Monday, November 06, 2006


DATE: Nov 6, 2006

President Bush signed into law the Security and Accountability For Every Port Act (SAFE Port Act). The act tightens scrutiny on food imports, including establishing minimum standards for securing containers in transit to the U.S. The act also allows the Dept of Homeland Security (DHS) to work with importers meeting certain threshold requirements under a voluntary program known as “Customs-Trade Partnership Against Terrorism” (C-TPAT) whereby importers would be permitted to cooperate with DHS in securing their own supply chain. [Note REMA FOODS is one of the few C-TPAT certified importers in our field].

The Thai coup last month, in which the military ousted the Prime Minister, has been uneventful and, as expected, non-disruptive to business and Thai exports.

The U.S., traditionally the worlds leading buyer of food products is facing competition. Overall Russian imports of canned fruits have been increasing 25% per year as consumers begin demanding and consuming more. Just as Chinese demand for energy has pushed up energy costs over the past few years, the growing demand overseas for processed food is starting to affect many commodity prices, especially now when some of the world’s food commodities are being used for bio-fuel production.

Dollar/Euro exchange has been steady over the past month; however dollar continues to weaken against the Chinese yuan. The official opening exchange rate for the yuan was set at a record high against the U.S. dollar on Oct. 30. The Bush administration has been prodding Beijing to raise the value of the yuan as a firmer yuan increases the cost of Chinese imports in the U.S., but lowers the cost of U.S. exports to China.

Skipjack has finally started to ease a bit: raw material is bid around $880/mton, yet many raw fish suppliers are still trying to sell over $900. Yellowfin remains tight with cost around $1675. Tongol remains scarce at 45 baht/kilo, but albacore has continued to weaken to $2400. Interestingly, first half year figures show total Thai tuna exports up 32% over the past two year, yet Thai tuna exports to the US were actually down about 4%. Most of the increased exports went to relatively new markets like Egypt, Libya and Saudi Arabia, where sales have almost doubled over the past two years.

Maui Pineapple, the last domestic producer, has officially notified the trade that they are cutting off all customers except the US Government (and they don’t appear to be honoring even government needs through foodservice distributors). As a result, all customers selling domestic pineapple are currently converting their volume to fancy imported product. The resulting increase in demand, coupled with the anticipated reduction in supply overseas has packers getting worried about pineapple pricing firming in the future, and leading them to cautiously raise prices as a result. While current pricing remains quite attractive, concern is that later in 2007 and especially in 2008-2010 shortages could arise from two causes: (1) farmers switching from low margin pineapple to high value sugar cane to be used for bio-fuel production in Thailand, and (2) El Nino causing draught in Indonesia. In Thailand, raw material is currently in the 3.5-4.0 baht/kilo range.

As the crop in Italy comes to a close, the situation is finalizing rather poorly. The late start in Italy, the extreme heat in California and the early frost in China have all negatively affected world supply. At SIAL Food show in Paris last week, Italian packers were still hesitant to offer official new crop offers, and current estimates are several dollars per case over 2005/2006 levels.

With the Greek harvest now complete, some canners report that tonnage was down 25%, while others say it was down only 10% (our opinion is closer to 10%). However, Greek pricing is currently being determined not so much by their own crop results as it is by the overall worldwide shortage, which has resulted primarily from the very poor California crop. Very weak production and strong demand in the U.S. coupled with modest production is most Northern Hemisphere regions such as Greece and China have pushed pricing up significantly over the past couple of months. Interestingly, initial reports from California played down the situation and kept pricing relatively low until recently. This had the [probably intended] result of directing many overseas plants away from packing U.S. spec peaches for speculation and is thus limiting the available stocks overseas now. According to the California newsletter Peach Fuzz, imports last season were up 68% over the year prior. The crop outlook in South America is very good (note production season is opposite of Northern Hemisphere), but unfortunately the quantities might not be big enough to push down pricing.

Current worldwide pre-season inventory situation remains the worst seen in possibly more than 20 years. Poor yields in many producing countries during 2006, especially the disaster in China, arguably the world’s most important production source, have buyers scrambling. New crop production, coming over the next few months, is still uncertain. This is especially true for consumers in the U.S., as the antidumping suit on mushrooms in this country is expected to knock some previously significant Chinese shippers out of contention with new very high anti-dumping rates (with rates of 195%). In Holland, the situation is no better as packers there have “green mold” in their compost – cutting yields as much as 25%.

Carry over and new crop production by country is projected as follows:

Country Carry Over Production Total Quantity
Spain 380,000 1,100,000 1,580,000
Italy 140,000 380,000 520,000
Greece 90,000 320,000 410,000
Tunisia 30,000 160,000 190,000
Syria 40,000 120,000 160,000
Morocco 5,000 65,000 70,000
Turkey 30,000 210,000 240,000
Other 10,000 60,000 70,000
Total 3,240,000

New crop pricing overseas has already fallen and as goods reach the U.S. pipeline, pricing should continue to fall here. In the short term however, many expect the market to stabilize. Because much of the trade has been delaying purchases in expectation of a lower market, there’s currently a tremendous pent-up demand waiting to be unleashed. Unfortunately, this could have the effect of lifting the market a bit – but still no way near the high prices experienced in 2006.

Table olive crop is nearly complete. Pricing is firm and quantities are below last year on all varieties (although Manz are comparatively shorter than Hoji’s). The causes are:
1.- Lack of rain until mid October which slowed down the start of the picking.
2.- Continuous rains later in October which made picking difficult.
3.- Short crop in other countries.
4.- Low carryover from last year.
5.- Relatively good pricing for Olive Oil (even after the oil price drop).

Initial indications for new crop as discussed by the packers at SIAL was for a good season with regard to quantities, but packers have been backtracking over the past week. The Chinese government association announced opening pricing 10-15% higher than last year and is trying to limit output by allowing packers to pack only 70 days. Packers are arguing that pricing will remain firm because of increased costs in labor, cans, packaging and the appreciation of the Chinese currency. Furthermore, dry weather means the fruit will be smaller than usual, affecting yields. Final market pricing is not yet fixed and supply and demand will determine where it lands. In Spain, after a disastrous crop in 2005, packers are expecting a 49% larger crop this year. While Spanish exports are still not expected to be competitively priced for the USA market (compared with China), their better crop could have the effect of lessening Chinese exports to Europe.

Coming after severe damage to the crops over the past few years, there is surprisingly a glut of Florida grapefruit juice on the market. Industry sources blame this on a total lack of promotional activities. To counter the trend, the industry has set aside marketing funds and is asking USDA to buy grapefruit juice for its food programs. With regard to Florida exports, overseas buyers sense the current situation and have halted most purchases of Florida product, expecting pricing to further collapse very soon.