Weekly Highlights (04 July – 10 July)

Section I:  Weekly Highlight on Fundamentals

World supplies of soybeans, oil & meal will be tighter than expected in the next 5-6 months

Oil World reports that the recent global consumption trends in soybeans, soya oil and meal cannot be sustained in the next 5-6 months. In the USA the soybean crop has come under severe stress from heat and dryness which is reportedly comparable with the situation in the drought year 1988. Soybeans have already suffered noticeably, reducing soybean crop conditions to multi-year lows. It is not too late for soybean plants to recover, but widespread rains are urgently required within the next 1-2 weeks to allow additional flowers to develop before the crop enters the pod-setting and filling stage in August. However, current weather forecasts are not encouraging. As a result, soybean crop prospects deteriorated, making it more difficult for US producers and exporters to satisfy global demand for soybeans, soya oil and meal in the next six months.

South American exports of soybeans and products will also decline sharply in the next 5-6 months before the new-crop supplies become available in early 2013. Soybeans will be the preferred crop for South American farmers and plantings will be expanded significantly, partly at the expense of wheat, corn and cotton. South American prices – primarily of soybeans and soya meal – have increased significantly to new highs lately. Soybean supplies have tightened considerably, primarily in Brazil, making it more difficult for crushers to acquire the raw material (soybeans). Brazilian crushers have reportedly purchased 100 Thd T of soybeans from neighbouring countries and this is likely that the pace of crushings slows down and that there will be earlier than usual closures of crushing plants before the new crop arrives. Brazilian soybean crushings apparently had peaked at 3.67 million T in May and it is expected that the seasonal decline started in June with crushings falling below the year-ago level. This downtrend is expected to accelerate in subsequent months.

Palm oil exports 2012 exceed expectations

Export of palm oil exceeded expectations so far this year. Available statistics for Indonesia, Malaysia, Thailand and 5 Central & South American countries add up to a new high of 14.7 million T, 2.2 million T or 17% above 2011. Indonesian exports have been officially reported by the Statistics Department at 1.37 million T in April (against 1.21 million T a year ago), bringing the total for Jan/April to a record 6.12 million T (up a staggering 40%). Malaysian exports reportedly approached 1.5 million T in June (down 7% from a year earlier) and 8.15 million T in Jan/June (up 3%).

Importers in Europe are increasingly diversifying their palm oil supplying countries. Indonesia and Malaysia are still the key origins, accounting for 1.6 million T or 81% of palm oil imported by the EU-27 in Jan/April 2012. Imports from Indonesia increased by 16% on the year in that period, benefiting from the preferential export duty on processed palm oil. The biggest increases occurred in EU imports from Thailand and Papua New Guinea, but also arrivals from Central and South America have become impressive. Considering the increasing difficulties in expanding palm oil production in Indonesia and even more so in Malaysia, focus is increasingly put on expanding production elsewhere to cover rising demand.

Palm oil prices widened their discount to soya oil, which is likely to trigger additional demand and higher purchases by the importing countries in July/Sept 2012. At the beginning of July RBD palm olein (fob Malaysia) was offered at price discounts of US-$ 160-170 vis-avis Argentine soya oil and of 170-180 vis-a-vis Brazilian soya oil. These discounts are well above average and have also been caused by the reduced South American soya oil production and export supplies.

Section II: Other Weekly Highlights

1.    Asia Pacific

a.      China
Ministry of Commerce update oils and oilseeds shipments data
Ministry of Commerce (MOC) released a report of oils and oilseeds imports on July 9th. According to the report, the soybean shipments in ports across China registered at a total of 6.6549 million tonnes in June 2012 and lower than the previous estimate at 6.7932 million tonnes. In the meantime, MOC forecast that new soybean shipments to China will be 5.3418 million tonnes in July.

The rapeseed shipments to China was about 237,300 tonnes in the subjected month, and 118,700 tonnes of products is estimated to ship to China in July 2012.

Regarding as major vegetable oils, soybean oil shipments to China was 124,600 tonnes in June while palm oil and rapeseed oil reported at 278,900 tonnes and 35,300 tonnes in the subjected month.

China cut interest rates cut for a second in one month

The People’s Bank of China lowered benchmark deposit rates last Thursday by 25 basis points and cut lending rates by 31 basis points, effective from Friday. The central bank cut interest rates for a second time in a month, fuelling concerns that the slowdown in the world’s second-largest economy is worse than predicted.
The two cuts in interest rates within a month indicate that the GDP growth rate in the second quarter is weaker than expectations. China’s economy is facing its most difficult moment in 30 years while GDP growth this year will be less than 8 percent, said Oliver Chiu, head of research and investment advisory in the wealth management unit of Citibank (China). The lender has lowered its forecast for economic growth in 2012 to 7.8 percent, and GDP growth for the second quarter might be as low as 7.3 percent, he said.

Although ccurrently the economy is not far away from the ‘turning point’, it is believed that it will rebound in the second half. In the next 10 to 20 years China will still have “very sound” economic growth.

b.        Philippines

Zanorte Palm to establish palm oil project in Philippines

Filipino company Zanorte Palm Rubber Plantation is planning to invest PHP737m ($17.42m) to set up a palm oil plantation project at Zamboanga del Norte, the Philippines. The project, which will feature plantations integrated with processing, will produce palm oil fruits that will be used as raw materials for the production of crude palm oil and dried palm kernel.

It will have a total production capacity of 9,900 metric tons of palm oil, and 2,338 metric tons of dried palm kernel. The project will also produce palm kernel by-products, which will be sold to food firms such as Universal Robina, RFM, Nestle Philippines, and Mina Oil Mill, as well as the manufacturers of industrial products.
The project has received clearance from the Philippine’s Department of Trade and Industry (DTI), entitling it to tax and fiscal incentives. DTI Undersecretary and Bureau of Investments (BOI) managing head Adrian S Cristobal Jr said the Zanorte project will help expand the country’s agro-industries and generate employment opportunities in rural areas.

“It will also help boost the palm oil industry which is among the sectors we have identified for industry development,” Cristobal Jr. added. Once on-stream, the project is expected to add 54-58% of its net value to the local economy and generate 1,055 jobs.

Exports of coconut oil increases by 13%

Exports of coconut oil recovered to an 11-monthhigh of about 80,000 Tonnes in June, resulting in a 13% year-on-year increase of exports in April/June 2012, following severe reductions of quarterly exports from Oct/Dec 2010 onward. Philippine coconut oil exports declined steeply in Jan/May 2012, primarily to the EU-27, the US and China. This was due to poor production, but partly also to growing competition from Indonesia. Exports of copra meal declined by 18% on the year in April/June 2012, but in absolute terms quarterly shipments recovered to a one-year high, pointing to a beginning recovery of copra production and processing.

c.     Australia

Cargill in new approach to buy Goodman Fielder oils arm

Commodities firm Cargill is looking to buy Goodman Fielder’s edible fats and oils business, reviving a deal that Australia’s competition watchdog rejected two years ago, the agency revealed on Wednesday. “Cargill Australia Limited is proposing to acquire the edible fats and oils business of Goodman Fielder Limited,” the Australian Competition and Consumer Commission (ACCC) said on its web site on Wednesday.

The ACCC is considering the proposed acquisition in light of the current competitive environment and any developments in the relevant markets,” it said. Cargill’s new approach had not been previously announced. Goodman Fielder, 10 percent owned by Singapore palm oil company Wilmar International, put its Integro edible fats and oils business and its New Zealand milling arm up for sale six months ago.

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2.    Middle East

Egypt: New Egyptian President aims to put economy back on track

With the election of the new President, Mohamed Morsi Egypt is now ready to move forward in putting in place restructuring programs aimed at putting the economy back on good track. The new government under President Mohamed Morsi pledged to give priority in tackling issues related to food security especially the availability of adequate cooking oil and bread to its citizen. Other priority includes improving the security and to start negotiations for external financial aid to help the government jump-start the economy.

According to the local trade statistics and estimates, Egypt’s total oils & fats imports during the first half of 2012 amounted to 795,000 tonnes which represents a healthy thirteen percent increase as compared to the total during the same corresponding period in 2011. From this total, palm oil imports amounted to 485,000 tonnes, an increase of twenty-eight percent to the same corresponding period in 2011. Palm oil still covers a big part of the Egyptian oils & fats imports requirement. There was a shift in imports pattern for sunflower oil during the early part of 2012 due to the slight price difference compared to soybean oil.

3.    Sub Continent

India: Government favours defreeze of import tariff value of RBD palm olein

The Food Ministry has moved the proposal before the CCEA to consider defreezing of the import tariff value of refined cooking oil RBD palm olein to increase competitiveness of domestic edible oil refineries. The tariff value is the base price on which the customs duty is determined. Since July 2006, the government has kept import tariff value on RBD palm olein oil unchanged at USD 484 per tonnes keeping in view of inflation at that time. At present, import duty on refined edible oils is 7.5 per cent. “A proposal has been moved before the Cabinet Committee on Economic Affairs (CCEA) to consider revision of import tariff value of RBD palmolein,” a highly placed source said.
The Food Ministry has suggested defreezing of import tariff value of RBD palm olein and linking it with the current global price, the source said, adding that the issue may come up for discussion in the forthcoming CCEA meeting. Currently, the government is not only losing revenue but also facing underutilisation of domestic edible oil refineries as lower tariff value on imported refined palm olein has boosted shipments in the last few years.
Despite the customs duty of 7.5 per cent on RBD palm olein, the revenue collection has been less as the government is imposing duty on it at a base price of USD 484 a tonne instead the current global price of USD 1,000 a tonne. Also, the increase in cheaper RBD palmolein has started affecting competitiveness of the domestic refined oil industry. Local refineries, which have the annual capacity of 12 million tonnes, have remained underutilised in the country.

The industry experts said the surge in import of refined palm oil has also been due to lowering of export duty on the commodity by the Indonesian government.

A source in the Food Ministry said, “Our refining capacity can be fully utilised if we import palm oil in crude form instead of refined oil. Defreezing of tariff value on imported RBD palm olein will help to protect our industry.”
India’s import of refined palm olein has risen to 10.85 lakh tonnes during November-May period of the 2011-12 oil year (November-October), as against 5.51 lakh tonnes in the year-ago period, the official data said. At present, crude and refined palm oil constitute 77 per cent of the country’s total vegetable oil import of 8.37 million tonnes in 2010-11.

4.    Europe


Astarta initiates $35m soybean processing project in Ukraine

Ukrainian agricultural and industrial holding company Astarta has initiated a $35m project, which involves the construction of a soybean processing plant in Poltava, Ukraine. The plant will have an installed crushing capacity of 700 tons of soybeans per day or 220,000 tons annually. Annual production capacity of the plant will be up to 160,000 tons of feeding high-protein toasted meal, 40,000 tons of soybean oil, and 9,000 tons of granulated husks. The plant will be more than 60% self-sufficient in soybeans, produced by the agricultural enterprises of Astarta. The project also includes construction of elevator with designed capacity of 42,000 tons and storages for finished goods.

According to Astarta, the long-term financing for the project will be provided by an international financial institution. The start of the plant’s operations is scheduled in 2013. Astarta CEO Victor Ivanchyk said the project will extend value chain, increase revenues, strengthen the business’ diversification and mitigate the currency risks due to export sales growth. “Additional advantage is good synergy with the planned biogas production at Globyno sugar plan, and with cattle farming segment of the Group,” Ivanchyk added.

Drought Hits Russia

More than 8 regions report no rain for the very first day of summer 2012. 3% of lands have been lost, crop (grain) forecast has been cut twice. Combination dry weather and high temperatures, above 30 to 40 degrees, have put the crop at risk.

Russia: State of Emergency Alarms in 15 Districts of Saratov Region

In the 15 municipal districts of Saratov region entered the state of emergency, the governor Valery Radaev has signed disposal on June 29. This is done in order to prevent threats to food security in connection with the damage of crops due to unfavorable agro-meteorological conditions, reported the press service of the regional State Emergency. Drought has spread on 652 034 ha, (rye, wheat, buckwheat, corn, sunflower) resulted in 163,070 hectares lost. According to authorities, total damage estimated at 941,932 rubles.
Russia: SFO Prices Rush
Russia. Trading activity on Crude sunflower oil remains high. Prices traded in the range of 35700-36300 rubles/tonne EXW. High demand in Chernozem region pushes prices up to 36,500 rubles/tonne EXW. Few companies offer for 37000-38000 rubles/tonne EXW, depending on the form and terms of payment.

Ukraine. Sunseed Price Goes Cheaper – Traders

In the reporting week (24/25), the market weakened again. The activity on domestic market of sunseeds was low. Following the positive news from Europe, it is likely that the prices may go up slightly. During the reporting period the price of sunflower declined. Traders were selling sunflower in range of 3250-3550 UAH/t, Farmers were at 3650-3950 UAH/ EXW. Purchase prices were around 3850-4150 UAH/T CPT. Export market also showed low activity. Purchase prices traded in the range of 3500-3700 UAH/T (excluding VAT). Export prices on FOB Black Sea ports were down to 550-560 USD/T. The estimated export price of a new crop of sunseed 532-537 USD /T

Ukraine. SFO Prices Weakening

Ukraine, as of June 1 this year the stock of sunflower oil amounted to 0.29 million tonnes against 0.18 million tonnes for the same date in 2011. The average monthly production of sunflower oil is 0.33 million tons. The market prices of Crude SFO are sliding down owing to the decreased interest in purchases under the CPT-port and low demand from producers of packaged products. At the moment, manufacturers give no higher than UAH 8800/tonne EXW compare to UAH 9000/ tonne EXW a week earlier.

5.    Americas

USA: Surging prices from the Midwest heat wave

Consumers around the world can expect to pay more for foods such as bread, cereals, potato chips and many others as a searing heat wave skyrocket global crop prices. Gains led by corn, wheat and soybean have rallied as much as around 30 per cent in certain importing countries such as Australia. The US-dollar price of corn has jumped about 41 per cent since June 15, the highest in price in nine months as the world’s biggest exporter, the United States, curbed production. The recent drought devastation has also ascended soybean and wheat prices. The loss of output from the U.S. has had mixture impacts on the global economy as demand for local grain and oil seed production surge. However agricultural producers such as flour millers, beef producers, the poultry and pig industries have to suffer under the contending higher prices. New weather forecasts offers scarce rainfalls signs the corn-belt critically needs to avoid the worst drought damage in nearly a quarter century. The lack of moisture threatens to propel already peak crop prices more than a third higher since mid-June. Consumers can expect to pay more for many items if the United States weather continues to be hot and dry through late July and August in the key crop-growing regions.

USA: Soybean feeding Aquaculture to sustainable meet global food demands

The global aquaculture depends on renewable and efficient sources of fish feed ingredients, particularly U.S soybeans. Soybean meal and soy oil can replace half to nearly all of the fishmeal and fish oil in feeds for many species. The Soy Aquaculture Alliance, an organization that oversees research and support for soy use  in aquaculture, states that the most efficient use of  soy animal fed is in fish feed. One to 1.5 lbs. of feed produces one pound of fish, in comparison to 1.9 lbs. of feed to produce one pound of poultry and 2.5 lbs of feed to produce one pound of pork. The soy-aquaculture industry presents a huge opportunity to feed one of the healthiest foods on the planet – fish and seafood rich in heart-healthy Omega-3s. The soybean meal has the best amino acid complex of all the plant protein ingredients and is highly digestible to most cultured fish and shrimp species. Conservation International published a study that marked how aquaculture has the least environmental impact than any other means of protein production globally. With a capacity to ramp up soy production, producing high quality, healthful marine fish and simultaneously minimizing impacts on the ocean environment, the soy-aquaculture industry will be a major participant in meeting the U.N.’s estimation of global food production’s necessity to rise by 50% by the year 2030.

6.    Africa

Nigeria: Imo State to Plant 10 Million Palm Seedlings in One Year

The Imo State government is to plant 10 million palm seedlings under the newly launched agricultural revolutionary programme known as ‘Back to Land’ within one year. Governor Rochas Okorocha disclosed this yesterday when he paid host to leaders of Owerri West Local Government Area.

He said the community government council otherwise known as fourth-tier government in the state is aimed at unlocking the agricultural potentials in communities. He said every adult would be mandated to plant at least a palm to promote the programme.

Also speaking, the state’s Commissioner for Information and Strategy, Mr. Chinedu Offor, said about 1,000 hectares of land would be earmarked in each of the 27 local government areas of the state for the programme. He said government will provide the improved specie of the seedlings that would yield in 3 years. He added that the state government has resolved to take the initiative of joining the league of nations like Malaysia that has outstanding record of creating wealth through palm oil. The commissioner said the project has potentials of generating huge revenue for the state, just as it will create job opportunities for unemployed youths in the state.

Section III: Weekly Data

Palm Oil Prices

•    Average CPO prices recovered this week and traded higher by RM105.90 to RM3,116.6 against RM3,010.7 attained the previous week. Malaysian CPO futures slipped on Tuesday as weak exports signalled consumers might have stocked up well ahead of the Muslim holy month of Ramadan, although losses were capped by dry U.S. weather potentially hurting soy output.
•    The benchmark September palm oil futures on the Bursa Malaysia Derivatives Exchange slipped 0.7 percent to close at 3,130 ringgit ($986) per tonne. Traded volumes stood at 27,643 lots of 25 tonnes each, slightly higher than the usual 25,000 lots.
•    Malaysian crude palm oil futures slipped on Tuesday as weak exports signalled consumers might have stocked up well ahead of the Muslim holy month of Ramadan, although losses were capped by dry U.S. weather potentially hurting soy output.
•    Malaysian palm oil exports for the first 10 days of July slipped 13.5 percent from a month ago, said cargo surveyor Intertek Testing Services, going against expectations that strong Asian demand will push exports higher.
•    Strong Asian demand last month saw Malaysian palm oil stocks fall to a 14-month low, MPOB data showed on Tuesday.
•    China’s orders of vegetable oils in June were up 17.4 percent from a month ago, a bright spot in overall weakness in imports and signalling some restocking may be in the works.
•    Traders were also cautious after Japan’s weather bureau said on Tuesday there is a strong possibility the El Nino weather pattern, which is often linked to droughts in Southeast Asia and could hurt palm oil output, will emerge this summer.
•    Crude oil fell on Tuesday as prospects for demand growth dimmed after Chinese crude imports slowed while supply constraints eased as a Norwegian strike ended

International Prices

•    Soybean futures on the Chicago Board of Trade fell on Tuesday in a profit-taking setback from Monday’s all-time high, as traders adjusted positions a day ahead of the U.S. Department of Agriculture’s monthly supply/demand reports, traders said.
•    Trade expects USDA’s July 11 supply/demand report to show a slight decline in U.S. 2011/12 soybean ending stocks but little change in 2012/13 ending stocks. What USDA does with its 2012 U.S. soy yield forecast will be key.
•    CBOT said it would raise margin requirements on CBOT soybeans and soymeal futures effective after Tuesday’s close, a move that prompted some liquidation of positions, traders said.
•    Market underpinned by worries about dry U.S. weather. Drought will persist in August in the northern and western Midwest at a time when soybeans go through the critical yield-setting phase – Commodity Weather Group.
•    USDA rated 40 percent of the U.S. soybean crop in good to excellent condition as of July 8, down from 45 percent a week earlier. Soybean ratings have fallen for five straight weeks.
•    The heat and drought affecting U.S. soybeans following small South American soy crops this year may mean global soybean, soymeal and soyoil supplies will be insufficient to cover demand in coming months – Oil World.
•    China, the world’s largest soy buyer, imported 5.62 million tonnes of soybeans in June, the most since November, customs data showed, fueled by strong demand from livestock breeders and expanded crushing capacity.