Monday, November 03, 2008


What goes up can indeed go down. After more than a year of tight markets, the meltdown in the financial markets is bringing some relief to high food prices. While it may take some time for packaged good prices to decline at the local supermarket (if ever), prices on many commodities are falling. There are several reasons for the fall: (1) part is demand driven, as consumers that feel poorer are buying less; (2) part is cost driven, as for example, while skyrocketing oil/fuel costs pushed up the cost of fishing, the current lower oil costs are driving down costs; (3) part is financially driven, as packers unable to get credit are forced to liquidate inventory, while buyers without credit can’t buy as much and (4) part is psychological – with so many costs climbing over the past year, consumers begin to accept that cost increases were inevitable and producers believed that every cost increase could simply be passed on. Those times are over.

The North American Free Trade Agreement (NAFTA) was extended on October 16 for another year.

Effective November 17, a “Clean Trucks Fee” will be assessed on every container arriving into the Ports of Los Angeles and Long Beach. The fee is $35 per 20’, and $70 per 40’, and even includes intermodal shipments. This Clean Trucks Fee is in addition to the Traffic Mitigation Fee (Pier Pass) already charged for containers that move through these ports ($50 per 20’ and $100 per 40’).

If you think things are bad in the U.S., keep in mind that many in the market still believe it is worse overseas. Over the past couple of months, there has been a tremendous rally in the value of the U.S. dollar against virtually all currencies (except the Japanese yen, which is exceptionally strong). The dollar is now trading at 1.28-1.30 against the euro after reaching its lowest level sometime in July at 1.60. Against the Turkish Lira, the dollar is now 1.50, after reaching a low of 1.18 in July. Even the Canadian dollar, currently at 1.16, recently dipped to 1.28 to the U.S. dollar in comparison to 0.98 at its peak around mid year.

The above graph shows the dollar/euro for the past 5 years (displayed as the value of the dollar in euros, so a higher figure represents a stronger dollar).

As oil/fuel prices have plummeted, so has the raw material cost of tuna. Raw material is at $1400-1500, falling from over $1800 just a month ago, due mainly to slower demand and lower fuel/oil costs. Even though raw material costs are down, fishing is not strong: catching by Japanese boats fell from the level of the previous week, reporting 27 tons per boat per day in Western Pacific, their Taiwanese and Korean counterparts also performed at similar levels. Catching by French and Spanish boats deteriorated in the Indian Ocean, checking in 20 tons per boat per day. The whole Maldives slowed down a bit, contributing 100 to 150 tons each day. Price of yellowfin is tracking down with skipjack as they are caught together in the same nets. Tongol has firmed slightly to 54.50 baht/kilo, but in dollar terms it is down a bit. Albacore market is still uncertain as packers attempt to raise pricing. The $700 billion bailout package passed in the U.S. Congress last month included a provision that continues duty free treatment for American Samoan tuna.

Thailand’s winter crop is under way. Raw material prices have come down from the “off-season” 8 baht per kilo to the “in-season” 5.5 baht/kilo. Interestingly, the relatively firm price in the U.S. over the past year has been caused primarily by strong demand: Thailand exported a record 410,691 mtons in the first seven months of 2008, with U.S. consumption up 5%, Germany up 9% and Russia up 20%. As demand from other softening global economies falls, more quantities might be channeled to the U.S. In the U.S., demand may hold, or even increase as consumers seek out cheap fruits. China’s crop is about to start; early reports indicate that the crop will be normal but final quality of fruit is still unknown. Chinese prices are expected to be about the same as last year if not a little higher due to increases in tinplate and other production costs. Indonesia is also reporting a normal crop, however fruit size is smaller.

Market is soft as China is reportedly entering the new season with carry over quantities from the previous crop. The new season is about to start and it is still too early to predict the final output. Mushrooms in China are mostly grown outdoors and are therefore susceptible to climate changes. Some packers believe the crop may be 30% short as farmers reportedly planted less due to unattractive prices. Still, more important than what packers say is what they offer – and right now the offers are priced lower than last year, indicating a weaker market. There are reportedly two additional factories in China that will now be able to ship to the U.S. India has continued to ship consistently over the past few months.

Global tomato production is reportedly finishing about 4.6% higher than 2007. Italy’s latest forecast put the total crop at 4.77 million mtons; slightly better than 2007, but down from earlier estimates of 5.0 million mtons. Reports show there is a minimal carryover from the previous season. This coupled with the slight increase in this year’s crop may not be sufficient to completely cover demand which is estimated to be growing at 3% annually. This situation is likely to cause speculative buying on the market. The recent surge in the value of the dollar could be a blessing for U.S. buyers.

Compared to California prices, initial indications point to good value for imported peaches this year, and buying activity has been strong. China is expecting a crop of 372,500 mtons, up 23% from last season. While Chinese domestic consumption is growing about 20% per year, most of the peaches head to the export market, and Chinese product is proving to be most competitive for U.S. buyers. Greek fruit is still uncompetitive even at the new dollar rate – but that may change as the dollar firms.

The Chinese mandarin season has started, and early reports predict the available raw material will be greater than last year. Spain is also expecting a good crop. There is an impending EU quota that may be imposed on Chinese mandarins going to Europe. Should this EU quota pass (a decision is expected around mid-November), more products may be available for the U.S. market. Due to the rising cost of tinplate and other production costs, opening prices are about 20% higher than last year, but supply and demand will set the true market price. The Chinese mandarin season is also expected to be a short one this year due to the early Chinese New Year.

Peru’s unusual cold weather is affecting timely shipments of artichokes. Meanwhile, Spain’s artichokes may prove to be competitive once again as the dollar gains over the Euro.

Favorable weather conditions have led Spain to experience good crops of manzanillas and hojiblancas. This situation coupled with the strengthening of the dollar against the euro may lead to more competitive pricing for Spanish olives in the market. The situation is less bright for queen olives due to smaller olive sizes and no carryover.

Reports indicate that there are about 150,000 tons of carryover from the previous season, the new season is expected to be good, and the dollar is strong. Last year’s high prices seem to have affected consumption levels in major olive oil markets. Extra Virgin, which reached about 3.00 Euro/kg around August, is currently at about 2.25 Euro/kg. In the blended oil market, prices are down due to falling soybean oil costs.

Saffron, already the world’s most expensive spice, is reported to be about 40% short again this year. Farmers, speculating that the drought will continue, are reported to be still holding about 50 mton of saffron, hoping to get higher prices for this stock.

Current shortages in the lemon juice market may be alleviated soon by the good new citrus crop expected in Spain. The crop, though running a little late, is expected to provide abundant raw material for the industry and the quality of the fruit is also reported to be good.

Hot summer weather has negatively affected the size of crab being caught with an average of 13-16 pieces and smaller. Jumbo and Colossal make up 14-15% of containers with larger amounts of Petite Jumbo, Backfin and Tiny Clawmeat. Production from Thailand continues to be poor over the last month although inventories are said to be adequate, while inventories in Indonesia are reported to be lower. In the U.S., demand is holding up, especially for the smaller grades. Some trading is evident in the larger, more expensive grades.

Vannamei (white) prices remain firm on smaller sizes (31/40 and HLSO equivalent sizes) and demand is strong. Indian shrimp farmers are preparing to raise Pacific white shrimp after the government recently cleared the way for the species’ introduction into the country. Once the regulations have been sorted out, it is expected that Indian farmers will begin raising Vannamei within months. Inventories of Black Tigers continue to dwindle as demand is rated as fair. The market is awaiting the arrival of new season production which begins arriving in the U.S. this month.

Volume has been low on 10/20 and 20/30 and there has been no volume on the U/10. The Elephant trunk area reopened November 1st and will remain open until February 28, 2009. This will allow any vessels that have any days left from this year’s quota to go out and finish up. Most of this fishing will be done over the next 60 days before Christmas. Prices are expected to remain strong for 10/20 and 20/30.

Farmers continue to harvest early, causing the supply of smaller 2/3 oz and 3/5 oz fillets to improve, while the supply of larger 5/7 oz and 7/9 oz fillets remain short. Frozen tilapia fillets, the main product traditionally supplied by China, have increased in price by 63% compared to September 2007. Further price increases are likely, at least until the new Chinese production will reach the market in mid 2009. Frozen tilapia fillet imports to the U.S. market were 43,200 mton in the first half of 2008, down from 48,100 mtons in the same period of 2007.

Market prices have caught up with firming raw material costs overseas. Supply is down as the spread of infectious salmon anemia (ISA) continues to hamper production. SalmonChile, a Chilean farmed salmon industry association, predicted that salmon production could fall by as much as 20% this year, possibly dipping as low as 275,000 metric tons. Chile, the world's second-largest producer of farmed salmon, produced nearly 400,000 metric tons of salmon in 2007 worth more than $2.2 billion.

A slightly higher price is expected for 2009, but supply should become more consistent as some of the better Chinese factories are taken off auto-detention.