Monday, August 22, 2005


DATE: Aug 22, 2005

Efforts to sway Congress to approve the Central American Free Trade Agreement (CAFTA) were successful, as the House and Senate have now voted in favor of the agreement backed by President Bush.

Negative talk from trade losses in the U.S. (primarily directed at China), have the Peruvians nervous. The Andean Free Trade agreement, encompassing trade between Peru, Columbia, Bolivia, Ecuador and the U.S., expires at the end of 2006. A broader free trade agreement needs to be reached before then, but the current climate in Congress is not conducive to such a deal. A failure in cementing this agreement could have especially serious repercussions for Peruvian artichoke, pepper and asparagus producers.

In a very significant development in the currency market, the People’s Bank of China announced a change in the valuation method used for the Chinese yuan. For the past 10 years, the Chinese currency’s value has been held fixed at an exchange rate of 8.28 yuan to the dollar. The U.S. has been demanding flexibility on the exchange rate, as the artificially devalued yuan causes a trade imbalance with the U.S. On July 21, the Chinese allowed the yuan to appreciate by 2.1%, and later announced a new mechanism locking the value of the yuan to a basket of currencies including the dollar, euro, yen and several others. Further controlled devaluations are expected in the future. In Europe, the value of the dollar has fallen a few percent from the highs reached over the past months.

Raw material pricing continues to climb. Skipjack has broken the $1000/mton barrier and reports from Thailand show trades occurring as high as $1030-1070. Yellowfin catch is following skipjack, as it normally does, with pricing at $1650/mton. Poor fish catch and problems extending fishing licenses with Indonesia have the Philippine government seriously considering a large scale yellowfin tuna farming project. Tongol remains extremely short, especially higher quality Thai product, and no significant improvement is expected for another couple of months. Limited trades are occurring at Thai baht 45/kilo. Albacore has also firmed substantially, to $2525/mton, again with higher quality packs the tightest.

Current market remains very firm, due to the drought induced summer crop shortage. Packers are still hoping for a better winter crop, which would improve the outlook for 2006.

June’s wet weather has California packers now expecting lower yields and declining quality. In addition, Signature Fruit is reportedly up for sale, for an expected $200 million. China’s crop is off from last year, with pricing up $1-$2/case. For Greece, 2005 should be a good year, but farmers and packers are fighting it out at the moment, with farmers barricading streets in protest to get higher fruit pricing. For imports, overall situation looks good. Since China was the “price leader” in 2004/2005, this year’s pricing will be a bit higher than last year’s, but still lower than California’s.

The olive oil roller coaster of the past few months appears to be heading up again, with better extra virgins now fully in the three figure range (over $100 per 6/1 gallon). The past few months have seen buying opportunities in the dips, immediately followed by firmness. Unfortunately, with the market trading this high, it’s hard to call the tops and bottoms of the price curve. At this moment, all varieties are firm, and given the current poor new crop outlook for the 2005/2006 season, the higher prices are probably here to stay.

Increases in ocean freight, fears of further devaluation of the dollar vs the Chinese yuan, and the prospect of a poor new season have the mandarin market to firming.

No significant changes: Spanish packers, despite a poor crop, are trying to cap prices so as not to totally lose the market to the newer up-and-coming South American packers in Peru and Chile.

Spanish prospects remain good, especially after a terrible season last year. Turkish producers appear to be holding off from the significant price increases they were striving for, instead accepting more realistic increases. South American producers are gearing up for the new season – so far their market share is still insignificant.

Many Chinese packers are withholding offers, pending new anti-dumping margin reviews to be announced in September. After significant discounting, packers are trying to limit their cheap sales, and pushing to regain more normalized pricing. While the current market remains steady, with some deals still available, the concentration of discounted mushrooms coming from a very small number of packers means pricing will probably firm in the near term.

Greek pepperoncini pricing is heading up because of both raw material and the ocean freight increases. Turkish peppers remain a better value, but with a slightly different flavor profile.

New crop raw material, especially larger size and product with stems, is extremely short. Packers are demanding significant price increases.

Recent hot weather is likely to reduce the California harvest to 9.1-9.5 million short tons, down from 10.4 million originally estimated. Color is also expected to be sub-par, with many sun burned yellow skins. Italian and Spanish packers remain on target to meet their original estimates of 5.0 and 2.4 million mtons, respectively.

India stands a chance of having it’s anti-dumping duties revoked, as a U.S. International Trade commission team will soon visit India to decide if tsunami related damage to the shrimp farms warrants special consideration.

The firm U.S. market has opened the door to imports, which have more than doubled in volume for the first half of 2005, as compared to the same period last year.