Wednesday, April 23, 2008

REMA FOODS IMPORT MARKET FLASH Apr 23, 2008

TRADE/POLITICS
In Washington, the Democratic leaders of the House Energy and Commerce Committee proposed various new regulations including mandatory country of origin labeling on produce, and a requirement that every food manufacturer identify on their corporate Web site where each ingredient in every particular food product originated. The Grocery Manufacturers Association replied: “At a time when thousands of Americans are being forced out of their homes and losing their job, it makes little sense for Congress to arbitrarily increase the price of food.”

It’s becoming repetitive, but new food pricing records continue to be broken - The Consumer Price Index shows food inflation at 5.2% in the first quarter of 2008, a 17 year high. Rampant food inflation and shortages even made the cover of the New York Times a few days ago with the headline: “Across the Globe: Empty Bellies Bring Rising Anger.” With basic foods such as soybeans and wheat rising in cost by as much as 100% over the past year, combined with the increased worldwide global demand, the U.N. states we are now in “the worst crisis of its kind in more than 30 years.” Don’t expect demand to soften: while the U.S. and Europe make up 5% and 12% of the world’s population, respectively, Asia countries (including India and China) with their newly emerging middle classes, make up 62%.

Lastly, the cost of oil has broken through $117 per barrel, directly impacting costs of manufacturing, ocean freight/transportation, fishing, etc and indirectly affecting costs of food crops now competing as bio-fuels. As expected the steamship lines are re-pricing ocean freight contracts with the popular Asia to U.S. route going up about $500/container, plus peak season surcharges and fuel surcharges/bunkers.

CURRENCY UPDATE
The US dollar hit another all time low against the euro this week, breaking through the symbolic 1.60 level. Beijing, signaling its focus on controlling increasing inflation (currently 9%), will allow further appreciation of the yuan. Last Thursday, the dollar broke through the symbolic 7 yuan to the dollar level, closing at 6.99. Just a few years ago, it was trading at 8.25. In the bank traded derivatives market, the “non-deliverable forward” for the yuan is trading at 6.4, meaning investors are already predicting another 9.2% gain against the dollar over the coming year. Inflationary pressures are mounting throughout Asia: Vietnam’s inflation rate is currently a staggering 19.4%.

TUNA
For skipjack, after reaching an all time high last year of 1650/mton, then dipping to a very short-lived low of about $1400 early this year, pricing has already passed $1600-1650 and is now anticipated by fisherman to go to $1700-1750 in the coming weeks. Fearful packers are trying to price their offers accordingly. Yellowfin pricing has increased to $2350 in the Far East, and $2750 in Spain. Tongol is trading thinly at 52 baht/kilo. Albacore, as predicted, has firmed to $2400 for Japanese long line raw material. With the catch weak, boats use more fuel to catch the same amount of fish, and with the higher cost of oil, fuel now accounts for more than half the cost of tuna fishing.

PINEAPPLE and TROPICAL FRUIT SALAD (TFS)
Even with the anti-dumping being repealed, the 2008 pineapple market is now expected be one of the most tumultuous on record – even worse than in 2007. Raw material is relatively firm at 6 baht/kilo, but the biggest problem facing canners is the shortage of tinplate. As a high acid fruit, pineapple production requires specially coated cans, which have put pineapple packers in the worst position of all the food manufacturers experiencing tinplate shortages. With strong pineapple demand from other overseas buyers, supply will be very tight and pricing extremely firm.

MUSHROOMS
In India, the situation remains status quo, although there appears to be signs of improvement on the horizon. Shipments are still coming slowly, but more regularly. China is almost finished with their crop and indications show that the cold spell that hit them early this year might not affect the crop as much as originally thought. While raw material prices were high right after Chinese New Year, they have since stabilized to a more realistic level - but currency and tinplate are negatively impacting costs.

MANDARIN ORANGES
Market is generally quiet with prices inching upwards due to the continued strengthening of the Chinese currency against the dollar.

TOMATOES
Flash shortages are developing in the US market on whole peeled tomatoes – unfortunately imports can’t help much before the new U.S. crop. Interestingly, while U.S. canners have run short for their home market customers, their exports of U.S. canned tomatoes from the U.S. to other markets grew in 2007 by 8% in volume and 24% in value, to their highest level on record. In Italy this past season, even with higher pricing, packers were able to maintain their export volume of canned tomatoes to the U.S. as buyers have come to appreciate the high quality.

FRUIT/PEACHES
California packers are expecting a good 2008 crop. Greece is optimistic about its crop as well, although it’s still too early to gauge competitiveness in dollar terms. Last year, the U.S. took only 8 mtons of Greece’s 296 mton crop. China has not yet reported on their crop, but they have lately become the major supplier to the U.S. import market. Poor prospects in South Africa have seen declines in export volumes for most fruit products – unfortunately with the weakness of the dollar, the U.S. doesn’t even make their list of top ten worldwide buyers anymore.

OLIVES
Argentina continues to struggle with a very poor new crop outlook – the result of their earlier severe frost.

ARTICHOKES
Spain has just completed its season, with much better yields than last year. FOB costs in euros are actually lower than last year; however, the exchange rate crisis has negated the decrease for U.S. customers. In Chile, one of the larger packers declared bankruptcy early this year, leaving few other players. It is reported that the total acreage planted this year will be decreased by almost 50%, primarily due to rising labor costs, tin plate costs, lower exchange rate and overall low profit margins. Opening FOB prices in Chile are about $ 6.00 higher than last year’s prices. In Peru, now the major player to the U.S. market, the crop is expected to be short. While the earthquake last year in the Southern part of the country caused labor shortages, very cold weather in Peru delayed the season considerably. Combined with 10% appreciation of the “sol” against the dollar, increased tinplate, labor and fertilizer costs have opening offers for Peruvian artichokes up several dollars over last year.

RICE
A worldwide rice shortage has pushed pricing upwards. Rice, the staple food for about 3 billion people, rose to a record high early this month after doubling in the past year. Higher imports by the Philippines, the biggest buyer, and reduced exports by China, India, Egypt and Vietnam pushed up prices, contributing to food riots in Ivory Coast and anti-hoarding campaigns in Pakistan and the Philippines. Expect sharp increases in the cost of imported rice varieties such as basmati and jasmine.

SAFFRON
With the market tight and new crop not available until the end of the year, farmers are pushing up prices by holding back stock.