Friday, May 20, 2011

REMA FOODS IMPORT MARKET FLASH May 18, 2011

TRADE/POLITICS
FDA issued the first two “interim final” rules for the Food Safety Modernization Act (FSMA). Rule 1: Section 207 of the FSMA relaxes the criteria for administrative detention of food. Previously, FDA could detain an article of food only if it had “credible evidence” that the food posed a threat of serious adverse health consequences or death to humans or animals. Under the amended statute and regulations, FDA may detain an article of food if FDA has “reason to believe” the article is adulterated or misbranded. Rule 2: Section 304 of the FSMA requires importers to now include “any country to which the article has been refused entry” in their prior notice entry transmission.

Packers are reporting that after recently increasing 15%, tin plate pricing is expected to increase again in the second half of the year. For low cost fruits like pineapple, tinplate makes up 20% of the final cost.

As fuel prices increase, shipping lines are imposing freight rate increases and peak season surcharges (PSS). Initial increases are in the range of $20-$170 per container. Initial peak season surcharge announcements are calling for an additional $320 from the Far East to the U.S.A.

The New York Times last month ran a cover page article about shortages and rising food prices caused by the diversion of crops for biofuel production. The United Nations Food and Agriculture Organization reported that its index of food prices was the highest in its more than 20 years of existence. According to the article, “experts are calling on countries to scale back their headlong rush into green fuel development, arguing that the combination of ambitious biofuel targets and mediocre harvests of some crucial crops is contributing to high prices, hunger and political instability.”

The World Trade Organization expects trade levels this year to recover to pre-crisis levels with 4.5% export growth in developed countries and 9.5% growth in developing countries.

Several weeks ago, 2,000 independent truckers went on strike for three days in China, causing total paralysis of industry and highlighting the weakest link in China’s $1.5 trillion export chain.

FDA has published proposed rules to require nutrition labeling on foods sold in chain restaurants and by chain vending machine operators. Comments are due by June 5.

The specialty food sector made a comeback last year, growing by 7.7% to $70 billion, and accounting for 13.1% of food sales according to market research firms Mintel International and SPINS.

CURRENCY UPDATE
The US dollar had been losing strength dramatically against the major currencies over the past few months, but worries about Greece have pushed the dollar up slightly over the past week. While most track the dollar against the euro, it’s interesting to note that the dollar’s value has fallen significantly over the past half year against many currencies including the Chinese renminbi, the Indian rupee and the Thai baht. Two weeks ago, the Chinese government, which actively controls the value of the renminbi, allowed it to rise to over 6.5 against the dollar in their hope that a stronger local currency would help get Chinese inflation under control, at the expense of possibly cutting exports (because a stronger renminbi raises the price of exports).

TUNA
Skipjack Raw material has now traded at $1800-1850 per metric ton with packers forecasting as much as $2000 in the coming months. The fish aggregating device (FAD) fishing ban begins on July 1 and runs through September 30. Higher oil prices are impacting pricing, as fuel is the single largest cost component in fishing. Putting further pressure on demand is the Japanese industry, which is buying loins on the open market as they deal with the results of their earthquake and tsunami. Yellowfin continues to be extremely short with higher quality packs virtually unavailable and the Japanese market buying up whatever fresh and frozen raw material becomes available. Costs are reported at anywhere from $2400 to as much as $3000/mton. The yellowfin/skipjack ratio is very low at 5% yellowfin verses the norm of 15- 20%. Tongol is still not being offered. Limited fish is being caught, but existing contracts are still behind schedule. After holding steady for months as skipjack firmed, Albacore raw material is now up substantially, trading at $3000+ per mton.

PINEAPPLE
Heavy rains and flooding in the South of Thailand luckily spared the main pineapple growing region. As the Thai summer crop unfolds, there is doubt that the fruit supply will be sufficient to meet the market demands. Raw material prices so far have gone from 6.50 baht/kg in January, to 7.25 baht/kg in March, to 8.00 baht/kg in April, and now in the peak of the crop, raw material is settling to the level most packers were hoping for - around 6.50 baht/kg. Most factories are behind in shipments and have had to aggressively bid for the little raw material available. High prices have made it attractive for farmers to quickly harvest all the fruit they possibly can, sometimes before it’s at its optimum level. In Indonesia, the first quarter ended a bit short but is expected to improve during this summer to at least normal levels. The weather has been favorable; the fruit quality and sizing have been good. One of the major packers reports that most of the fruit they are receiving is fancy quality, leaving very little for choice/standard grade. Though not a very big player, Malaysia is slowly gearing up its pineapple production and is receiving government subsidies for this effort. They are targeting a 20% increase in their total output vs. 2010, but their pricing is still about 25% higher at the moment than prevailing rates in Thailand, the largest market. In the Philippines, total output declined slightly in 2010 as many farmers convert their crops to corn and banana. For all countries, the strong demand from Russia is playing a critical role in limiting the supplies available for the U.S.

MUSHROOMS
The U.S. government announced new preliminary antidumping duty rates for Chinese suppliers that are so high that they effectively bar all but one packer from the U.S. market. Several factories are working with Washington lawyers, hoping to overturn the rates. The final rates are expected in June/July. Pricing nevertheless is up by several dollars per case. The major Indian packer, while no longer subject to antidumping, is pricing product to match the Chinese. Overall, raw material remains tight until at least new pack in early 2012.

MANDARINS
The crop has ended very short. Packers are renegotiating pricing due to higher raw material and labor costs, and the demand caused by the severe shortage. Broken mandarins are quite difficult to come by as most were packed as “sacs” to be used for juice production

PEPPERS
Markets are stable in Turkey, with price swings caused primarily from the influence of currency exchange rates. New crop pricing is expected from Peru in June / July.

OLIVES
Overall, the Spanish crop was relatively good, especially for the Queen variety. Only some sizes of manzanillas are behind in volume. Above all else, pricing is being affected primarily by the dollar/euro relationship.

OLIVE OIL
New regulations in Italy are impacting what can now be legally labeled as Product of Italy, and brands are currently adjusting their labels to comply with the new regulations. In addition, the Italian Olive Oil Council (IOOC) has implemented a new parameter in its standard test for extra virgin olive oil: alchilester. The value in this parameter, which helps determine the “age” of the oil, tends to increase as the harvesting progresses, resulting in less oil able to qualify as extra virgin. Pomace pricing is stable at the moment, but there is upward pricing pressure building as current crop supplies deplete before new crop begins.

TOMATOES
There appears to be no carry over going into the next Italian crop. New crop tomatoes are being planted now for the harvest in August / September.

PEACHES
The Greek peach industry is forecasting a good crop as favorable weather prevails during the flower season. They are hoping to have an improvement over last year’s performance or at the very least, a similar season. A clearer picture will become available towards the end of May. In previous years, China’s competitive pricing had made it difficult for Greece to compete; however, as China’s domestic consumption and overall production costs increase, lesser quantity has been available for export, and Greece has become a more viable option.

ARTICHOKES
Spain’s crop has been greatly affected by the frost that had blanketed the growing area early in the season. This caused the crop to come in later than usual as the plants had to recover. Once the harvest got underway, raw material prices were very high reaching 0.70 euro/kg, compared to an average of 0.42 euro/kg last year. Sizing of the fruit has been on the larger side prompting factories to pack more as quartered, leaving less raw material available to pack as 40/50 and 50/60 hearts. The prevailing hot weather has abated with temperatures coming down to about 68 degrees Fahrenheit from a high of 96 a few weeks ago. Rain a couple of weeks ago created a favorable weather change and prolonged the season by about 10 days. The season is now coming to an end and raw material prices are increasing again to even 0.75 euro/kg. Overall, the dramatic spike in pricing has prompted many of the major packers to default on contracts and force renegotiation of previously committed pricing. Egypt’s crop has come to an end and most packers claim they have achieved what they planned to do as the weather was favorable. Egypt is a relative new comer in the market and there are only 2 major players that are able to supply quantities of note. Peru’s season is not expected to start until August. Early indications are that this year’s crop will be shorter than last year’s as no additional acreage has been planted. Packers there are already reporting that only minimal quantities will be packed and they’re already allocating production (from a pack that is still months from beginning). China has been dabbling with artichokes in the past 2-3 years; there are a few active packers and quality is still below current industry specifications.

COCONUT
Coconut prices have been extremely short as of late with prices on coconut related products – such as coconut milk and the like -- skyrocketing by almost 100% from the same time last year. The shortage is being caused by the infestation of the coconut hispine beetle and the widespread drought last year. Packers are not expecting any relief soon.

PASTEURIZED CRABMEAT (refrigerated)
Poor weather along with rising fuel and bait costs caused all major producing countries to struggle to meet market demand. Indonesia showed more than a 23% decline YTD in 2011 as compared to 2010. U.S. importers have reported significant increases in their replacement costs from Indonesia and Thailand; in some cases, their overseas costs were said to exceed the current market value, even with significant price increases being posted in Urner Barry. Imports from smaller producers such as Vietnam, Philippines and Mexico show growth in their exports to the United States.

SHRIMP (frozen)
Total year-to-date imports remain higher by 3.2% even though imports from Thailand and Indonesia were both lower for the month of February. The effects of the terrible earthquake and tsunami in Japan continue to be evaluated but it appears that Japanese shrimp imports will maintain and possibly increase as the country looks to import more of its food supply. Production of medium and small count shrimp from Asia has been under the demand and shortages have developed particularly for smaller count items. Exchange rates, fuel and feed costs have pushed up replacement costs, as evidenced by Urner Barry.