Monday, September 26, 2005


DATE: Sept 26, 2005

The bilateral talks between Thai Prime Minister Shinawatra and President Bush are focusing on ongoing free trade talks. The fifth Thai-US free trade agreement negotiations are scheduled to take place in Hawaii this week. High on the list of importance with Thai negotiators are duty reductions on canned tuna and frozen shrimp.

While most everyone is aware of the havoc Katrina is causing domestic trucking, imports are at a slight advantage in that goods can be brought into virtually any port, so FOB points are not fixed. However, increased energy costs could negatively impact ocean freight rates and production costs on imported products.

U.S. Customs announced it will delay enforcement of new standards for treating wood packaging (WPM) to help minimize the importation of potentially destructive insects until February 1, 2006. This affects all goods packed with WPM, including pallets, crates, boxes, dunnage, blocks, skids, etc. While the new requirements were supposed to go into effect on September 16, 2005, Customs said it will instead implement a period of informed compliance from September 16, 2005 to January 31, 2006, notifying importers of cargo that does not comply with the new treatment requirements.

The Fed again raised the short term interest rates by 0.25%, which should theoretically strengthen the dollar in the near term. China last week loosened limits on trading of the yuan against currencies other than the dollar.

Firm pricing for the past couple of months has finally had a negative effect on demand. With fish catch improving slightly, the lower demand is pushing down raw material costs. Skipjack raw material, which had gone over $1,000/mton, started trading around $950. Packers are now bidding $850-875, and declines are expected. Yellowfin pricing has generally followed skipjack, but the decline has been slower. Tongol and albacore, on the other hand, are firming – pricing is strong and supplies are tight. Albacore raw material is up 9% to $2750/mton, from $2525 just a month ago.

The winter crop is just now starting and initial predictions are for a normal crop. However, drastically increased energy costs have a disproportionably large effect on cheap items like pineapple, where the relatively low cost of the raw material represents a very small percentage of the overall costs – as compared to a large percentage of finished good costs represented by energy dependent factors such as empty cans, ocean freight, etc.

Three typhoons with winds over 100 MPH have hit the Chinese mandarin growing regions over the past month. Packers are concerned that quantities this year could be down as much as 35-40% as compared to last season. On Sept. 28, 2005 all canned m/o factories and exporters are planning to have a meeting in Hangzhou.

The Greek and Spanish harvests have just finished and canners report overall quality was excellent – significantly better than the past two years. Spain processed 164,000 mtons; Greece processed 270,000 mtons – both in line with normal expectations. The only problem faced overseas was the raw material dispute between the farmers and canners that ended with farmers blockading the highways and finally succeeding in pushing up the raw material cost from 0.19 to 0.20 euro/kilo.

Current crop shipments are winding down, and harvesting is beginning on new crop olives. New crop shipments won’t begin until early 2006, once olives have been processed. Currently, weather has been very dry, so a short crop is expected and pricing is expected to rise as a result. This year, opening prices for the field run cured Manzanilla olives is predicted to be about 125ptas, up from the last prices paid in July and August of 100ptas. Furthermore, the new growth on the trees for next year’s crop is poor, meaning next year’s crop will likely be even shorter.

Tremendous firmness is the rule for all grades in the olive oil market, and the market should stay firm until at least new pack early next year. To directly quote a leading overseas refiner: “pricing is crazy, but there is no cheaper raw material anywhere.” Poor new crop outlook should keep pricing firm.

Market continues to see a widening price spread between high and low quality. New anti-dumping rates have been announced for Chinese packers, and as was the case last year, several packers that are currently shipping received prohibitive rates, while others which had prohibitive rates saw their rates lowered to manageable levels. The players will switch around, but mushrooms will continue to be exported. However, the overall lesser number of factories that can ship will put upward pressure on pricing.

Italian and Spanish packers remain on target to meet original estimates but recent rain is causing some concern. In California, the September 10 year-to-date total for deliveries amounts to 7.3 million lbs, 18% lower than the 8.9 million tons delivered YTD at the same time last year.

The European Union has temporarily lowered the duty imposed on shrimp from all countries, in response to pleas from Thailand to aid the tsunami-affected industry. The duties were lowered by 7.8% on fresh and 13% on prepared shrimp. U.S. negotiators are rumored to be considering similar treatment.

Overseas citrus producing countries, including Israel, are expecting good citrus yields this year. On the other hand, according to the Florida Agricultural Statistics Service, the US$742.2 million value estimate of the 2004/05 Florida citrus crop is the lowest since the 1985/86 season. Florida Natural Growers, the state’s third largest citrus juice company closed some plants, stating “the effects of hurricanes, canker and urbanization, along with unprecedented energy cost increases” forced the closures.

With raisin harvesting underway in California, current market appears lower in cost this year from overseas sources, as compared to the domestic industry.

Anchovy packers are being negatively impacted by rising olive oil costs and the fact that the European Union olive oil subsidy for canned anchovies will be eliminated as of October 31.