





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