Weekly Highlights (13 June – 19 June)

Section I:  Weekly Highlight on Fundamentals

Soybean crushings and exports from USA and South America exceed expectations in May 2012

Soybean crushings and exports of the USA and South America exceeded expectations in May. Soybean stocks as of June 1 were down steeply by 24 million T from last year in South America. The global demand is now increasingly switching to the US, cutting US stocks to bare minimum levels as of end-Aug 2012. The forthcoming huge increase in US exports of soybeans and meal may become a logistical nightmare in the next 6-7 months. The combination of smaller South American supplies and larger than expected world import requirements has raised the demand for US soybeans and products in May. This trend is going to accelerate from June onward, resulting in significant year-on-year increases in US soybean disposals. This, in turn, is likely to lead to smaller than expected US soybean stocks as of end-August 2012 of probably only 4.2 million T, down from 4.6 million T estimated three weeks earlier.

Higher soybean production in South America forecasted for 2013

Farmers in South America are getting more enthusiastic about expanding soya cultivation, taking advantage of the comparatively lower production costs (in relation to grains) and favourable price prospects. Many of them have already started selling their 2013 crops 7 to 9 months ahead of harvesting in order to benefit from the current attractive prices. Oil World has raised their soybean planting forecast and assume increases by 1.1 million ha in Argentina and by 1.4 million ha in Brazil. They expect a sharp increase in plantings of soybeans to 19.6 million hectares, up 1.1 million ha from last year. If that is achieved the total Argentine soybean area available for harvest will probably increase by 1.8 million ha in early 2013 and Argentine soybean crop could reach a record 54.5 to 55.5 million T in 2013. Meanwhile, Brazil’s soybean acreage is expected to gain sizably on corn, probably rising by at least 1.3 to 1.5 million hectares for the crop harvested in early 2013. The final area could turn out to be even higher and the crop production may approach or even exceed 80 million T next season.

Lower Malaysian palm oil production from Jan to May 2012 compared to 2011

Oil World reports that production Malaysian crude palm oil production turned out smaller than expected at only 1.38 million T in May, up only 9% from the low level registered in April and plummeting by 21% from a year ago. Total production was almost 500,000 MT lower compared to the corresponding period of last year. Malaysian stocks of crude and processed palm oils continued to decline and reached only a combined 1.76 million T at the end of May, a 13-month low and down 158,000 T from a year ago. Nevertheless, Oil World forecast that world palm oil production to rise by 6.6% on the year.

Section II: Other Weekly Highlights

1. Asia Pacific


Soybean imports from US set to decline

The American Soybean Association reports that they expect China, the world’s largest soybean consumer, to import less soybeans from the United States this year. This is as a result of the Chinese government measures to contain the country’s inflation rate by releasing a large amount of stocks from the state reserves. Nevertheless, driven by its burgeoning livestock industry and ongoing urbanization, China’s soybean imports were estimated to continue growing in the long term. China is currently the largest overseas market for US soybean farmers. The country imported 52.6 million metric tons of soybeans last year, nearly half of which came from the US, accounting for 60% of total US soybean exports in 2011.

Gao Yanbin, an analyst with SWS Research Co Ltd, reckons the reduction in soybean imports this year, caused by the release of stocks from the State reserves, could amount to 1 million tons at most. In the meantime, the pressure of an economic slowdown in China would prevent oil processors from replenishing their inventory. Furthermore, Chinese consumers, especially those living in big cities, are starting to question the safety of soybean oil made from genetically modified soybeans, which would affect the country’s demand for US soybeans. However, most of the national reserve has remained untouched over the past two years, as domestic soybeans are generally more expensive than imported beans.

2.   Sub Continent

a. Bangladesh

Draft FTA agreement between Malaysia and Bangladesh

The Government of Bangladesh has forwarded the draft agreement on FTA between Bangladesh and Malaysia, to the Government of Malaysia for their opinion. It is expected that G to G discussion on the issue may be held coinciding with the Showcase Bangladesh – 2012, which will be held in KL from July 13 – 15, 2012.

National budget for 2012/2013 maintains zero import duty on palm products

The National Budget for the fiscal year 2012 – 2013 was placed in the Parliament on June 2, 2012 and in the budget, import duty on bulk import of crude palm oil, crude palm olein, RBD oil/olein has been kept at zero as was previous, while the import VAT on the above mentioned items has been proposed at 10%, which was effective temporarily since 2011 – 2012 fiscal. Similar tariff has been proposed in case of import of crude degummed soyabean oil as well.

Bangladesh palm oil import for June 2012

During the week June 13 to19 2012, 40,299 tonnes of CPL and RBD PL arrived in the country out of which 8,500 tonnes or about 21% was from Malaysia and remaining 31,799 tonnes or about 79% was from Indonesia. Accordingly, during Jan. 01 to June 19 period of 2012, the import quantity of palm oil i.e. CPO, CPL, RBD PO/PL together, stands at 451,778 tonnes, which is about 62% of total import of oils and fats imported in the country during the period and is about 17.4% higher than the quantity of palm oil imported during the corresponding period of 2011. Out of 451,778 tonnes of palm oil i.e. CPO, CPL, RBD PO/PL together, the import quantity from Malaysia was 91,224 tonnes i.e. about 20%, while that from Indonesia was 358,115 tonnes i.e. about 79.7%.

b. Pakistan

Pakistan-Malaysia trade up by 35% after FTA

Malaysia and Pakistan recorded 25% and 10% increase in bilateral trade in 2010 and 2011 respectively. Consul General of Malaysia, Abu Bakar Mamat said positive growth was subsequent to the signing of FTA (free trade agreement) between the two countries in 2007.  He said there was a need to create awareness among the manufacture on the liberalization of trade in goods and services and the elimination of tariff on their respective products. At Korangi Association of Trade and Industry (KATI) on Wednesday Malaysian diplomat said a Malaysian company would start the upgrading work of M-9 dual carriageway from Karachi to Hyderabad and the work was expected to start very soon.

Malaysia Airlines’ decision to cease operation in Pakistan earlier this year, was part of the airline’s route rationalization has nothing to do with the law and order situation in Karachi. Malaysia is currently importing rice mainly from Thailand and Vietnam and Pakistani rice exporters may want to be more aggressive in penetrating Malaysian market and increase their exports. He advised Pakistani manufacturers to re-energize and revitalize branding efforts of their manufacturing goods for export to Malaysia and five other ASEAN members have signed ASEAN FT A and Pakistani exporters can make Malaysia as the hub to enter ASEAN market of 600 million population. Two countries recorded $2.8 billion trade volume in 2011 and he invited trade delegation from KATI to visit Malaysia to further explore Malaysia market.

3. Russia

Georgia and Uzbekistan plans to begin production of olive oil

Minister of Agriculture of Georgia, Zaza Gorozia said that Georgia is one of the best places for growing olives in view of favourable climatic conditions. He met with small and medium-sized farmers participating in agro-tour, at village Sakobo, Sighnaghi Municipality. Farmers were visiting olive-tree plantation owned by “Geo Live” Ltd. Plantation is farmed at 25 ha area. There is a perfect climate for olive cultivation in Kakheti Region. Olive, highly demanded at the international market, gives first full harvest after 5 years of planting.

Georgia plans to build factories and processing of olive and olive oil by 2014.

Uzbek scientists have shown that some regions of the country are suitable for growing olives. Thus, Uzbekistan could begin industrial production of olive oil. The raw material for this valuable product may be a new sort of fruit, adapted to the conditions of the republic, the correspondent MTRK “Peace,” Yevgeny Orlov said.

4. Middle East

a. Turkey

Sunflower oil expected to cover sizable portion Iraqi import of vegetable oils

Sunflower oil is expected to fulfil a sizable portion of the Iraqi import demand for vegetable oils this season. This will be mainly at the expense of reduced purchases of soya and palm oils, due to their deteriorated price attractiveness and lower than expected production. The most recent trade indicates a doubling of sunflower oil imports to an estimated 195,000 MT in Jan-May and 278,000 MT in Oct 2011 – May 2012, with virtually all of the quantity coming from Turkey. Turkey exported about 157,000 MT of sunflower oil to Iraq in Jan-Apr 2012 (mostly refined). At the same time, imports of soya and palm oils declined sharply, partly reversing or even extending the trend registered already in calendar year 2011. It is forecast that Iraqi imports of sunflower oil will be at a record 370,000 MT in Oct 2011 – Sep 2012, up steeply from 285,000 MT a year ago. In contrast, imports of soybean oil are likely to tumble to 60,000 MT this season (vs. 110,000 MT) and those of palm oil to 125,000 MT (vs. 196,000 MT).

5. Europe

a. United Kingdom

Unilever Shuts 3 Plants in UK

Unilever sparked fears the eurozone crisis will trigger a brutal summer for UK workers yesterday by axing 800 staff. The giant behind Magnum ice cream and Dove shampoo blamed the debt crisis as it unveiled plans to close three factories — and ship IT roles to India. The closures will hit sites in Swansea and Bridgend, South Wales, and Slough. And experts warned the chaos in Europe was now forcing firms to slash costs on a scale not seen since the recession of three years ago. Unilever’s cuts came a day after THOMAS COOK axed 500 workers.

6. Americas

a. USA

AAK acquisition of Oasis Foods Company

AarhusKarlshamn – one of the world-leading producers of high value-added specialty vegetable oils and fats – strengthened its position in the North American Food Service market by acquiring Oasis Foods Company. Oasis provides an expansive variety of quality products and brands in edible oils, margarine, spreads, shortenings, vinegars, mayonnaise and sauces. Centred in New Jersey, USA, Oasis had turnover revenues of over US$130 million in 2011. The acquisition strategically broadens AAK product offerings in the largest food service market in the world and increased access to the largest population centres in the U.S. In the same period, AAK also acquired Danish company Crown-Food A/S to strength its ability to supply a broader portfolio of Food Service products and capitalize the strong market share. While both acquisitions are expected to have only limited impact on 2012 AAK operating profit, they are integral assets of the AAK Acceleration program for organic growth.

b. Argentina

Farmers to end tax protest, slowed grain flow

Argentinean farmers in key agricultural province of Buenos Aires held a nationwide strike for one week in protest of property taxes. Earlier in the season, Argentina’s 2011-12 soybean crops would top the 49 million metric tons harvested the previous season. The Buenos Aires Cereals Exchange accords the droughts in December and January cut potential output to below 40 million tons. Only 1,000 trucks entered the port in the 24 hours through mid-morning Tuesday, down from 4,600 on the same day last year. The strike occurred at the end of soy and corn harvesting and at a time of slowing economic growth in Argentina, which is hit by the fallout from Europe’s financial afflictions and slackening demand from No. 1 trade partner Brazil. Supply concerns and signs that importers are switching from Argentine to U.S. cargoes due in part to the sales freeze, helped lift soybean and soymeal futures on Chicago Board of Trade last week. Even before the Buenos Aires land tax increase, farmers complained about the 35% tax that the government puts on soybean exports. Farmers threatened to stage more anti-government protests in the future if state-centric policies and export curbs continue.

4. Africa

a. Congo (DRC)

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Feronia sees yields, new oil mill as drivers of growth

Africa-focused agriculture company Feronia is targeting higher yields and a new palm oil mill as key drivers of future growth. Feronia is focused on arable farming and oil palm operations in the Democratic Republic of Congo (DRC). “Our practices would match anything you would see in South-East Asia – in terms of fertilising, seeds and harvesting – would be comparable to how plantations are operated throughout the world,” Feronia chairman Ravi Sood told Proactive Investors.
The Oil Palm division consists of the historic Feronia PHC plantations which have been in operation since 1911 and Feronia Seeds, Africa’s pre-eminent seed breeding and sales operation. Feronia PHC’s three plantations span 107,892 hectares. In recent full-year earnings, at its palm oil division, fresh fruit bunch average yield increased to 3.66 tonnes per hectare from 2.28 tonnes per hectare in 2010. For full-year 2011, Feronia achieved gross margin of 45% for the year, compared to 40% in 2010.
Revenues grew to $7.45 million from $3.91 million a year earlier. Crude palm oil (CPO) production was up 61 percent to 7,981 tonnes for the full year, up from 4,951 tonnes in 2010. A total of 2,110 hectares of oil palms were replanted during the year.
Feronia is in the process of building a new palm oil mill for its Yaligimba plantation, which represents approximately 40 percent of the company’s palm oil production. The company’s two other plantations – Boteka and Lokutu – both have palm oil mills.
“Once we have that palm oil mill we’ll get a huge lift in production. It’s a huge change for us.” Feronia plans to start processing oil at Yaligimba in September with full commissioning in the fourth quarter. Sood also said the “logistics are very good” in the Central African nation. All of Feronia’s plantations are either located on or near the Congo River with barges taking fertilizer upstream and bringing palm oil products downstream.

b. South Africa

New regulations for fat contents label in Margarine

An official from Directorate of Food Safety and Quality Assurance, Department of Agriculture said the label regulation on margarine is being revised and under these new definition slow fat spreads must have less than 3 per cent fat. The new draft regulations stipulate that no company may sell bread spreads as low-fat spread or medium-fat spread. Instead it would be replaced by a percentage system accompanied by clear intended usages of products. In the revised classification, margarine can contain between 80 percent and 90 percent fat. All fatty spreads would be marked with maximum fat contents of 75 percent, 50 percent or 20 percent.

The classification system for fat spreads in use in South Africa since March 1990 classified margarine as containing between 80 percent and 86 percent fat, medium-fat spread at 50 percent to 65 percent, and low-fat spread between 35 percent and 45 percent. In addition, yellow fat spreads may contain only plant fat or oils. Firms that did not comply with the regulation period would be granted an extension depending on their circumstances.

Section III: Weekly Data

Palm Oil Prices

  • Average CPO prices traded lower this week by RM80.57 to RM2,897.13 against RM2,977.70 attained the previous week. Nevertheless, crude palm oil futures on Malaysia’s derivatives exchange edged up Friday after moving both ways as investors limited their activity ahead of Greece’s election this weekend. A victory by pro-bailout parties in the Greek polls over the weekend had sent palm oil futures to close just below the 2,900-ringgit mark on Monday. The benchmark August contract at Bursa Malaysia Derivatives ended 0.1% higher at MYR2,848 a metric ton after moving in a MYR2,839-MYR2,885 range.
  • Malaysian palm oil futures closed higher on Tuesday on expectations of increased demand due to concerns that dry U.S. weather could damage the soybean crop, tightening global edible oil supply.  But as optimism has faded in broader financial markets, dry weather has come into focus as the U.S. Department of Agriculture (USDA) said unfavourable weather had damaged soybean crop quality. “Prices should remain positive with the Greeks behind us. Dry weather in the U.S. Midwest also supports a bullish stance,” said a local Malaysian trader.
  • Malaysia’s palm oil exports during the June 1-15 period jumped 20% from the same period last month to 716,322 tons, cargo surveyor Intertek Agri Services said, lifted by improved shipments to China and the Indian subcontinent. Another surveyor, SGS (Malaysia) Bhd., put exports for the same period at 722,455 tons, an increase of 28%. Malaysia’s export numbers were good, but it’s overshadowed by Greek elections this weekend,” a trading executive in Jakarta said.
  • Brent crude steadied around $96 a barrel on Tuesday is down around 25% since hitting a peak above $128 in early March, staying close to 16-month lows hit in the prior session, as Spain’s rising borrowing cost showed Europe is nowhere near resolving its debt crisis that has hurt the outlook for fuel demand.


2. International Prices

  • Average Crude Palm Oil price (cif Rott) continued the downward treand and traded lower by US$29 from US$1,001 to US$972. CPO discount vis-à-vis SBO increased by US$29 to US$203 this week compared to US$174 the previous week.
  • With the exception of SBO (cif Rott) which remained unchanged and RSO which recorded marginal increase of US$4, all other oils recorded lower weekly average prices.
  • The U.S. Department of Agriculture revealed dry weather damage on Monday in its weekly crop report, saying 56 percent of soybean crop was in good-to-excellent shape as of Sunday, down four percentage points from the previous week.  A lower soybean crop could lead to a smaller supply of soybean oil, shifting demand to the cheaper refined palm oil, which is trading at a steep discount of around $130.
  • Lower ending stocks for soybeans to be crushed into competing soybean oil also suggested tighter supply and could provide support for palm oil prices.