Weekly Highlights (23 May – 29 May)

Section I: Weekly Highlight on Fundamentals

Favourable Weather in the USA

Arrival of beneficial rainfall has improved production prospects in the US Midwest this week. Plantings as well as crop developments are well ahead of normal, suggesting an early harvest. This is primarily true for winter wheat, creating the possibility of larger than expected plantings of soybeans double-cropped after wheat. Oil World expects total US soybean plantings this year to turn out 2.0-2.5 Mn acres above the March planting intentions of 73.9 Mn acres.

Plantings of soybeans progressed rapidly to 76% as of May 20, more than doubling on the year and up from the 42% average, while crop emergence reached 35% (vs. 10% and 13%). Plantings of corn were almost complete with 96% of the intended area done as of May 20, sizably above 75% a year ago and 81% average. Crop emergence progressed to 76%, well ahead of the most recent five-year average of 48%. In its first estimate for this year the USDA rated 77% of the corn crop in ‘good to excellent’ conditions, indicating the potential for a bumper crop.

Tighter World Supplies of Soybeans

Additional crop losses in South America have resulted in even tighter world supplies of soybeans. We now estimate world production at only 236.8 Mn T in 2011/12. This represents an unprecedented year-on year decline by 29 Mn T. For the first time ever soybean production is declining in both the northern and southern hemisphere in the same world crop season. Oil World estimates year-on-year declines of 6.8 Mn T in the northern hemisphere and 22.1 Mn T in the southern hemisphere this season. Moreover, there is a relatively high risk that actual soybean production turns out somewhat below our current estimate for South America. As we point out below, the Argentine crop may even fall to 39-40 Million tonnes owing to the additional damage resulting from recent flooding of unharvested fields.

Some demand-rationing has already been triggered by the unusually high prices, but most of the reduced world supplies will be reflected in an unusually steep decline of world soybean stocks by 21 Mn T from a year earlier as of end-August 2012. Inventories in Brazil, Argentina and Paraguay will probably decline to only 37.8 Mn T as of end-August 2012, representing an unusually big reduction by 17.6 Mn T from a year earlier. This will, of course, significantly reduce South American soybean crushings and exports in Sep/Feb 2012/13, thus shifting an unusually large share of world import demand to US origin.

Section II: Other Weekly Highlights

1. Asia Pacific

a. China

China to Raise Soybean Imports

China is likely to raise soybean imports in the 2011/2012 season despite recent shipment cancellations as the country has harvested a smaller soy crop and faces continued high demand, according to Oil World forecast on Tuesday. China is likely to import 56.8 million tonnes of soybeans in Oct. 2011/Sept. 2012 against 52.3 million tonnes in 2010/11, Oil World said.

China’s own 2011/12 soybean crop fell to 13.6 million tonnes from 15.08 million tonnes in the previous year, it said. Global markets were surprised on May 24 when a Chinese trading house cancelled four soybean shipments, generating concern about possible falling demand from China, the world’s largest soybean buyer. Oil World stressed such shipments were bought at previously high soybean prices which have since fallen back.

MOC hike soybean import in May

Ministry of Commerce (MOC) issued a report on agricultural commodities import last week. According to the report, soybean import was forecasted to arrive at a total of 7.2289 million tonnes In May and much higher than the previous amount expected at 5.6259 million tonnes. Meanwhile, MOC estimated soybean import at 5.1562 million tonnes. In the subjected month, palm oil import was estimated to be 408,300 tonnes.

Suspect edible oil found in Yunnan

Food safety watchdogs in Southwest China’s Yunnan province asked a local oil company to stop manufacturing edible oil products they suspect contain industrial fatty oils and to recall all products sold in the province.

An initial investigation revealed that Yunnan Fengrui Oil and Fat Company was suspected of producing three types of cooking oil with animal fat that is only supposed to be used for industrial purposes, according to a news conference jointly held last Tuesday by three government departments, including the Yunnan bureau of quality and technical supervision. In fact, the use of industrial animal fat in the production of food products is prohibited in China, as it cannot meet the hygienic standards required for cooking oil and contains high levels of chemical pollutants such as paraffin.

2. Sub Continent

a. Pakistan

Utility Stores Corporation makes upward revision in Ghee, Cooking oil rates
Following two upward revisions in ghee and cooking oil rates by the Utility Stores Corporation (USC) of Pakistan during the last few months, yet another increase was made in prices of both items some 10 days ago. The decision was made as claimed by some officials of the Corporation following upward trend in the price of palm oil in the international market compelling the USC to pass on the price difference to helpless consumers totally overlooking the fact its prime objective was to provide subsidized edible items to consumers.

Similarly prices of all popular branded ghee and cooking oil including Habib, Supreme, Dalda, Tullo, Kissan, Meezan and many others were also jacked up at a ratio of Rs 10 per 5 kg tin. As a consequence helpless consumers are now compelled to pay higher rates for purchasing ghee and cooking of their choices. An official of an outlet of the Corporation in Gulshan e Iqbal area acknowledged about increase in rates of all varieties of ghee and cooking oil having adverse impact on the daily sales of both essential commodities. He admitted frequent increase in prices of essential commodities had negative impact on the purchasing power of common man, which could now hardly afford their exorbitant price as a consequence a sharp decline was witnessed at all USC outlets in the demand of ghee and cooking related items.

b. Bangladesh

National Budget for 2012 – 2013 fiscal will be tabled in the Parliament on June 7, 2012
In the Budget, National Board of Revenue (NBR) has proposed to impose import duty at least Taka. 3,000.00 i.e. US$ 12.12 per tonne on import of crude edible oils, namely, crude Soybean oil, CPO, CPL and RBD PO/PL, which are enjoying zero import duty since long. Besides, NBR also proposed to increase the existing import VAT of 10% to 15% applicable for import of crude edible oil in bulk since 2011. However, edible oil refining group has strongly opposed the same stating that such steps would increase the prices of edible oils in the local market due to limited purchasing power of major segment of the population.
Malaysian Palm Oil Import during Jan-May 2012 Increased by 42.50%
During Jan. – May 28 period of 2012, import of palm oil i.e. CPO, CPL and RBD PO/PL together registered an increase of 18% compared to corresponding period of 2011, while import of MPO increased by 42.50%. Total import of oils and fats during the period registered an increase of 31.5%.

c. India

India seen ending vegetable oil base import price freeze

India is likely to end its freeze on the base import price of refined vegetable oils, government sources said on Monday, to protect its refineries from cheaper imports of palm oil from Indonesia, the world’s top producer of the cooking oil. Edible oil refineries in India, the world’s top vegetable oil importer, have been complaining about cheaper imports after Indonesia cut export tax on refined varieties and raised the duty on crude palm oil.
India has kept the base import price, used to calculate import tax irrespective of the purchase price, unchanged since 2006 when the government was battling high food prices. “There has been a freeze on base import price for some years now but there is a need to do away with the freeze on tariff value on refined vegetable oils. We also need to protect our domestic units,” one of the sources said.

Importers are currently taxed 7.5 percent duties based on the tariff value set at $484 a tonne – a low price to pay and bring in processed edible oils. The food and finance ministries favour the lifting of the freeze, another source said. India imports more than half of its total vegetable oil consumption of about 16 million tonnes annually. The bulk is made up of palm oil from Indonesia and Malaysia and there are much smaller shipments of soyoil from Brazil and Argentina. The industry expects ministers to lift the freeze.
India’s imports of refined palm oil in the first of half of the current year from November surged 89 percent in comparison with the same period a year earlier, data released by the SEA showed this month.

3. Americas

a. USA

Increasing US market interest in segregated sustainable palm oil

Food processing customers are placing greater awareness and commitment to use Certified Sustainable Palm Oil (CSPO) fractions. However movements toward these fractions are slow, due to the difficulty of sourcing segregated palm oil. Sources are impediment by shipping quantities and lack of customer commitment, in a market that consume more palm stearin more than palm olein.

Limited segregated palm oil supply in the US has drifted food manufacturer Kellogg to purchase GreenPalm Certificates to cover palm oil use in its products. Food manufacturers are in agreement that palm oil offers unmatched cost efficiencies compared to other vegetable oils. But as demand for palm oil substitutes has increased, it has also provoked social-environmental concerns regarding its sustainability. Switching to sustainable palm oil or supporting green palm certification has become a major trend for manufacturers and retailers alike. Kellogg pledged a goal that is to “purchase sustainable palm oil once a segregated palm oil supply is available that is financially and logistically feasible” and will encourage its suppliers in similar direction. Gavin Neath, senior vice president of sustainability at Unilever, said that its objective to derive all of its palm oil from Roundtable on Sustainable Palm Oil (RSPO) certified plantations by 2015 was achievable, particularly as suppliers Cargill, Unimills and IOI have been landing segregated CSPO in Rotterdam.

Increased America’s soybean production; U.S. projected to 3.2 billion bushels
USDA World Agricultural Demand and Supply Estimate revealed an oilseed production for 2012/2013 anticipated at 97.0 million tons, up 6 percent from last year. Increased soybean production estimated at 3.205 billion bushes accounts for most of the increase, in spite of lower harvested area. Increased production is the result of higher yields that more than offset the lower harvested area. Soybean yields up 2.4 bushels from 2011, generating to 43.9 bushels per acre over a harvested area of 73.0 million acres.

Global soybean production is projected at 271.4 million tons, up almost 15 percent. The Argentina soybean crop is projected at 55 million tons, up 12.5 million from 2011/12 as yields rebound and relatively high prices lead to record harvested area. The Brazil soybean crop is projected at a record 78 million tons, up 13 million, also due to record harvested area and improved yields. Paraguay soybean production is projected at 7.8 million tons, up 3.8 million from 2011/12 as yields rebound strongly from drought-reduced levels.

4. Europe

a. Russia

Russian Minister of Agriculture to Resign

Nikolay Fedorov, has taken Ministry of Agriculture as new government has been formed. He is a former President of the Chuvash Republic in Russia. He was the justice minister of Russia from July 14, 1991 to March 24, 1993 and was the President of Chuvash Republic from January 21, 1994 to August 2010. Elena Skrynnik, outgoing Minister, promised to stay within the ministry, but, several criminal cases against her associates and family members drop shadow on her future in the government.

One of the latest moves, Skrynnik has done as an acting Minister, was to create an approach to the challenges of WTO membership. Elena Skrynnik adopted the Roadmap on customs tariff and non-tariff regulation of agricultural imports, in terms of Russia’s accession to the World Trade Organization (WTO). The Roadmap, in particular, provides continuous monitoring of the volume and cost of production and import of dairy products, rice, and live pigs, tropical oils particularly palm oil.

Sunflower crop likely to stay below previous record

Despite the significant expansion of planted areas, in 2012 the harvest of sunflower seed in Ukraine will not become the record, and remain at the level of last year, declared Stepan Kapshuk, General Director of the Association “Ukrliyaprom”.

According to him, the final figures of planted areas under sunflower seed are not yet known, but even if the index still totals 4 mln ha, the weather conditions do not allow harvesting the record volumes of the oilseed. The weather disasters caused shortages of moisture in the soil, in southern and eastern oblasts agrarians already declared about perished crops areas, said S.Kapshuk.

According to the expert, it is obvious that in the current season the yield rate is unlikely to be higher than the average level of 17-18 c/ha. In the best case, the harvest will be at the level of last year – 8.67 mln tonnes.

Switching from Sunflower on Soybeans

Bad soil conditions, as a result of sunflower cultivation, force Ukrainian and Russian agrarians to seek new crops more friendly to soil. Ukraine can sew up to 4 million hectares of soy, producing up to 10 million tons of soybeans, and 450-600 tons of biological nitrogen, Natalia Grigorchuk, head of Laboratory of Selection of Oilseeds Research Institute, said during the Conference in Yalta. 1.11 million hectares of arable land was sowed in 2011, the average yield of soy was 2.05 t/hectare, expert. Production of soybean oil in Ukraine is growing steadily. In 2009/10 and 2011/12 MY production of soybean oil increased by 44.3 million tonnes (64%).

At the same time, the soy market of the Russian Federation waiting to expand twice in the next five years. Accordingly to industrial program of development of feed production in the Russian Federation in 2010-2012 the need for soybean meal in 2011 was estimated at 3.5 million tonnes.

5. Africa

a. Cameroon Leaders Welcome Palm Oil Investors

Cameroon is inviting foreign companies to expand lucrative palm plantations, pitting the country’s need for economic development against environmentalists who foresee the loss of important forests.

Six foreign-owned companies are currently trying to secure over 1 million hectares (about 2.5 million acres) of land for the production of palm oil in the country’s forested southern zone

According to the government, the companies seeking land include Sithe Global Sustainable Oils Cameroon (SGSOC), which is owned by US-based Herakles Farm and is finalising the acquisition of 73,000 hectares (about 180,000 acres) in the Southwest region.
Sime Darby, a Malaysian-based multinational and the world’s biggest listed palm oil producer, hopes to secure 600,000 hectares (about 1.5 million acres) to develop oil palms across the South, Centre, Littoral and Southwest regions.

Siva Group/Biopalm Energy, an Indian-owned group, is in the process of acquiring 200,000 hectares (about 500,000 acres) of land for palm plantations in the South region, where three further companies are also seeking land for the same purpose.
According to government statistics, Cameroon is currently the world’s thirteenth largest producer of palm oil. A mixture of smallholders and agro-industrial plantations together produce 230,000 tonnes annually, with 190,000 hectares (470,000 acres) under cultivation.

About half of total production, accounted for by the government-owned Cameroon Development Corporation and companies owned by the French Ballore group, is exported to Nigeria, France and other countries. The government’s Rural Sector Development Plan calls for palm oil production to nearly triple, to 450,000 tons annually, by 2020, in part to make up a 150,000-tonne deficit for domestic consumption.

Cameroon says Cargill eyes 50,000-ha oil palm project

U.S agribusiness conglomerate Cargill plans to invest up to 200 billion CFA francs ($390 million) in a 50,000-hectare oil palm plantation in Cameroon, an official at the Central African nation’s investment agency said on state radio.

Marthe-Angeline Minja, director of Cameroon’s Investment Promotion Agency (API) made the comments after meeting Cargill officials but did not give further details; while a Cargill spokeswoman said the firm does not comment on speculations.

Minja said Cargill has shown interest in investing between 100-200 billion CFA francs immediately in the country once it is offered the opportunity.

Cargill already has investments in Cameroon’s cocoa sector where Telcar Cocoa, its joint venture partner, is the country’s leading cocoa exporter.

New York-based agricultural company Herakles Farms plans to develop a $350 million 60,000-hectare oil palm plantation in the country, while Biopalm Energy, a subsidiary of Singapore’s Siva group said in August it will launch a 900 billion CFA Francs ($1.75 billion) palm oil investment project.

Section III: Weekly Data

Palm Oil Prices

• Average CPO prices traded lower this week by RM36.20 to RM3085.60 against RM3121.80 attained the previous week.
• Malaysian palm oil futures climbed to a near two-week high on Tuesday as investors cited a rebound from a sell-off on the euro zone debt crisis, while expectations of dry weather conditions in soybean-growing regions in the United States also supported prices.
• The benchmark August palm oil futures on the Bursa Malaysia Derivatives Exchange closed 1.1 percent higher at 3,178 ringgit ($1,000) per tonne. Prices have slipped about 8 percent this month.
• Last week, the lack of any significant breakthrough in resolving the debt crisis in Europe weighed on palm prices, sending the benchmark down to its lowest level this year at 2,993 ringgit per tonne.
• Prices rose as high as 3,193 ringgit on Tuesday, the highest level since May 16, and traders say they are likely to hit 3,200 before the end of May.
• Traders also said there was some buying after leading palm oil buyer India, looked likely to end its freeze on the base import price of refined vegetable oils.
• Also helping boost palm prices, according to traders, was a rise in demand from India and Pakistan for Ramadan, where fasting in the day is followed by feasting in the evening.
• Crude oil fell towards $106 a barrel on Tuesday as the deepening euro zone debt crisis hurt the outlook for global fuel demand, counterbalancing bullish sentiment from renewed fears of Middle East supply disruptions.

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2. International Prices

• Average Crude Palm Oil price (cif Rott) traded lower by US$15 from US$1,053 to US$1,038. CPO discount vis-à-vis SBO increased marginally by US$134 this week compared to US$137 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$1,096 on 23 May 2012.
• Weather concern contributed to the price strength of future market in Asia. Market participants will increasingly focus in the near to medium term on weather patterns, where dry conditions in the United States could hurt the soybean crop, and a possible return of the El Nino weather pattern that may curb palm oil output in Southeast Asia.
• Dry weather was a worry for soybeans in much of the Midwest, especially southern areas, following a hot and windy U.S. holiday weekend. But showers were crossing parts of Ohio, southern Indiana and Kentucky at midday Tuesday.
• Argentina’s 2012 soybean crop could fall as low as 39 million to 40 million tonnes, from 49.2 million tonnes in 2011, as drought and flooding continue to force farmers to abandon soy crops

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