Saturday, January 27, 2007

Value of U.S. Dollar Plunges Against the Thai Baht

Flooding Afflicts Far East Pineapple Fields

Friday, January 26, 2007


DATE: Jan 28, 2007

The past few years of market reports have usually reported evenly on both firming and softening crops. Unfortunately, the most recent reports have been disproportionately filled with “doom and gloom.” Finally, there’s some good news to report at least on the political front. In late December, the President signed the Tax Relief and Health Care Act of 2006, which included the extensions of the Andean Trade Preferences Act (ATPA) and the Generalized System of Preferences (GSP). Had these programs not been extended, prices would have increased dramatically on a wide range of products as duty rates would have risen on January 1, 2007.

While gyrations in the Dollar/Euro market are now commonplace, the currencies of the Far East over the past few years have been remarkably steady in value versus the U.S. dollar. This stability came to a crushing halt over the past few months as the value of the U.S. dollar has recently plunged by more than 10% against many Far East currencies, bringing the total loss in value to 15% for all of 2006. A graphical presentation of the dollar vs the Thai baht is viewable above.

As predicted several months ago, weak fish landing coupled with the Christmas/Chinese New Year season, have brought considerable firming to the skipjack market with raw material hitting the highest levels seen in several years. Now there’s talk of an El Nino weather pattern, where changing water temperature forces the fish to swim deeper, thus makes them harder to catch. Current skipjack raw material offers in Bangkok are at $1100/mton, up from only $800 a year ago. Yellowfin is generally tracking with skipjack. Tongol raw material is quite firm at 47 baht/kilo. For buyers albacore is the one bright spot - after a tight market through much of 2005 and the first half of 2006, the winter 2006 season has finally brought increased catching and significantly lower prices for all grades of albacore.

The abundance in pineapple supply in 2006 saw the market dip to the lowest cost levels seen in over 10 years, especially for low end qualities. Predictions since the summer have been for 2007 to see a major contraction in supply and a sharp increase in price because of the “perfect storm” of influences hitting the pineapple market at the same time. Unfortunately, the predictions have come true with a vengeance, and are affecting the market earlier than expected. Photos of the El Nino flooded Far East pineapple fields are viewable above. This poor weather now coupled with the low price in 2006 which diverted pineapple plantings to more profitable fruits, overseas government’s focus on producing biofuels/ethanol (comparable to what’s driving corn in the U.S.), the 15% slide in the value in the dollar vs the Thai baht, have all led to a severe reduction in tonnage and equally significant increase in prices. The last major El Nino hit the Far East 9 years ago and resulted in a 30% reduction in the crop.

Since the two main ingredients in TFS are pineapple and red papaya, the shortages in both those fruits has packers frustrated and has caused pricing to firm over the past few months.

Market pricing is relatively steady as the relatively large mandarin crop is not translating into lower prices. China has had issues with currency value and labor shortages (there are 25~30% less laborers than last season) this season, and output is actually running slightly behind last year in most regions. With Chinese New Year fast approaching (mid Feb), factories will close soon for 2-3 weeks.

With the current worldwide shortage resulting from poor Northern Hemisphere crops, attention is focusing now on the smaller Southern hemisphere producers – principally Argentina, Chile, South Africa and Australia. Unfortunately, prospects so far do not look good for any of these countries to make a serious dent in the worldwide supply.

The quantity of canned mushroom imports has recently fallen 25% with Jan-Nov imports going from 61.5k tons in 2004 to 57.1k tons in 2005 to only 46.5k tons in 2006, primarily due to the 2006 crop failure in China. As a result, according to a January American Mushroom Institute report, the cost of cannery grade raw material in the U.S. (domestic product) has recently risen 120%. For 2007, conditions overseas are better, but not yet back to normal. While China has recently begun shipments of new crop goods, cold weather has left the raw material situation inconsistent from week to week. Furthermore, increased demand from Russia is competing with U.S. requirements.

Worries about declining prices in the olive oil market left activity levels very low in the final quarter of 2006, which further lowered overseas pricing. However some pent up demand and a recent spurt in buying activity slightly firmed up the market in January. Overall, the market is expected to remain fairly steady for the near term, with further easing possible in March/April.

Overall results for the 2006 harvest are lower quantities but larger sized olives. As a result Manz (small green and some ripe) and Hojis (primarily ripe) have increased the most in price, with the situation better for Queens (large green olives). The devastated U.S. crop (mainly Manz) has also affected world supply as California packers are importing raw material, cutting into available world supply.

Crop started later than expected this year with baby corn growth adversely affected by the cold weather

A deep freeze this month has caused severe damage to the California citrus industry.

Most importantly, Peru’s duty free treatment was extended, as reported above. In Spain, it is still a bit too early to predict prospects for the new crop as farmers are still awaiting much desired rainfall. At the moment, there’s virtually no carry over stock from last season.

Prices have skyrocketed since December. Iran, which accounts for about 80% of the world market, has reported a 50% drop in production. This situation is fueling speculation with farmers refusing to contract preferring to sell product to the highest bidder

The size of the Peruvian crop this year is expected to be comparable to last year, which unfortunately won’t alleviate the overall world shortage caused by the poor crop in China. Thankfully, Peruvian exports remain duty free as Congress passed the ATPA extension, as reported above.