Weekly Highlights (30 May – 5 June)

Section I: Weekly Highlight on Fundamentals

Brazil Government Cuts Soy Estimate, Raises Corn View

Brazil’s government trimmed its 2011/12 soybean crop estimate on Tuesday after drought ravaged output in the world’s second biggest producer this season, but raised its forecast of corn output to a record.

U.S. soybean futures rose after Brazil’s food supply agency Conab cut its production forecast and U.S. crop ratings disappointed.

Brazil’s soy crop that finished harvest in May is now estimated at 66.37 million tonnes, after drought erased about 10 million tonnes from crop’s potential, Conab data showed. The latest output number is down slightly from last month’s estimate of 66.68 million tonnes.
Carry-over stocks of soybeans are set to drop to 1 million tonnes, Conab estimates, their lowest since 2008/09 and down about 65 percent from last year. No major revisions to the soy crop are expected in the coming months. Brazil harvested a record 75.3 million tonnes the year before.

Despite the drought, corn production jumped in Conab’s ninth forecast of the grain crop to a record 67.79 million tonnes from the 65.90 million projected a month ago. It is the first time in over a decade that Brazil will harvest less soy than corn, which is mostly consumed by the local pork and poultry industry.

Producers have shifted more of their corn planting to the winter crop recently. This winter, or second crop, that is planted from January to March leapt 53 percent from last year to 32.9 million tonnes. The winter crop will be harvested in the coming weeks.

Oil World sees US soy exports up 40 pct in 2012/13

US soybean exports will increase by nearly 40 percent from September 2012 to February 2013 to compensate for the shortfall in the South American crop which has been hit by drought, German-based analyst Oil World said on Tuesday.

“Insufficient South American export supplies of soybean, soymeal and oil will shift world demand to US origin in Sept-Feb 2012/2013,”

Oil World said that US soybean exports will reach 33.5 million tonnes in the first half of the US crop season, up 9.3 million tonnes or 39 percent from a year earlier.

Total world exports of soybeans in the same period will reach 43.4 million tonnes, Oil World said.

It said that exports from leading South American producers — Argentina, Brazil, Paraguay and Uruguay – are expected to decline by 9 million tonnes in the same period.
“With our current us soybean crop estimate of 88.7 million tonnes, we consider it necessary that total US soybean stocks will be reduced to a multi-year low of only 31.5 million tonnes as of end of February 2013,” Oil World said.

“This is an unusually low inventory and sharply down from 38.7 million tonnes from a year earlier.”

US crushing’s are likely to be boosted in response to reduced processing in South America and that it will probably reach 25.5 million tonnes in the period from September 2012 to February 2013.

Section II: Other Weekly Highlights

1. Asia Pacific

China: Soybean stocks rise to 6.30 million in major ports

China National Grains and Oils Intelligence Center reported that current soybean stocks in major ports across country was about 6.30 million tonnes and increased by 700,000 tonnes from a month earlier. The organization attributed the growth to sales of reserved soybean in May.

Above figures was more than estimated level by Ministry of Commerce in early May, implying that China maintained importing soybean at a large purchase due to the lower international price presently.
Ministry of Commerce forecasted imported soybean at a 11-month high level of 5.60 million tonnes in June.

China: Per capita edible oil consumption over 20kg

The data issued by National Grains and Oils Intelligence Center indicated that edible oil consumption reached 25.15 million tonnes in China 2011 and oils for industrial processing was about 2.50 million tonnes. Oils and fats in both sectors amounted to 27.65 million tonnes. In other words, Chinese people per capita oils and fats consumption has reached 20.5kg a year.
However, the market for edible oil seems to be saturated in the current years, which leads to a large over-capacity of soybean crushing in China. Therefore, enterprises have to divert attentions to high-end edible oil products like tea oil and walnut oil.

Indonesia keeps crude palm export tax at 19.5 pct for June

Indonesia, will keep its export tax for crude palm oil at 19.5 percent for June, unchanged from May, and will also hold its June tax on cocoa beans at 5 percent, according to a government official. The government will also keep the export tax for RBD palm olein at 10 percent in June, unchanged from May.

Philippines coconut oil production projected to be higher 1n 2012

Philippines exports of coconut increased to 71,000 MT in May 2012, from 62,000 MT in April 2012. The volume exported is 21,000 MT higher than last year’s April import of 59,000 MT. Oilworld expects exports of coconut oil to recover further for the remaining part of this year. This is attributed to the abundant rainfall in early 2011 which is expected to lead to higher coconut production. In 2011, Philippines coconut production was low as the crop suffers from tree stress resulting from the dryness in 2010.

2. Sub Continent

Pakistan: No change on import duty in fiscal budget 2012 – 2013
Fiscal budget for the year 2012 – 12 was announced on June 1, 2012. The duty structure on the imports of edible oil remains unchanged despite of summary submitted by PVMA and PEORA for reduction on import duties.

Federal Bureau of Revenue (FBR) has however made changes in the taxes applied after value addition. General sales tax (GST) on the import of palm acid oil and palm streain has been reduced from 22% to 16% whereas GST on import of oilseed has been reduced from 16% to 15%. This reduction on GST on oilseed is only meant for solvent extraction industry.
Policy makers have also decided not incorporate a major budgetary proposal of the (FBR) to increase the rate of Federal Excise Duty in from Rs 1 per kg to Rs 4 per kg on the import of edible oil in budget (2012-13). Further enhancement of FED rate in value addition mode from Re 1 to Rs 4/kg would have an impact of Rs 5-6/kg in the price of edible oil.

The edible oil industry is heavily taxed and the industry has no choice but to pass on the burden of high international prices and taxes to the consumer. Currently the C&F price of palm oil in the international market hovers around US $1070 per Metric Ton, which at current exchange rate comes to Rs 99,510/ Metric Ton. Custom duty, Sales Tax, WHT, FED, warehousing surcharge and other levies totals to Rs 23,000/Metric Ton approximately, which adds Rs 23/kg to the end price.

3. Americas

Canada: Railway strike paralyze canola Exports

A strike by Canadian Pacific Railway Ltd (CP), the country’s No. 2 railroad threatens to slow Canada’s record-brisk exports of canola and related products. The strike effectively challenged oilseed processors from bringing in adequate supplies and exporters to ship products to port. Canada is the world’s biggest grower of canola, or rapeseed, just ahead of China, and responsible for more than two-thirds of global trade.

In the 2011/2012 crop marketing year, Canada shipped 7.3 million tonnes of canola as of May 13, up almost 33% from previous year’s figure. Asia, particularly China and Japan, is the biggest destination for the exported canola. With just over two months in the crop marketing year, the strike would still have a profound effect on exports. Canola companies are trying to switch as much grain and oilseed volume as possible to rival Canadian National Railway Co., but logistics are impeding the process. An expected canola volume of more than 250,000 tonnes are affected by the strike and resulting backlog.

Brazil: Soy farmers in legal feud with Monsanto

Five million Brazilian farmers are contending in a lawsuit against U.S. biotech giant Monsanto, the genetically-modified (GM) soy seed manufacturer, over crop royalties. In the 1990s, Monsanto began commercializing its genetically modified soy in the United States. The soy seeds are spliced with a gene that imbues immunity to the company’s herbicide, which farmers can then use to kill weeds while the soy plants thrive. The case originated from the smuggling of transgenic soy into Brazil in 1998. Its use was banned until the last decade. The transgenic soy flourished under Brazilian cultivation and currently accounts for 85 percent (25 million hectares) of total soy production.

In 2011, Brazil was the world’s second producer and exporter of soybean behind the United States. Sales of GM soy – used for animal feed, soybean oil or biofuel – accrued to US$24.1 billion and comprised 26 percent of Brazil’s farm exports last year. It is now grown in 17 of the country’s 26 states, with the largest production in Mato Grosso, Parana and Rio Grande do Sul. However since 2003-2004, Monsanto has demanded that producers of the GM soy compensate two percent of their sales as crop royalties. In response, five million big and small Brazilian producers filed a class-action lawsuit for the private tax production. In April, a judge from the Rio Grande do Sul state ruled in favour of the producers and ordered Monsanto to return the royalties paid since 2004, or a minimum of $2 billion. The American soy seed manufacturer has since appealed and a federal court is to rule on the case by 2014.

4. Europe

EU-27: Declining Usage of Oils/Fats

According to Oil World, total consumption of oils & fats in the EU-27 declined by an estimated 1.0 Mn T in Jan/Dec 2011 and for Oct/Sept 2011/12, they forecast a decline by 0.4 Mn T. The declines are almost exclusively due to lower usage of oils & fats for energy. Total energy use is estimated at 8.9 Mn T in 2011, down 1.0 Mn T from the year before owing to lower use for biodiesel production and for generating heat and electricity as well as for direct use as fuel. Consumption for other purposes, mainly food, is assumed to stagnate at 21 Mn T last year. With slight reductions expected in both consumption and production as well as in the carry-in stocks, import requirements are forecast to increase marginally to 9.9 Mn T in Oct/Sept 2011/12, of which palm oil 5.7 and sunflower oil 0.93 Mn T. Imports of soybean oil are expected to decline sharply to 0.52 Mn T while those of rapeseed oil are seen rising to 0.62 Mn T this season.

Ukraine Likely to Become World’s Largest Sunflower Seed Producer

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Ukraine is likely to become the world’s largest producer of sunflowerseed next season. Farmers continued to expand plantings by at least 0.3 Mn ha this year, responding to the attractive returns received per hectare for the previous crop and partly ignoring government recommendations to reduce the area under sunflowers in favour of grains. Weather conditions have been generally favourable in the second half of May, giving the crop a good start in most parts of Ukraine. However, it is not expected that last year’s above-trend yields can be repeated and Oil World has estimated the average yield to drop by 7%, resulting in a total sunflowerseed crop close to last year’s 9.2 Mn T. Exports of sunflowerseed were lower than expected in the past 10 months and it is likely that virtually all of the Ukrainian supplies marketed will be processed by the domestic crushing industry in 2012/13.

In Russia, plantings of sunflowerseed fell short of expectations this spring. Moreover, it was partly too dry in some major growing areas in late April/early May, affecting early grain crops before the weather had somewhat normalised in the second half of May. Oil World tentative estimate expects that sunflowerseed production in Russia to decline by 0.8 Mn T from last year’s high to 8.6 Mn T in the autumn of 2012.

Britain: New Britain Palm Oil Applauded for Commitment to Sustainability

New Britain Palm Oil (NBPO) has received applaused from the Roundtable on Sustainable Palm Oil (RSPO) for committing to source 100% RSPO-certified palm oil supplies by the end of 2012. The development will enable food manufacturers in Europe to access sustainable supplies more easily. The ingredient is high in saturated fat and used in foods ranging from cooking oil to pastry and baked goods.

NBPO has pledged to have its entire palm oil estates and operations, inclusive of smallholders 100% RSPO-certified, through fully traceable, segregated, sustainable palm oil. NBPO is one of the largest fully integrated industrial producers of sustainable palm oil and a top five producer of RSPO certified sustainable palm oil (CSPO) in both production volume and area.
New Britain recently enabled the RSPO to reach six million tonnes of CSPO through the latest certification of its mill in Poliamba, West New Britain Province, Papua New Guinea (PNG).

Russia: Indonesia plans to increase the supply of palm oil to Russia by 23%

Indonesia, leading producer of palm oil in the world, aims to increase the supply of palm oil to Russia by 24% – up to 400 thousand tons compared to 324 thousand tons in 2011, the Minister of Agriculture Mr. Suswono announced at a press conference in Moscow.
Ministry of Agriculture of Indonesia held a seminar on promotion of palm oil in Russia. The minister, Mr. Suswono said that the demand for palm oil from Russia has grown “quite seriously.” “If in 2010 the cost of supplies was $ 222 million (250 tons), then in 2011 it increased to $ 357.8 million”.

However, the minister called a misunderstanding and a piece of “black PR”, the fact that Russia shows wary in palm oil. “We want to dispel the misconceptions, and provide more accurate information in order to eliminate the” black PR “against the oil,” said Mr. Suswono.
In 2011 imports from Russia to Indonesia totaled $ 1.3 billion, exports from Indonesia to Russia – $ 863 million. Indonesian exports of agricultural products to Russia are estimated at $ 525 million.

Russia: Russia and Indonesia to Establish Cooperation in Palm Oil Business

Russia is interested in establishing joint ventures with Indonesia, the Minister of Agriculture Nikolai Fyodorov, announced today, during a meeting with the Minister of Agriculture of Indonesia Mr. Suswono. According to Federal Customs Service, palm oil occupies more than 65%, in the total volume of Russian imports from Indonesia while coconut and palm kernel oil account for 11%.

The two ministers discussed prospects for bilateral cooperation, including in the field of veterinary control. During the two-day meeting which took place on May 30-31, 21 APEC ministers of agriculture are discussing food security in the region.

Malaysian Minister to Visit Moscow

The Minister for International Trade and Industry is planning a work visit to Moscow. The visit is prepared in frame of APEC Summit in Vladivostok. MPOC Moscow is working along with Matrade, in making necessary arrangements to the meeting with Russian companies. The Round table on cooperation between the Russian Federation and Malaysia is scheduled on the beginning of June 2012. The event will be attended by the Malaysian Investment Development Authority (MIDA)

5. Africa

Nigeria: Bakrie Delano to Invest $1 Billion in Niger Delta Plantations and Oil
Nigeria-based Bakrie Delano Africa, a joint venture of Bakrie Group and British-Nigerian businessman Ladi Delano, plans to spend half of the company’s $1 billion investment commitment in the country on crude palm oil and rubber plantations, its chief executive said in Jakarta on Tuesday.

In December last year the company signed a memorandum of understanding with the Nigerian government over a $1 billion investment commitment in Nigeria over the next five years. “The $1 billion investment will be disbursed gradually. In its early stages, we will invest $500 million,” Ladi Delano, the chief executive officer of Bakrie Delano, said on Tuesday.
Seng Hoo Ong, a director at Bakrie Delano, said the company would also acquire plantation companies in Nigeria, which already produces vast amounts of palm oil and rubber.
He said some of the $500 million investment would be allocated to buy land.

Cameroon palm oil production to reach 265,000 tons

Palm oil production in Cameroon will increase by 55,000 tons to 265,000 tons this year, up from last year’s 210,000 tons, mainly due to an increase in output from small-scale farmers in the Central African country’s south-western and littoral regions, according to the Ministry of Agriculture and Rural Development (MINADER).

“Many small-scale farmers who were engaged mainly in cocoa and coffee production have started growing oil palm in recent years so as to diversify their sources of income given the growing number of buyers coming in from neighbouring Equatorial Guinea and Gabon,” the ministry said in a report.

It said encouraged by the growing interest in oil palm production, the ministry will deploy more technicians to train the small-scale farmers on better farming techniques in the two regions as well as in the southern region, with similar climate.

Cameroon’s palm oil output is expected to go up to 300,000 tons and above by 2016, thanks to Biopalm Energy Ltd, a subsidiary of Singapore’s Siva Group which launched a 900 billion CFA francs project in the sector in August 2011 in collaboration with the National Investment Corporation (SIC) over 200,000 hectares.

The country is attracting several major industrial growers in the sector, the latest being New York-based multinational agricultural firm Herakles Farms which has already nursed seeds for developing a 69,975-hectare plantation in the south-western region.

Section III: Weekly Data

Palm Oil Prices

• Average CPO prices traded lower this week by RM53.50 to RM3032.10 against RM3085.6.80 attained the previous week.
• Crude palm oil futures on Malaysia’s derivatives exchange rebounded Tuesday on short covering after posting sharp declines in previous sessions, as investors pinned their hopes for fresh global stimulus measures on key policy meetings scheduled for this week.
• The benchmark August contract at Bursa Malaysia Derivatives ended 0.4% higher at MYR2,966 a metric ton after moving in a range of MYR2,965-MYR3,008.
• On Monday, palm oil fell to the lowest level in 2012 on Monday, in line with a global selldown of most asset classes on worries about the health of global economies.
• Demand for the edible oil remained firm in May, with cargo surveyor Intertek Testing Services reporting a 2.4 percent increase in Malaysian palm oil product exports. Another cargo surveyor, Societe Generale de Surveillance, reported an almost-flat export number for the same period.
• Trading executives and exporters tipping a rise in June palm oil shipments as end buyers in Pakistan and the Middle East boost buying to meet higher demand during the fasting month of Ramadan in July, when Muslims break their fasts in the evening with feasts.
• Brent crude prices fell below $99 a barrel on Tuesday, reversing gains earlier in the session, as a darkening outlook on the euro zone debt crisis sparked concerns over oil demand growth.

2. International Prices

• Average Crude Palm Oil price (cif Rott) traded lower by US$26 from US$1,038 to US$1,012. CPO discount vis-à-vis SBO increased marginally by US$151 this week compared to US$134 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$1,086 on 4 Jun 2012.
• Driven by strong export demand from the US and tightening old-crop supplies, nearby soybean futures closed moderately high on Tuesday, while the outright positions were underpinned by the dryness in Southern Midwest and the less optimistic than previously reported weather outlook for the next 7-10 days.
• Dry weather was a worry for soybeans. Depleted old-crop stocks in the US and this year’s soybean crop failure in South America leave barely any cushion against crop losses in the US this summer. This factor will create a bullish price scenario if it becomes too dry in major US soybean growing areas, primarily in July and August when yields of corn and soybeans are determined.
• Prices of canola and rapeseed strengthened in the week in Canada and Europe, contrasting with the downtrend in the soybean complex. Rapeseed prices are likely to remain well supported in the foreseeable future even if Canadian farmers produce a record crop, which Oil World estimate at 15.8 Mn T.
• In Argentina a new conflict between the government and farmers is developing. The Buenos Aires province administration this week decided on higher land taxes. Farm groups announced a 9-day strike in the province to protest against the looming tax hike, which threatens to largely paralyse marketing of agricultural commodities. The steep increase of land prices has already contributed significantly to the uptrend of agricultural commodity prices in recent years and a higher tax burden would additionally raise production costs for Argentine farmers, who are so far still among the most competitive producers on the world market.

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