Monday, April 03, 2006


DATE: Apr 3, 2006

The U.S. and Columbia have just completed a free-trade agreement (FTA). In December, an FTA with Peru was completed and one is currently being negotiated with Ecuador. Congress has still not voted its approval on any of these FTA’s, with the first expected to be approved this summer. Unfortunately, the Thai government has temporarily put on hold its FTA negotiation after the Thai prime minister dissolved parliament and called a surprise election for April. Negotiations should continue soon, once the political climate stabilizes.

Slight weakness in the dollar against the euro.

US Customs just announced the results for this year’s single duty quota. Once again the single duty was filled in the opening minute (in 47 seconds to be exact). Therefore nothing was allowed at the so called single duty rate, but containers entered in the first minute of 2006 were charged at a blended rate.

Bird flu fears have started to increase demand for canned tuna and frozen shrimp – two competitively priced alternate proteins. The US government suggested a few weeks ago that people begin stocking up on canned tuna just in case an outbreak hits.

Skipjack catch is gradually improving and raw material is around 925/mton; yellowfin is $1475. The big news is on albacore. While tuna often trades cyclically, albacore continues to firm after almost a year of continual price increases. In fact, the shortage of raw material and increase in cost appears to be escalating. Canned pricing FOB origin in the Far East is up about $10/cs over just the past couple of months. Packers are offering/shipping one container at a time. Raw material is now 2,950/mt and appears ready to break through $3,000.

This year’s Chinese crop is the worst in recent memory. Unlike in many countries where mushrooms are grown in temperature controlled air-conditioned rooms, Chinese mushrooms are grown naturally. Hot weather has had a disastrous effect on yields, and most growers have already ended their deliveries to canning factories. The Chinese producers are claiming force majeure and cannot ship their outstanding contracts until next season – November 2006. So far this year, January 2006 mushroom imports to the U.S. are down 24% compared to January 2005, with China down 42%. India is currently making up part of the shortfall, but after much consolidation in the Indian industry given the severely low market price in 2005, there aren’t many players left still in production.

The new crop is just around the corner and the crop so far looks good. Better indications of pricing should be out over the next few weeks. On the demand side, it is expected that demand for pineapple juice concentrate will be strong because of recent price escalations in orange and apple juice. As much of the world juice market goes to blenders, firm pricing in one juice causes firmness in alternates. This could influence pineapple raw material costs.

A cold spell has left packers claiming that production will fall by 25% this year, as compared to a normal year. The field price opened at 0.70-0.75 euro/kilo, and has since settled at 0.55-0.60 euro/kilo. By comparison, last year at this time, it was 0.40 euro/kilo. While Spanish exports to the U.S. were steady in the 33-35 thousand mton range between 2000 through 2004, last year they fell drastically to 22,000 mtons. Most of that gap has been taken up by South American exports to the U.S. At this stage, it’s still too early to predict the crop outlook for the southern hemisphere, but there is no carryover as packers have failed even to deliver fully their commitments from last season.

While it’s still a bit early to make predictions, Greek packers are expecting an excellent crop this summer, and they are hoping to increase their market share in the U.S. this season. As for the U.S. pack, the California Farm Bureau Federation reported that cool weather and an extended bloom could cause fruit to ripen unevenly. Furthermore, 25% of California growers have signed up in a tree pulling program, cutting about 4,000 acres and reducing total peach acreage to the lowest in 50 years.

With planting a month away, packers have contracted with farmers for 5.3 million metric tons, down substantially from last year’s 6.1 million mtons and 2004’s 6.5 million mtons. Several packers however are estimating that actual production will not be more than 4.5 million mtons. One cause of the problem is the new EU subsidy methodology called “decoupling,” where farmers are no longer given direct payments relative to what they produce but how they manage their land.

Because of canker and greening, the University of Florida recent industry study concluded that Florida may never see citrus output return to its pre-2004 levels.

Market pricing is firm for two reasons. First, the raw material this season has not been abundant, and more importantly, most anchovies are packed in olive oil, and last year’s soaring olive oil price has finally caught up with anchovy producers as they replenish their supplies.

Chinese packers report that canned waterchestnut output will be down 50% compared with last year. Causes are: (1) Planting area was decreased because last season’s good harvest brought down the price of raw material causing farmers to switch crops for the season. (2) The weather was cold and snowing during harvest so many raw materials rotted in the field. (3) The demand from higher priced fresh and frozen markets was high, drawing raw material away from canning. Raw material is now trading in Guangxi at RMB2.4/kg, up from RMB1.6~1.8/kg a few months ago.