Monday, July 24, 2006


DATE: July 24, 2006

A new study was released showing that imported tuna from South America (Ecuador, Mexico, Costa Rica) has higher mercury levels than domestic tuna, while tuna from Asia (Thailand, Malaysia, Philippines) has the lowest mercury levels worldwide.

The U.S. government is currently evaluating the GSP (Generalized System of Preferences) duty free treatment of many imported items. In addition, there’s still talk that GSP will be allowed by Congress to expire at the end of this year, which could raise duties on many items including clams, baby corn, sardines, peppers and green olives from certain countries.

Efforts to salvage the so-called Doha Round of multilateral negotiations under the World Trade Organization (WTO) have collapsed. These talks between the U.S., the EU, Australia, Brazil, India and Japan, which have been in process for nearly five years, have been suspended. It is undetermined at this time when - or if - the talks may ever re-commence.

Relative stability in the foreign currency markets.

Large catches of “Kinkai” skipjack have stabilized the market after several months of firmness. For the market to keep from firming again, catch of regular non-Kinkai needs also to improve, as Kinkai is a Japanese caught raw material which is very oily, and typically not suitable to the quality level required in the U.S. market (watch out for cheap offers). Current levels at $920/mton, down from $980. Given the higher cost of fuel, and the fact that fuel is by far the single largest cost component of fishing representing more than half the cost, it is now estimated that $900 is close to the “breakeven” fishing cost of skipjack. Yellowfin continues to firm, with levels now at $1750/mton FOB General Santos, Philippines, up from $1675 last month. Albacore has finally hit a plateau, with the market steadying after almost a year of constant increases.

In the U.S., Seneca has announced their acquisition of Signature Fruit. In Greece, completing their 2005 shipments, canners have now declared themselves fully recovered from the crop failure they experienced in 2003. Now, 2006 is proving to be an excellent year for Greek packers as they experience the unique combination of an excellent crop aling with high prices caused by the poor crop outlook in much of the rest of the world. Interestingly, one of the largest importers of Greek peaches is now Thailand (almost 5,000 mtons), where peaches are imported to be repacked into plastic fruit cups and subsequently exported to the U.S. at premium prices. While the weak dollar is further pushing up prices from Europe, prospects look better from China. Even though the crop is much smaller than that in Greece, China appears positioned to offer better prices to the U.S. Still, pricing is higher in China this year as compared to last. Raw material is running at RMB 2.0/kg vs 1.6/kg last season.

This summer’s crop is finishing up in much better shape than that of the past few years. Raw material costs are running 2.8 baht/kilo, down from 3.0 last December 2005 (although the Thai baht has strengthened against the dollar). The abundance of raw material and lower baht raw material pricing is causing farmers to switch crops away from pineapple - primarily to sugar cane and rubber, two commodities trading at very high prices. Unfortunately, this has been the course of pineapple over the past two decades – wide price swings as farmers drop pineapple when pricing is low, only to start planting again when the impending shortage brings up the price, starting the cycle anew every 16 months.

Situation remains very tight with China virtually out of stock and India raising prices dramatically as a result. No other overseas country currently has significant enough volume to affect the world market.

California is starting up about 10 days late in the South and 15-20 days late in the North. Crop forecasts are at 10-10.5 short tons. In Italy, the crop is also running late. Total production is estimated at about 4.7 metric tons. Since for the past three years Italy has exceeded the 4.35 mton ceiling granted by the EU, the subsidy paid to farmers this year will decrease from euro 34.51/mton to 30.43. Given the above, and assuming stability in the currency, market pricing is almost certain to rise; however competition between the large factories is expected to keep the increase reasonable.

Generally, it’s a continued weak market as raw material slowly trades down in anticipation of a good new crop harvesting at the end of the year. However, a recent development is putting upward price pressure primarily on imported oil packed in Italy. It appears that a tanker shortage is preventing Spanish oil from making its way to Italy. It’s unknown what, if any, long term effects will arise.

Season started late June, but three weeks of continuous rainfall has raw material volume below original projections. Expectation is that the situation will improve gradually and raw material price will soon return to reasonable levels

With many Turkish factories in production, intense competition is keeping pricing relatively stable. In Greece however, higher raw material costs and the strong euro have pricing up. Note Turkey is not euro denominated, while Greece is.