Weekly Highlights (20 June – 26 June)

Section I:  Weekly Highlight on Fundamentals

Forecast of next season’s growth of world oilseed supply trimmed

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downwards

Oil World latest forecast that the world production of 10 oilseeds at 471.9 Mn T in 2012/13 down marginally from their previous estimate of 472.3 million T mainly on account of lower soybean production in Brazil and Paraguay as well as lower sunflowerseed production in Russia. Weather conditions are a key variable to watch in the months ahead. Some crop losses of rapeseed and grains have already occurred as a result of above normal winter-killing in parts of Europe and the CIS countries.

World supplies of soybeans have tightened substantially.

There was a decline in soybean production in the summer of 2011 in the USA to 83.2 million T, down 7.4 million T from a year earlier. However, during this time South American stocks were still ample and could compensate reduced US supplies. The second major blow came from a substantial decline in South American soybean production by 21-22 million T in early 2012, mainly caused by dryness and sharply lower yields in Argentina, Brazil and Paraguay.

Thirdly, Chinese imports of soybeans turned out much higher than expected it is estimated that China will import 57.9 million T of soybeans in Oct/Sept 2011/12 (up 5.6 million T from last year). A further increase to 61-62 million T is likely to occur in 2012/13, Considering that domestic Chinese soybean production will continue to decline, probably reaching a multi-year low of only 12.5 million T.

South American soybean supplies have dwindled significantly as exports of soybeans were still quite high in the first 4-5 months of their season which will lead to a substantial decline in South American soybean stocks by 18 million T from last year to only 37.7 million T as of end-August 2012. This, in turn, will substantially reduce South American exports of soybeans, soya meal and oil during Sept/Jan 2012/13.

US soybeans will have to fill the gap created by South America

US soybean exports are increasing contra-seasonally in June/August. This will boost total US soybean exports in March/August 2012 to 12.2 million T, up 35% from a year ago. According to Oil World estimates, this will reduce US soybean stocks to 4.2 million T or 154 million bu as of end-August 2012. In Sept/Febr 2012/13 South American soybean exports are likely to decline by about 9 Mn T from a year earlier. This will make it necessary to increase US soybean exports to at least 33.0 million T in Sept/Febr 2012/13 compared with 24.2 million T a year ago. These exports are record high and will substantially reduce US soybean stocks to probably only 30.8 million T as of end-February 2013, down 8.0 million T from a year ago.

Section II: Other Weekly Highlights

1. Asia Pacific

China

Premier’s Argentina visit to boost bilateral ties

Chinese Premier Wen Jiabao arrived in Argentina last Saturday, the third stop of his multination visit to South America, which is set to boost economic ties with the continent. Yin Hengmin, China’s ambassador to Argentina, told reporters earlier that strengthening agricultural cooperation is one of the hot topics of discussion between the leaders of the two countries, as Argentina is the world’s major agriculture exporter and China is a main importer of Argentina’s soybeans and soybean oil.

The volume of bilateral agricultural trade reached $5 billion last year, accounting for one-third of bilateral trade volume, he said, adding that the two countries will sign three agricultural cooperation agreements during Wen’s visit, according to a Xinhua News Agency report. Before flying to Argentina, Wen met with Uruguayan Vice-President Danilo Astori and President of the Chamber of Representatives Jorge Orrico. He called for the growth of bilateral trade in both volume and diversification.

Chinese firms tap resource-rich countries to feed world’s largest population

With demand for food rising due to China’s growing population and economic growth, domestic companies are looking to boost investments in resource-rich foreign countries such as Brazil and Indonesia to fill the food supply gap at home. Leading State-owned grain company Chongqing Grain Group Co Ltd (CGG), which started growing soybeans in the northeastern Brazilian state of Bahia in 2008, shipped 400,000 tons of soybeans last year to China that was processed into 80,000 tons of cooking oil. The soybean harvest from the 200,000-hectare farm in Bahia produces edible oil for Chongqing and cities in China’s southwest region. CGG will set up a soy refinery and processing plants for bio-diesel fuel and soy lecithin products within the next two years in Brazil. CGG’s next move is to grow soybeans on a 130,000-hectare farm in Argentina’s Chaco province with a total investment of $420 million. The first phase will cover 106,000 hectares of farmland.

CGG is not alone in its interests in Brazil. The Zhejiang Fudi Agriculture Group and the agricultural bureau of Heilongjiang province have also invested $158.4 million to form a joint soybean-growing venture with a Brazilian partner to establish two farms in the north and south of Brazil, according to the Zhejiang provincial commerce department.

ZTE Energy Co Ltd, a Chinese company that makes products in various industries, from solar energy panels, cell phones to agricultural products, has also found ways to supply China’s needs for palm oil in Indonesia. ZTE Energy purchased two palm oil companies in Indonesia’s Kalimantan Island with 30,000 hectares of farmland in 2009. About 13,000 hectares are planted with palm trees. With a $100-million investment, the company is expecting to produce 50,000 tons of palm oil by the end of this year.

China feeds more than 20 percent of the world’s population despite having less than 10 percent of the world’s agricultural land and less than 6 percent of the water resources, according to the agriculture ministry. Increasing agricultural investments overseas could help China ease the pressure to find more natural resources in the country and strengthen its food security.

2. Asia Pacific

Indonesia

Unilever Eyes Major Export Base in Sumatra

Unilever plans to build a manufacturing factory in Sumatra to create an export base for its palm oil products. The company will invest more than US$110 million (RM 339.8 million) for the factory. The factory will make 170,000 tonnes of “specialized derivative” products of palm oil annually, which would be one of the world’s top production outputs. Currently, the company is still discussing with the government and will start [construction] somewhere in the second half of this year, with commercial production beginning by the end of next year 2013).The factory will produce skin care products, mostly for export.

For the past several years, the company has invested about US$800 million (RM 2.47 billion) in Indonesia, including capital expenditure of US$438 million (RM 1.35 billion) from 2010 to 2012, and the spending is expected to continue. In the first quarter, Unilever Indonesia posted net income of US$128 million (RM 395.4 million), up 18% from the same period last year. A sister company would manage the operation in Sumatra, controlling both the quality and sustainability of production according to Unilever’s standards.

3. Sub Continent

a. Pakistan

The Utility Stores Corporation (USC) has almost finalised its ‘Ramazan Package’ by giving discount on prices of different kitchen and other items at its outlets across the country.

“The USC will announce special ‘Ramazan Package’ by the start of next month and all the outlets would be provided sufficient stock of edible and other items on subsidised rates for the relief of the people during the holy month,” a senior official of USC said. He informed that USC has already reduced the prices of some essential items including ‘ghee’, cooking oil, tea and beverages by Rs1 to Rs30 for providing relief to the people through the corporation.

He further explained that the corporation has reduced the prices of Dalda ‘ghee’ by Rs15 per 5kg tin by bring down its prices from Rs1,020 to Rs1,005, while the price of edible oil were also reduced by Rs3 per litter, he added. He said that the price of Dalda cooking oil was also brought down from Rs1,030 to Rs1,015 per 5kg showing net reduction of Rs15 on per 5kg tin.

Besides, the prices of tea and ‘ghee’ of different brands like Kissan ‘ghee’, Handi ‘ghee’, Anmol ‘ghee’, and cooking oil were also slashed by Rs4 to Rs20, while the price of tea has also been reduced by Rs1 to Rs30 in different packing. The official further said that the corporation was determined to facilitate the masses by providing them items of daily use on subsidised rates specially people living in far-off areas in the country.

b. India

Bids invited for import of RBD Palm olein

State-run trading firm PEC has invited bids for import of 18,000 tonnes of refined, bleached and deodorised (RBD) palmolein for the domestic market. The last day for submission of bids is July 25 and the contract will be awarded on the same day, PEC said in a notification on its Website.  The firm has asked for the shipment of 9,000 tonnes of the refined soyabean oil to be delivered at the Chennai and Tuticorin ports between June 25-30 and another 9,000 tonnes to be shipped at the same ports between July-5-15, it added.  The palm olein to be imported should be from Indonesia and/or Malaysia, it said.  RBD palm olein is a refined, bleached and deodorised form of palm oil, which is extracted after crushing palm fruit.

MMTC, PEC and STC import edible oils on behalf of the government for distribution through ration shops. Import duty on crude edible oil is nil and 7.5% on refined oil.
India had imported around 8.37 million tonnes of edible oil in 2010-11

GM packaging norm will hurt packaged edible oil

The Union Consumer Affairs Ministry notification on mandatory labeling of packaged food products containing genetically modified foods or food ingredients may primarily be targeting imported foods that are flooding the domestic market. This will have an impact on the domestic market for vegetable oil and vanaspati as India annually produces approximately 11-12 lakh tonnes of cottonseed oil, a significant part of which in recent years is extracted from genetically-modified cottonseed. To be sure, in the process of oil extraction the problematic protein remains in the cake/meal and not in oil.

Even small traces of protein that may be found in the unrefined oil will be removed after refining. In case of cottonseed oil, it is mandatory that the oil sold to consumers is in the refined form. Apart from going for direct human consumption as liquid oil, cottonseed oil is used as a raw material for vanaspati. It is incorporated as an ingredient in the making of vanaspati that usually is a mixture of many oils and hydrogenated. So, the question is will packaged cottonseed sold for human consumption be labelled as GM food? Also, will vanaspati incorporating genetically-modified cottonseed oil be subject to labelling? The industry will have to ponder over this issue. Additionally, India imports about 10-15 lakh tonnes of soyabean oil from abroad (Argentina, mainly) that is extracted from genetically modified soyabean. The main question is that will these oils, too, if sold for direct human consumption as liquid oil or incorporated as ingredient in vanaspati, be subject to labelling?

Vegetable oil imports rise by 35%

According to a statement released by the Solvent Extractors Association of India, vegetable oil imports rose by 35% to 896,921 tonnes in May this year from 664,133 tonnes in the year­ ago period, according to the industry data released on Thursday. Excessive imports during the peak crushing season have led to a record stock of 1.69 million tonnes at ports and in the pipeline, which is nearly equal to 40 days’ requirement.

Edible oil prices on the boil

Edible oil prices have indicated an uptrend amid firm global trend, a weak rupee and a delayed monsoon. The prices of key edible oils, including palm, mustard, cottonseed and soya, have surged by five-seven per cent over the past week. The monsoon’s progress seems to have halted for the past few days. There was a sustained fall in the supply of edible oils, both globally and in the domestic market. The sentiment is upbeat due to delay in monsoon here and firming global trends.

4. Russia

New Palm Oil Standard is Coming

The CEO of Association of Soap and Fat Producers, Mr. Lisicin stated that a new standard on Palm oil is under development.  MPOC Moscow has been requested to give support in the development of the standard. MS Standard of Malaysia was taken as a frame for the new Russian standard. The new standard will correct some misreading, influencing the import of PO. Mr Lisicin promised to exclude usage of stainless steel as a mandatory demand for the materials in contact with palm oil. Also, new quality demands are promised to be closer to Malaysian Standard. We believe that adoption of this standard will open a way for the import of palm oil of a better quality.

Russia bid for soybeans in Far East areas

The Amur region will produce soybean planting which will help stabilize the situation in the agricultural sector and help to change the economy. Envoy Viktor Ishayev said that arable land has reduced significantly over the past five years. “In frame of WTO the cost of our products will not competitive with our neighbors and members of our market, it will be extremely difficult to agriculture”, he further said. Currently, Chine is the main source of soy for the region.

NMGK, Russian Partner of Wilmar, to build oil extraction plant in the Orenburg region

An oil extraction complex will be erected at the site of LLC “Sorochinsky oil extraction plant” (Sorochinsky OEP), which is part of NMGK. The annual capacity of the project is projected at 400,000 tons of sunflower seed, canola and other oilseed crops in a year. Investment in the project will amount to 2.8 billion rubles. Commissioning is scheduled for the second half of 2013

5. Middle East

Egypt

Imports of oil shifted from soya oil to sunflower oil.

In May and the first half of June 2012, sunflower oil developed a small price premium over soya oil on the world market. This resulted in a shift in buying interest for sunflower oil from Egypt as a price-sensitive importing country. Egypt shifted almost completely from soya oil to sunflower oil imports in Oct/June 2011/12. An estimated record of 660,000-670,000 T was imported in that period, up steeply from 240,000 T the year before. It is likely that soya oil will regain some market share in coming months, resulting from seasonally declining sunflower oil production and export supplies and lower than expected biodiesel production in South America which will release more soybean oil for export.

6. Africa

a. Ghana

Government to support two oil palm outgrower schemes

The Minister of Food and Agriculture, Mr. Kwesi Ahwoi announced that the government would support two new oil palm out-grower schemes in 2013 in the Western Region. Mr. Ahwoi said the feasibility studies for the two schemes will start in August this year and that government has already engaged Agence Francaise de Developpement (AFD), the French Development Agency, to finance the schemes which are expected to help 750 farmers to cultivate 3000 hectares of oil palm. He said government will launch Ghana’s Oil Palm Development Master Plan next month and that the next 15 years would see the support the development of a new 10,000 hectares nucleus plantation with a 40,000 hectare out-grower scheme, hopefully in the Prestea-Huni Valley District.

The government’s initiative to expose the region’s potential in rubber production has resulted in the increase of rubber cultivation from 12,000 hectares in 1995 to more than 30,000 hectares currently and more potential exists in the region for the crop’s development. The current cultivated area is only 2% of the region’s agricultural land area and the way is now clear for the private sector to continue exploiting the immense potential of the crop in the region. Mr. Ahwoi said the Cape Saint Paul Wilt Disease (CSPWD) has seriously affected the coconut industry by devastating over 14,000 hectares out of the 43,000 hectares of coconut plantations and the destruction continues unabated with the Western and Central Regions being most affected. More than 1,050 hectares of CSPWD destroyed farms belonging to 1,000 already registered farmers in the Shama District and the Nzema East Municipality will be replanted, adding that, unaffected farmers will also have the opportunity to plant 1,000 hectares from subsidized planting materials.

Cameroon: Investors Seek to Boost Biofuel Production

Biofuel production initiatives are gaining ground in Cameroon as the government seeks to reduce the Central African country’s energy deficit while fighting climate change. Although biofuel production has not yet reached a large scale, the government is optimistic about the prospect of boosting the economy through a new source of much-needed renewable energy to complement hydroelectric power generation. Cameroon’s president, Paul Biya, touted the potential of renewable energy to solve power shortages in his 2010 end-of-year address to the nation.

Local Billionaire and Head of the French-owned Bollore Group, Vincent Bollore, recently met President Biya and the Minister Of Water and Energy, Basil Atagana Kouna to discuss large-scale biofuel production. A subsidiary of the company, SOCAPALM, has been active in Cameroon for the past 30 years. Together with two other subsidiaries, SAFACAM and Ferme Suisse, it established a pilot biofuels programme in 2005.

The Bollore Group controls more than 80% of palm-oil production in Cameroon, mostly for export, and now plans to boost its production of biofuels significantly beyond the current rate of 100,000 litres per annum, although targets have not yet been announced.  According to the government report, other investors apart from the Bollore Group are taking an increasing interest in renewable energy projects in Cameroon because of the availability of land and rich soils for the cultivation of palm trees, cassava and jatropha, which are important feedstock (raw materials) for biofuel production.

French bio-energy company Agro Energy Development (AED) has been in discussion with local authorities for the past two years about the possibility of developing biofuel from jatropha in the north of the country, where the plant flourishes.  Known in the local language, Fulfulde, as kogolondje, jatropha is particularly popular in Maroua in the Far North region, where it is used for food – the seeds and leaves can be eaten once cooked to remove toxins – and as a traditional medicine. AED plans to cultivate over 350,000 hectares (865,000 acres) of the crop to produce an estimated 665 million litres of biofuel annually.

7. Americas

Perdue Agribusiness expands Virginia soybean exports to China

Perdue Agribusiness is expanding exports of Virginia soybeans to China. Dandong Port Group has agreed to buy up to 550,000 metric tons of soybeans from this year’s crop. Dandong bought about 275,000 metric tons under the original agreement signed in September 2011. Gov. Bob McDonnell announced the agreement’s expansion on Monday in a news release. The agreement was signed last month during a ceremony in New York City.

“Today’s announcement is more great news for Virginia agriculture, especially our soybean producers,” he said in an official statement. “Growing exports are key to growing our economy. In the last few months alone, we’ve announced a record export level reached in 2011 and new trading deals with countries around the world, some of which were initiated during international marketing and trade missions. I applaud the leadership of Perdue and Dandong for building on their existing relationship to increase exports from Virginia. Their work and cooperation means more economic opportunities for our producers, shippers and so many others between our farms and world-class ports.” McDonnell said the companies also have a new agronomic cooperation agreement to help Dandong improve the quality of animal feed stock.

Perdue Agribusiness operates an export terminal in Chesapeake, Va. China is one of Virginia’s top customers for soybeans, along with Morocco, Canada, Switzerland, Egypt and Cuba. “We are very pleased with the results from the first year of our business relationship with Dandong and are excited about continuing to build on it in through product sales as well as expertise sharing in the coming year,” said Jim Perdue, chairman of Perdue. “We are grateful to Gov. McDonnell and his team and to the Commonwealth of Virginia for introducing us and facilitating the original agreement and for their support as we grow this mutually beneficial relationship.”

Section III: Weekly Data

Palm Oil Prices

  • Average CPO prices recovered this week and traded higher by RM92.17 to RM2,989.13 against RM2,897.13 attained the previous week. Crude palm oil futures on Malaysia’s derivatives exchange rose Monday reflecting optimism on demand prospects for palm oil as well worries that dry weather in the U.S. may damage its soybean crop. The benchmark September contract on Bursa Malaysia Derivatives rose as much as 3.6% to RM3,059 a metric ton, the highest level since June 1, before ending at MYR3,030/ton, up 2.6% from Friday’s close.
  • Palm oil prices are however on track for a more than 5 percent gain this week, after three straight weeks of losses. This trend will likely continue in the coming weeks and prompt price-sensitive buyers to switch to palm oil, he said, adding that CPO prices will likely remain supported above MYR3,000/ton in the coming weeks.
  • Palm oil exports in the June 1-25 period rose 4.4% from a month earlier to 1.2 million tons, cargo surveyor Intertek Agri Services said Monday. Another surveyor, SGS (Malaysia) Bhd., will likely release June 1-25 shipments data Tuesday.
  • Brent crude oil hit an 18-month low of $91 per barrel on Thursday as the outlook for economic growth darkened, pointing to lower-than-expected energy consumption worldwide. However, gains from Wednesday when tighter North Sea supplies were reported and Brent futures inched up 0.2 percent at $93.70 a barrel.

2. International Prices

  • Average Crude Palm Oil price (cif Rott) which was on a downward trend for the past three weeks reversed the slide and traded higher by US$43 from US$972 to US$1,015. Palm oil’s widening discount to competing soyoil is also supporting CPO prices, another Kuala Lumpur-based trading executive said. Soyoil’s premium over palm oil has moved up to about $180/ton from as low as $60/ton in April. This trend will likely continue in the coming weeks and prompt price-sensitive buyers to switch to palm oil.
  • Prices also gained ahead of the outcome of a key summit of European leaders this week, amid hopes that it will likely deliver a major breakthrough in addressing Europe’s sovereign debt issues. “The Greek election brought in some funds buying,” said a trader with a domestic commodities brokerage in Malaysia, referring to gains in palm oil earlier this week on optimism stemming from the victory of pro-bailout parties in Greece.
  • Dry weather in the U.S. Midwest has already taken a toll on some of the soybean crop, supporting soyoil futures on the Chicago Board of Trade.
  • All oil prices registered increase in prices with CNO registering the highest average increase of US$88 per MT.
  • 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.

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