Thursday, March 27, 2008


Simultaneous forces continue to hammer world markets: major weakness in the dollar, strong demand from emerging markets in Eastern Europe, India, China, etc, the move to biofuel production and skyrocketing agricultural commodity costs. Now, add two more to the list: Can costs and Ocean freight. Steel shortages are forcing cost increases of 20-25% in can tinplate costs. Large monopolies control much of the world’s can making, leaving little alternatives for packers worldwide. With oil over $100/barrel, steamship lines are planning significant increases in ocean freight rates (as in fuel surcharges in domestic trucking as well). The current proposed increase from the 15 major TSA (Transpacific Stabilization Agreement) carriers is $600/40’ fcl, plus $400 peak season charge, plus a “floating” bunker fuel surcharge.

The U.S. Food and Drug Administration last week announced it had received approval from the U.S. State Department to permanently establish eight full-time positions in China, pending approval from the Chinese government.

As predicted in the previous market flash, Congress approved the Andean Trade Preferences Act (ATPA) extension and the President signed it into law. Note the extension is short term – only until December 31, 2008.

As the Federal Reserve continues to lower interest rates in an effort to boost the economy, U.S. bond investments remain less attractive to foreigners, thus cutting the demand for dollars. As rates and confidence in the U.S. economy fall, so does the dollar, which again this month dipped to new record lows against the euro and most other world currencies. Keep in mind, every 1% change in the dollar forces a full 1% change in the price of many imports, so weakness in the dollar of several percent each month is having a dramatic effect on the costs of most imported goods. The Thai baht has gained about 14.08 % vs. January 2007; the Chinese RMB has gained 8.8% over the last 12 months. Amazingly, against the euro, the dollar was 85% stronger in 2001 than it is today.

After dipping last month to $1420-1450/mton, skipjack raw material costs have climbed again to the $1530-1550 level. Catching in the Western Pacific is only moderate for Japanese boats and poor for Taiwanese, Korean and US fleets. Yellowfin remains firm at $2300/mton. Tongol is tight at 52 baht/kilo, and albacore pricing in on the move, up to $2350/mton, from $2300 last month. Official figures show overall Thai tuna exports declined 16% from 559,414 mtons in 2006 to 467,957 mtons in 2007. The U.S. remains the largest importer, but saw imports decline by the same 16% year to year. With consumption down, the domestic canneries are also having a tough time: StarKist is still on the auction block, while the parent company of Bumble Bee just announced their 2007 processed meat recall costs topped $100 million, causing the value of the company’s stock to fall by 50% over the past few months.

Good news and bad news in the pineapple market. The good news is that the Department of Commerce has finally issued a preliminary determination to revoke the antidumping duty order on canned pineapple from Thailand since Maui Pineapple has stopped production, leaving no domestic canned pineapple. Maui has submitted a letter indicating it has no objection to the review or revocation of the order. Commerce is expected to announce its final determination within 45 days. The bad news is that at this moment there’s not much pineapple or tropical fruit to ship. While raw material cost was just beginning to ease with hopes of a good summer crop, poor yields have driven up costs and limited availability to the point that some of the leading national brands have withdrawn from various markets. Coupled with the substantial tinplate cost increases and the weakening of the dollar against the far east currencies, large packers are now withdrawn, expecting to reoffer later at even higher levels than last year. Worldwide demand is also up: Russia in the last 3 years has increased its imports from Thailand by about 75%, and because of the weak dollar, they can afford to pay the packers a much higher price.

The real effects of the snowstorm/freeze that hit China last month is not being openly disclosed by most Chinese packers. However, shipments seem to be trickling in. In India there’s only one major packer remaining, facing strong worldwide demand and still recovering from production difficulties last year. India’s ministry of agriculture, seeing “huge potential for mushroom cultivation,” has initiated two programs to promote production. These are however long-term initiatives that won’t bring much relief this year. Holland may have some improvement in their supply situation; however, the current euro/dollar exchange rate makes the Dutch prices totally uncompetitive.

With Chile’s tomato crop ending next week with about 500,000 mtons as compared to 670,000 mtons last season, the processors there are basically sold out and only shipping long-standing customers.

Olive oil production for the current 2007/08 season from the major production countries is now estimated as follows:
Spain: 1275 mtons
Italy: 450
Greece: 375
Portugal: 35

There seems to be a conflicting report about the real situation on this item. On one hand, there is a reported shortage of the product that was brought about by the cold weather in China. On the other hand, there are reports that supply is available and most packers are artificially inflating prices by holding on to their stocks. The situation should be clearer in a few weeks.

Peru is experiencing severe rains/flooding. Along with recent 12% appreciation of their currency (the sol) against the dollar, some packers are now attempting to renegotiate outstanding contracts.