Weekly Highlights (16 May – 22 May)

Section I : Weekly Highlight on Fundamentals

Higher demand for US soybeans due to shortage of supply from South America
Oil World reports that South American farmers have already sold an unusually large share of their soybean crops as the combination of high international prices and weak currencies in Argentina and Brazil has magnified the returns for producers. With unsold supplies of soybeans unusually low already this early in the South American crop season, many buyers will have no other choice than turning to the US, for which the latest high weekly export sales already were an indication. The effects of the South American soybean shortage are clearly illustrated by the recent pronounced revival of export demand for US soybeans.

On May 17 the USDA reported an exceptionally large sale of 480,000 MT of US soybeans to China for the current season, bringing total sales to all destinations in the most recent 5 weeks to at least 6.2 Mn MT of soybeans (most of which to China). Following rather sluggish world demand for US origin in the first half of the season, US exporters now have record undelivered sales in the books, indicating a pronounced year-on-year increase of US exports in April/Aug 2012. This will enforce a severe reduction of supplies until end-August, when stocks in South America will already be critically low. The downward revisions of South American soybean crop estimates are still not over yet with the Argentine Agriculture Ministry cutting its production number to 41.5 Mn T this week, while other observers argue that the crop could plunge to only around 40 Mn T, as a result of the very poor yields obtained lately in the northern areas.

Hot and dry weather conditions have started to affect the yield potential for grains & oilseeds in the Black Sea region.

The feared hot and dry weather conditions, negatively affecting the yield potential of grains & oilseeds in the Black Sea region, have partly started to materialize. According to recent information, several agricultural producers in Ukraine & southern Russia have already trimmed their expectations for a bumper grain harvest in the coming season. Nevertheless, world exports of sunflower oil are progressing rapidly and seen establishing a new record of an estimated 6.4-6.5 Mn T in Oct/Sep 2011/12 (up 32-34% on the year). However, the recent price development and establishment of a premium relative to soya oil might indicate that most of this season’s exportable sun oil surplus has already been committed. Preliminary estimates indicate that exports of sun oil from Ukraine increased to a record 343,000 MT in April, bringing the total shipments in Oct/Apr 2011/12 to a new high of about 1.96 Mn MT, up 10% on the year. Based on tentative trade information, Russian exports of sun oil declined seasonally to 115,000-130,000 T last month but were still sharply above the year-ago level of 11,200 T.

Section II : Other Weekly Highlights

1. Asia Pacific

a. China

NGOIC:Soybean output to reach 13 million tonnes in 2012

According to the latest report by National Grains and Oils Intelligence Center, soybean output was estimated at a total of 13.00 million tonnes this year and declined by 7.14% from a year earlier. The reduction was attributed to declining planting areas which were particularly in Northeastern regions in China. Soybean sowing areas were down by 6.54% from a year ago. The report also estimated that corn sowing areas reached 34.30 million hectare and up by 2.60% from a year ago, while corn output would see 197.50 million tonnes in 2012. Wheat sowing areas reported to increase merely by 0.33% and its output would see 120.00 million tonnes and enjoy a year-on-year growth of 2.02% this year.

Trilateral agreement could balance agro trade

China, Japan and South Korea, East Asia’s three leading economies, agreed on May 13th at a Beijing summit to start talking about forming a free trade agreement this year. China, Japan and the ROK together represent 74 percent and 22 percent of East Asian and world population, 90 percent and 20 percent of East Asian and world economy, and 70 percent and 20 percent of East Asian and world trade respectively.

According to this agreement, China will work to strike a balance in its agricultural trade with Japan and South Korea by providing reasonably priced agricultural products as a long-discussed free trade agreement among the three countries is poised to come into existence. Last year, the value of Chinese agricultural exports to Japan hit $10.99 billion. The value of the country’s agriculture exports to South Korea was $4.17 billion in 2011, an 18.3 percent increase year-on-year. Of China’s agricultural exports, those to Japan and South Korea accounted for 25.2 percent of the total.

b. Singapore

Singapore to regulate oils and fats in food

New regulations that limit trans fat levels in food sold in Singapore will be gazetted in May this year. From the 2nd of May, the maximum allowable level is 2grams of trans fat per 100grams of product for food sold to cafes and restaurants as well as retail outlets. Suppliers will also have to declare trans fat levels on food labels. The regulations do not apply to dairy products and companies have until 2nd May, 2013 to comply. Since 2009, products with less than 0.5grams of trans fat per 100grams of food have been allowed to be labelled as ‘trans fat free’ and that does not change under the new regulations.

The government’s objective is to reduce the amount of trans fat consumed by Singaporeans. The artificial fats, found most commonly in Singapore in products such as pastries, cakes, commercial fast foods and margarine spreads, are known to increase the risk of heart disease. Results from nutrition surveys carried out by Singapore’s Health Promotion Board show three in ten adults currently exceed the World Health Organisation’s trans fat daily limits, with two-thirds of them aged 18 – 39. Around 10 percent of those younger adults are consuming more than double the recommended limit. The tougher requirements bring Singapore in line with regulations in many other developed countries. AVA, Singapore’s Agri-Food and Veterinary Agency, which will monitor compliance with the new regulations, requires foreign suppliers to use independent, accredited laboratories for trans fat analysis of foods.

c. Australia

KFC Australia switches to from palm oil to local canola

IT’S the Kentucky Fried canola boom. The fast-food giant plans to switch from frying poultry pieces in Malaysian-sourced palm oil to locally grown canola oil, providing further reason for farmers to plant the oilseed instead of wheat this winter. Farmers are already planting what is forecast to be a record canola crop, motivated by strong global prices and relatively weak wheat prices. KFC’s 610 stores will need thousands of tonnes of extra oil, worth tens of millions of dollars, for its deep-frying. The company says the exact volume and value is commercially sensitive.

Chief supply chain officer Michael Clark said that KFC had reached agreements with suppliers Cargill, Intergro Foods and MSM Milling to ensure it could secure enough of the high-oleic canola oil they require. These companies are working with farmers now planting the canola crop. “The volume we need means there has needed to be a significant increase in the acreage planted of that particular type of canola,” Mr Clark said. He added that KFC had done extensive testing to ensure it did not change the taste of its fried food. “We don’t change the crown jewels,” he said. “We want to be comfortable we get the same taste.”

2. Sub Continent

a. Bangladesh

Government starts discussions on new tariff structure for new fiscal year

In view of the new fiscal which would start from July 1, 2012, the Government has started to discuss and exchange views on new tariff structure with various stake holders. It may be mentioned that import of CPO, CPL, RBD PL and RBD PO are enjoying zero tariff since 2008 and most likely it would remain unchanged.

Soybean cultivation gaining popularity

Cultivation of soyabean is getting popular among farmers due it good yield and attractive price as well. Although, cultivation of soyabean started just couple of years back, its cultivation area already reached to about 42,000 hectors yielding about 62,000 tonnes of soyabean annually.

Bangladeshis to benefit from more nutritious vegetable oil

UNICEF in collaboration with GAIN – the Global Alliance for Improved Nutrition announced a major multi-sector partnership that will reach an estimated 100 million Bangladeshis with vitamin A fortified vegetable oil. The launch ceremony was attended by the private sector, trade and chamber bodies, international organizations and civil society. The People’s Republic of Bangladesh’s Ministry of Industries, the Ministry of Health and Family Welfare, the Bangladesh Standards and Testing Institute and the Institute of Public Health and Nutrition were present at the event, as key national partners leading the effort.
An estimated 22 percent of pre-school age children in Bangladesh suffer from vitamin A deficiency which is the leading cause of blindness in children. Vitamin A deficiency also diminishes a child’s ability to fight infections, especially from diarrhea and measles. Globally, seven percent of pregnant women suffer from night blindness as a result of a lack of vitamin A in their diets. The three year program, which began in February 2010, aims to reduce Vitamin A deficiency among women and children through increased market access to the more nutritious oil.

UNICEF Representative Pascal Villeneuve said: “Food fortification is one of the most cost effective means to reach populations with essential vitamins. Fortification of edible oil with vitamin A will be a landmark event for Bangladesh to combat vitamin A deficiency in large populations of poor communities in an efficient way.” He also added that UNICEF has been supporting the Government of Bangladesh for a long time with prevention and control of micronutrient deficiencies and will continue to strengthen efforts.

The buy-in of leading national certified vegetable oil producers and refineries is key to the success of the project. To date, seven vegetable oil refineries have started production of fortified edible oil. The goal is to get more than a dozen on board. The grant supported by GAIN will provide vegetable oil refineries with the equipment, nutrients, robust quality control capacity and training necessary to produce the best possible fortified vegetable oil. The project will also measure public health impact, develop a logo identifying fortified foods, roll out a campaign to educate consumers about the importance of good nutrition and ensure that appropriate standards are in place for vitamin A in vegetable oil. UNICEF is the implementing agency. The project will complement the national vitamin A supplementation strategy and other strategies to address micronutrient deficiencies to reach more children and mothers.

3. Americas

a. USA

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Cleveland sues state over trans fat rule

The city of Cleveland has filed a lawsuit that challenges the state of Ohio´s attempt to prohibit Cleveland and other Ohio cities from restricting the use of industrially produced trans fat in the foods served to customers by local restaurants and food shops.
The suit was filed Jan. 3 in the Court of Common Pleas for Cuyahoga County, Ohio.
The Cleveland City Council in April of 2011 voted to ban the sale of non-packaged foods containing industrially produced trans fat by local food shops. The ban was to go into effect for most foods Jan. 1, 2013. It was to go into effect for foods with yeast dough and cake batter, like donuts, on July 1, 2013. Cleveland cited research by the Centers for Disease Control and Prevention and the American Heart Association that demonstrated intake of trans fat increases the risk of coronary heart disease and heart attacks.

Cleveland’s status as a home rule municipality gives it the authority to enact the ban, according to the city. The home rule authority in the state’s constitution says, “Municipalities shall have authority to exercise all purposes of local self-government and to adopt and enforce within their limits such local police, sanitary and other similar regulations as are not in conflict with the general laws.”

The state of Ohio then expanded the definition of food nutrition information, according to the city of Cleveland, in a way that prohibits Cleveland and other municipalities from, among other things, banning the use of industrially produced trans fat. The Ohio Restaurant Association assisted in the passing of the state legislation.

“There is a national trend among some activists to persuade local governments to enact ordinances that attempt to tell restaurants what food they can serve, how to describe their menu items and how to advertise,” the association said. “Patchwork laws would make it difficult for restaurants to grow their business and create jobs, while making Ohio less attractive to outside economic investment.

“The O.R.A. drafted legislation that stops the trend before it starts in Ohio, worked with key legislators to get the language added into the state budget and successfully lobbied to pass it through the general assembly and be signed into law.” According to the association, the new state law will keep inconsistent regulations from developing throughout the state and will alleviate restaurant owners’ concerns over labeling, restrictions on marketing to children, banning drive-through windows at restaurants, the labeling of sodium content, the banning of trans fats and mandated allergen labeling.

Cleveland asserted in its lawsuit that the state’s prohibition on local food regulations goes against the state’s constitution based on home rule authority. “The state of Ohio is on notice that we will not stand for their infringing upon our right to protect the well-being of Clevelanders,” said Phyllis Cleveland, majority leader for the city council.

Section III : Weekly Data

Palm Oil Prices

• Average CPO prices traded lower this week by RM153.60 to RM3,121.80 against RM3,275.40 attained the previous week. “Prices are poised to recover after the recent sell-off. It was oversold and a little divorced from fundamentals. Demand is creeping back and (supply) situation remains tight,” said a trader with a local commodities brokerage in Malaysia. Nevertheless, Malaysian palm oil futures edged up on Tuesday, as hopes grew that Europe would take steps to tackle its debt crisis, which has triggered a massive selloff in global financial markets. France’s new President, Francois Hollande will push a proposal for mutualising European debt at an informal summit of EU leaders on Wednesday, sending the markets positive signals and easing some investors’ fears.
• Still, forecasts for global vegetable oil supplies may help support palm oil and prevent a fall to MYR3,000/ton, an exporter in Johor said. Malaysian palm oil exports inched up 2.1 percent to 862,337 tonnes, cargo surveyor Intertek Testing Services said. Another cargo surveyor, Societe Generale de Surveillance, reported a slightly higher rise of 3.1 percent in exports, a sharp improvement from a drop of 7 percent for the first 15 days of the month.
• Brent Crude Oil dropped to below $109 a barrel on Tuesday as hopes for a cooperation deal over Iran’s disputed nuclear programme eased concerns about major oil supply disruptions and as worries about Greece’s possible exit from the euro dominated the agenda, despite the prospect of economic stimulus in China and concerns about Iran as talks with world leaders start this week.

2. International Prices

• Average Crude Palm Oil price (cif Rott) traded lower by US$53 from US$1,106 to US$1,053. CPO discount vis-à-vis SBO increased marginally by US$137 this week compared to US$131 the previous week. Apart from CPO, SBO (fob, Bra) price was also not spared from the global downward trend where the price also fell to as low as US$1,130 on 22 May 2012.
• Production deficits in major soybean exporters Argentina and Brazil and weaker CPO production growth in Southeast Asia even as buyers stock up on oils ahead of major festivals in the region may cause stockpiles to dwindle. Buyers from the Indian subcontinent and the Middle East generally stock up on vegetable oils ahead the fasting month of Ramadan in July.
• There were continued concerns over the possibility of a Greek exit from the euro zone. Fresh Greek elections are expected in June, and recent polls have shown a surge in support for far-left party Syriza, which rejects austerity measures upon which the country’s bailout is conditional. Traders remained cautious on concerns a possible Greek exit from the euro zone could heighten risk of a global recession and hurt commodity demand.

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