Weekly Highlights (25 July – 31 July)

Section I:  Weekly Highlight on Fundamentals

Midwest Rainfall Helps the US Soybean Crop

The worst of the US drought may be over after some beneficial rainfall was received this week primarily in the northern parts of the US Midwest. More precipitation is in the forecast and temperatures are easing from their recent extreme highs. This week’s rainfall came too late for most of the US corn crop but it came probably just in time to restore some yield potential for the soybean crop which is about to set and fill pods. US farmers are now pinning their hopes on the ability of soybean plants to recover from the severe drought stress. Follow-up rainfall will be required in August to maintain the current improvement of crop conditions. However, soybeans still suffer from dryness in the core areas of the southern Midwest, the southeast and in the Delta.

The slight improvement of US soybean crop prospects after several weeks of downgrading the crop size and pushing up prices triggered a significant downward correction of prices. The high prices have already taken their toll on export and probably also domestic demand for US corn. In contrast, foreign demand for US soybeans and soya meal remained on a high level this week and evidence of successful demand rationing is still to come. Global consumers now have little choice but turning to the US for soybeans

Australian crop affected by dry weather conditions

Dry weather conditions across most of Australia continue to impede adequate crop development and raise concern about the prospective crops. Growing conditions are still favourable in eastern Australia but the canola crop has started to suffer in the west where only insignificant rainfall fell for almost 2 months. According to the Australian Bureau of Agricultural Resource Economics and Sciences (ABARES), in the week to July 25, only limited rains were received in the major growing areas. On top of that, low temperatures and partly frost have slowed crop development in southern Australia, giving rise to expectations of lower yields. Although latest crop estimate of 3.35 Mn T may be difficult to reach, Australia is still expected to produce a crop of at least 3.0 Mn T (which it did only once in history), exerting sizable pressure on the prices of canola from Nov/Dec onwards.

Some trade sources indicate that Australian old-crop canola has still been priced competitively on the world market, promoting the recent purchases from Pakistan. Recent additional purchases have brought Australian canola sales to Pakistan to more than 0.4 Mn T this season, the bulk of it shipped during March/July. This has largely exhausted the Australian export potential, possibly pushing shipments to a new high of 2.4 Mn T in Nov/Oct 2011/12, up 0.9 Mn T from a year ago

Section II: Other Weekly Highlights

1. Asia Pacific

a.      China

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China Q2 growth slows to 3-year low of 7.6%

China’s economy reported 7.6 percent of growth in the second quarter 2012, the lowest since the first quarter of 2009 when the global financial crisis was rampant, amid concerns about the slow-down of the second-largest in the world and the strongest one in the major economies. The National Bureau of Statistics said that in the first half, the country’s economy grew by 7.8 percent to 22.71 trillion yuan ($3.56 trillion). The growth in the first quarter was 8.1 percent. It is the lowest growth in the past 13 quarters.

China’s central bank has cut the interest rates twice this year to stabilize the growth. Premier Wen Jiabao also vowed to maintain a stable economy in recent visits in the nation and major conferences. It is believed the Chinese government’s recent moves of cutting the interest rates shows the country is being more integrated and more involved in the global economy.

National Bureau of Statistics: 4.56 million MT vegetable oil refined in June

According to the current report by National Bureau of Statistics, the output for refined vegetable oil in the subjected month of June 2012 reached 4.56 million tonnes and increase by 14.8% from a year ago and 23.7% from a month earlier. The report also showed that in the first half, the overall output for refined vegetable oil amounted to a total of 23.19 million tonnes and increased by 20.9% from a year earlier.

National reserved soybeans may reach 10.00 million tonnes

Domestic soybean price experienced a poor performance when the price on the international market sharply soared over the past month. The abundant stocks of local soybean and soybean oil helped domestic price in check. In terms of various soybean products, soybean increased by less than 8% from a month ago while soybean meal rose significantly by about 20%. During the same period, soybean oil price hardly changed at all.

Since the end of June, local operation utilization rate has been increasing due to the profit improvement in domestic market, which led to a rising supply of soybean oil. According to inside source, nationwide stockpile for soybean oil recorded at 1.20 million tonnes at the end of last week. Additionally, national reserved soybeans may reach the level at 10.00 million tonnes, representing that Chinese government is strong enough to control domestic edible oil price fluctuation.

b.        Indonesia

Kalimantan residents oppose new palm oil plantation

Thousands of residents in two West Kutai villages are protesting efforts by a palm oil firm to clear land for a plantation, arguing they will be left with no land of their own to farm. A Muara Tae tribal elder representing the villages of Murate and Lempunah, said that all 600 families in the villages were opposed to the incursion by palm oil company Borneo Surya Mining Jaya (BSMJ).

“We were never involved in the discussions between the district administration and the company about the land,” he said.  “So why all of a sudden are they clearing us off our own land? We will stand firm against them.” Masyarani said BSMJ was the latest palm oil firm to come into the area. He said that the commercial farming activities had also taken an environmental toll, with the local groundwater supply becoming contaminated. Three other companies have already cleared land in the area for their own plantations, each time resulting in the villagers losing more of their land and with no benefits to show for it.

BSMJ was awarded a concession in January 2010 to clear 476 hectares of land in the area for a plantation. Another palm oil company, Munte Waniq Jaya Perkasa (MWJP), was awarded a 683-hectare concession at the same time. The MWJP case came under international scrutiny earlier this year when it was revealed that the Norwegian government had made a $6.7 million investment in the firm’s Malaysian holding company.

The Muara Tae people are also protesting MWJP’s activities in the area on the grounds that they were never consulted by the authorities before the concessions were awarded. They argue that because the forest in question is ancestral land, the district administration should have sought their permission before awarding a plantation permit for the area.

The district authorities, however, point out that the area has not been formally designated an ancestral forest.

Isal Wardana, executive director of the Indonesian Forum for the Environment (Walhi), agreed that the district authorities should have done more to encourage companies to optimize their existing land rather than grant them new tracts of forest to clear. “There should be no more new permits or expansion of plantations,” he said. There are 203 palm oil concessions in East Kalimantan, covering 35,200 square kilometers, 17 percent of the province.

Ramadan seen as boost for palm oil

Palm-oil shipments from Indonesia, the world’s largest producer, may rise 9.5 percent in June on sustained demand due to the Muslim fasting month of Ramadan. Exports are set to climb to 1.5 million tons from 1.37 million tons in May, while output will probably be little changed at 2.1 million tons, according to the median of five plantation and refining company executives in a Bloomberg News survey. Inventory will also be little changed at 1.85 million tons, two of the respondents said.

“Global demand, either from India or other countries, will usually increase by 15 percent to 20 percent during the festive seasons,” said Derom Bangun, a deputy chairman at the Indonesian Palm Oil Board, a group of growers and refiners. “This will support prices even as the pressure from the European crisis is still quite strong.”

The holy month of Ramadan, starting this year in late July, is a time when consumption of cooking oil usually climbs as followers break daylong fasts with communal meals. The Idul Fitri festival marks the end of fasting. Indonesia exported 1.37 million tons of palm oil last month, a 1.4 percent drop from April, according data from the Indonesia Palm Oil Association. That was lower than the median estimate of 1.63 million tons from four companies in a Bloomberg survey published on May 31.

Palm oil lost 12 percent this quarter and is set for its worst performance since the period ended March last year. September-delivery futures gained 0.7 percent to RM3,020 ($952) a metric ton on the Malaysia Derivatives Exchange on Friday. Soybean oil has declined 5 percent this quarter. Prices are expected to stay at about RM2,800 to RM3,000 until July, as demand from China and India remains strong, said Susanto, head of marketing at the palm oil association.

The country’s export-tax structure is making its products more attractive compared with Malaysia, the second-largest producer, Sinaga said. He expects refined-palm oil exports will represent 51 percent of total shipments this year, up from 40 percent last year. Indonesia cut the tax rate for exports of crude palm oil in July to 15 percent, a level last seen in January, from 19.5 percent this month, said Deddy Saleh, director general of foreign trade at the Ministry of Trade.

The government reviews the tax rates and base export prices every month, based on average rates in Kuala Lumpur, Rotterdam and Jakarta. Exporters may delay some shipments to July to benefit from the lower tax, said Joko Supriyono, Secretary General at the palm oil association.

c. Thailand

Thailand to import 30,000 tons of palm oil by August

The National Palm Oil Policy Committee has resolved to green light the import of more palm oil by next month. Secretary-General of the Office of Agricultural Economics Apichart Jongskul said that the National Palm Oil Policy Committee meeting, chaired by Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong, resolved to approve the import of 30,000 tons of crude palm oil by the Public Warehouse Organization. Mr. Apichart said that the import is imminent as there is only 130,000 tons of palm oil supply in the state stock, the level significantly lower than the mandatory quantity of 200,000 tons.

The National Palm Oil Policy Committee meeting has instructed the Public Warehouse Organization to make the import by August. According to Mr. Apichart, the Energy Ministry is planning to promote the use of bio-diesel B3.5 to help lower the crude palm oil use by 15,000 tons a month.

The Secretary-General of the Office of Agricultural Economics said that the government’s palm oil supply has dwindled because of lower domestic production, likely caused by the volatile weather conditions in the country. He believes that the situation around the palm oil supply will improve during the months of August and September.

2. Sub Continent

India

Agriculture markets staring at new wave of food inflation and policy risks.

Until two months ago, there was great optimism that the northern hemisphere will witness a well deserved rebound in the production of major agricultural crops, that stocks would be rebuilt and that prices would soften to the delight of consumers. That optimism has now given way to serious concern. Harvest expectations have been scaled down in different parts of the world. El nino may be truly upon the world, creating moisture stress and hurting farm prospects. Despite expansion of acreage for corn and soyabean, the US is most certain to face yield declines and lower harvest than anticipation earlier. India is no better. The decline in output is imminent and there is a need to estimate is the size of decline. The market has already taken cognizance of the developments which is clearly reflected in the ongoing sharp price rallies. It is some consolation that abundant public stocks of wheat and rice will come in handy to meet the looming crisis. But vegetable oils and pulses will have to be imported on a larger scale to bridge the supply gap. Policy risks are looming large for the agricultural markets. It should come as no surprise if governments resort to imposing trade restrictions.

Drought in sight, farm crisis looms

The government has rolled out, the first steps to avert a farm sector crisis amid indications that the Met department is now set to switch to a below-normal rainfall forecast. The rainfall outlook is expected to be revised from 96% to 92%. The government’s group of ministers on drought has not convened, ostensibly because farm minister Sharad Pawar, who heads the group, and the ruling Congress are yet to resolve a political deadlock. This has prompted the PMO to step in to protect farmers.

Food Ministry supports PDS subsidy extension in edible oil

The Union Ministry Of Food has recommended continuing the subsidy for edible oil distribution, given the rising trend in prices and anticipated shortfall in final production in the kharif season. The subsidy scheme under the public distribution system involves distributing edible oil at Rs.15 per kg to individual states. The scheme is to end in September. Besides, after a tariff increase on the import of palmolein oil, its prices are up in the domestic market by 10-20 per cent across the country. The government defreezed the tariff value on imported RBD palmolein from $484 a tonne, and aligned it with current international prices and scrapped the proposal to lower import duty rate on refined oil.

3. Europe

a. EU 27

Palm oil-free may become an emerging trend

A shift towards palm oil-free foods and ingredients could be an emerging trend in Europe, according to market analysts. Miranda Dickinson of market research firm RTS Resource, told FoodNavigator: “Much has been written in recent months about the need for sustainable palm oil. Sunflower crops are seen as being a viable alternative, as are rape crops and there appears to be a slight shift emerging towards alternative crop solutions (mostly at present concerning sources of non-saturated fats). As pressure grows both within the industry and outside from consumers, I wonder if more ingredient companies will follow suit?”

Companies could be responding to the strong consumer awareness of the ecological impact of standard palm oil cultivation, she added. This had been fuelled by initiatives such as Greenpeace’s notorious campaign against Nestle’s use of palm oil in its KitKat brand. “If food manufacturers are looking to increase reasons for consumers to buy their products, the possibility of adding a ‘palm oil free’ label might be an added purchase motivator when manufacturers are sourcing ingredients.” She also pointed to the call to cut trans-fats and the demand from the industry for products that offered multiple benefits, such as health, ‘all natural’ and environmental claims.

According Mintel Group, there had been 72 new products in Europe bearing prominent front of pack ‘no palm oil’ claims in 2011, versus 16 in 2010. A total of 66 new products bearing such a claim had been launched in the first half of 2012. More than half of the launches in 2012 had been in the bakery sector, and France alone accounted for 80% of the activity. Jacquet and San Michel were the most active companies in the country in terms of their use of the claim. Other active companies included Findus, with products such as its Lasagne Bolognese, and PepsiCo’s snack division, with products such as its Lay’s Saveur Moutarde Pickles crisps.

Danish government considers abandoning fat, sugar tax

The Danish government is considering reversing its decision to impose a tax on saturated fat in food and may also abandon plans to introduce a similar sugar tax. The development follows a campaign by trade groups and unions, which claim the fat tax has driven consumers to cross the Danish border and shop in neighbouring nations without the tax, threatening profitability and jobs in Denmark. Danish union HK Commerce teamed up with the Danish Food & Allied Workers Union (NNF) and the Danish Chamber of Commerce to launch national press advertising campaign last month calling for the taxes to be removed.

The Minister Of Taxes and the government have stated that they are prepared to drop the taxes. Left wing politicians and Conservatives have rejected alternative proposals to date, but negotiations continue. According to the Danish Agriculture and Food Council, the taxes will cost 2,400 Danish jobs. In addition to Venste and the Conservatives, the Liberals and the Danish People’s Party are also understood to be exploring the possibility of rolling back fat taxes and curbing the extended duty on sugar. The Danish fat tax imposed an extra 16 Kroner per kilogramme of saturated fat on the price of products ranging from butter and milk to pizzas, oils, meats and pre-cooked foods. The proposed sugar tax would introduce a levy on sugar in products ranging from confectionery and yoghurt to pickles and jams. Some critics of the sugar tax claim it would unfairly hit nutrient-rich products as well as those of poor nutritional value.

Cargill blazes trail with sustainable rapeseed oil

Cargill has supplied the first-ever sustainable verified rapeseed oil to Unilever with an initial consignment covering 5% of Unilever’s rapeseed oil needs. The ingredients firm said that in the next three years Cargill’s European refined oils and grain and oilseed businesses would be able to meet all of Unilever’s sustainable rapeseed oil needs. The global consumer products group uses rapeseed in products including margarines and mayonnaises. As a result of their partnership on rapeseed oil, Cargill and Unilever have established a repeatable model that can be applied to drive sustainability within other oilseed crops in the future. Unilever aims to source 100% of its agricultural raw materials sustainably by 2020.

5. Americas

a. Brazil

Brazil nears U.S. soybean crop size

Change in weather patterns, high international prices compounded by a favorable exchange rate, and a bumper Brazilian corn crop this year have generated widespread expectations for a record soybean harvest in 2013. That would come as a huge relief to local farmers who could only watch as a drought devastated their fields early this year. Hopes have built in recent months as the water in the equatorial Pacific Ocean warmed, indicating a return of the El Nino climate phenomenon that tends to bring an early and evenly distributed rainy season to South America’s grains belt.”We’re excited. I think El Nino will be confirmed and give us a lot of soy out there,” said Roni Alessio, who grows soybeans and corn in Brazil’s Mato Grosso do Sul state. “Many people have already pre-sold a good part of the crop.”

Depending on when the rainy season begins, Brazilian farmers plant summer crops such as soybeans, corn and cotton between September and November. Earlier is better, as it allows growers to harvest during the first quarter and get their winter corn in the ground before Brazil’s dry season sets in and frost poses a threat in southern states. Farmers are all but certain to plant more soybeans this year than ever before, analysts said.

An outstanding winter corn crop this year should fatten Brazil’s stocks of the grain and embolden farmers to cut back on corn in favor of soybeans during the main summer crop, analysts said. Brazil’s corn yields have risen sharply in recent years as well-capitalized farmers adopted better fertilizers and seeds. Driven by ever-rising global demand as well as a robust soymeal and soyoil industry, soybeans are perhaps Brazil’s most-liquid cash. China buys more than two-thirds of Brazil’s soybean exports in a given year.

Informa Economics FNP estimated that Brazilian growers have fixed sales of their upcoming soybean crop about twice as quickly as last year. The firm estimated 34.5% of 2012-13 production has already been pre-sold with cooperatives and traders. Consultancy firm Agroconsult said Friday it expects Brazil’s 2012-13 soybean production to rise 25% from the previous year to 83.1 million tonnes, barely eking out the U.S.’s drought-hampered crop as total acreage expands 11% and yields recover, thanks to El Nino. “The 2012-13 crop has everything to be a year in which we finally surpass the U.S.,” Agroconsult analyst Marcos Rubin said.

Section III: Weekly Data

Palm Oil Prices

  • Average CPO price fell by RM65.02 from RM2,964.40 to RM2,288.38but CPO futures on Malaysia’s Malaysian crude palm oil edged to a one-week high on Monday at RM2,982, on expectations the Federal Reserve and European Central Bank (ECB) will announce new measures to encourage growth, boosting commodity demand
  • Palm oil futures retreated from a one-week high hit the previous day as traders priced in a monthly decline in Malaysian palm oil exports that could ease stocks.  “Palm oil may still have room for gains in August because of weather issues in India and the U.S.,” a trading executive in Kuala Lumpur said.
  • Malaysia will increase shipping quotas for tax free crude palm oil by up to 2 million tonnes this year to help planters cope with higher output in the next few months, government sources said, as the world’s No.2 supplier struggles to maintain its export momentum. Malaysia’s move to raise its annual 2012 zero tax CPO export quota to 5.6 million tons from 3.6 million tons, would also be “supportive of CPO prices in the short term,” Maybank Investment Bank said in a note.
  • A government official said Monday the duty-free CPO export quota boost could help prevent a build-up in stocks as output in the biggest producer of palm oil after Indonesia will rise on seasonal factors.  Malaysian palm oil stocks are expected to hit 1.9 million tons by the end of July and could cross 2 million tons in August, rising from a 14-month low of 1.7 million tons at the end of June.
  • Cargo surveyor Intertek Agri Services said July outbound sales fell 15% from the previous month to 1.23 million tons, while another surveyor SGS (Malaysia) Bhd. put July shipments at 1.19 million tons, down 19%.
  • Brent crude oil prices fell to around $106 a barrel on Monday, erasing early gains, boosting palm oil prospects to be used as biodiesel.

 

International Prices

  • CPO average price fell by USD12 from USD1,002/MT to USD990/MT (cif Rotterdam) during the week. Price was lowest on 27 July 2012 at USD985/MT. A gloomy global economic outlook also weighed on palm oil and other commodity markets, with a surge in Spain’s borrowing costs raising concern that the country could seek a costly bailout.
  • Prices of all other commodities also traded lower during the week in both South American and European markets. Commodity prices are trading broadly lower, extending a rout that began in Asia amid worries about slowing Asian economic growth and rebuilding Eurozone debt crisis fears. German Vice Chancellor Philipp Roesler said he was “very skeptical” about Greece’s rescue and warned the country would not get further aid if it fails to meet its obligations.
  • Favourable weather for soybeans could lead to a higher supply of soybean oil and draw demand away from palm oil.
  • Corn and soybean futures tumbled for the second straight day on speculation that mounting European economic woes will erode commodity demand.

 

 

MONTHLY STATUS

1.  Malaysia’s Exports & Imports

 

2. Exports to Major Countries

 

3.    Production & Stocks

 

4. Monthly Average Prices

 

BMD CPO FUTURES

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