Tuesday, April 21, 2015

REMA FOODS MARKET FLASH April 21, 2015


TRADE/POLITICS: 

GSP: Both the House and Senate have finally introduced bills to renew GSP through December 31, 2017.  GSP last expired July 31, 2013.  We've heard Congressional leaders want the bill passed before May 22.  The U.S. Generalized System of Preferences (GSP) is a program designed to promote economic growth in the developing world by providing preferential duty-free entry for up to 5,000 products when imported from one of 123 designated beneficiary countries and territories. 

 

Pacific Trade Pact:  The leaders of Congress’s tax-writing committees reached agreement last week on legislation to give President Obama “fast track” authority to negotiate an ambitious trade accord with 11 other Pacific nations, beginning what is sure to be one of the toughest legislative battles of his last 19 months in office.  The “trade promotion authority” bill would give Congress the power to vote on the Trans-Pacific Partnership once it is completed, but would deny lawmakers the chance to amend what would be the largest trade deal since the North American Free Trade Agreement.  While “fast track” allows a President to more easily negotiate free trade agreements - great for believers in free trade - this particular Pacific Trade Pact is not expected to bring much duty savings for imported food products.

 

Large Government Penalties: The Department of Justice announced more than $3 million in penalties against three importers accused of evading antidumping and countervailing duties.

 

West Coast Port Strike:  The long drawn West Coast strike was finally resolved in February but, to date, one to two week delays in unloading arriving vessels are still occurring.  On 04-21-2015, the ports in LA and Long Beach closed for a 24 hours ILWU Stop Work Meeting. Additionally, in order to avoid the gridlock on the West Coast, shipping lines have diverted shipments to Texas and the East Coast which has resulted in  port congestion.  Several weeks ago in Houston, ships collided in the channel causing a backlog of thousands of containers that are now moving.   We have also seen ship diversions to Houston that are spill over from the west coast issues earlier in the year.  In Dallas, the UPRR has started to hold inbound trains short of Dallas and delay the release of new trains at LGB until there are more chassis to offload the cars.  In NJ, the traffic jam outside GCT Bayonne stretched six miles onto the turnpike.  Several terminals in NY/NJ have now implemented “Port Congestion Fee” of $250 on each incoming container. 

 

ISF:  The final phase of US Customs enforcement on the Importer Security Filing (ISF) will take effect on May 14, 2015.  ISF (commonly known as 10+2) requires the importer to submit certain information to US Customs 48 hours prior to sailing date. Customs has a six year statute of limitation for assessing penalties for ISF violations.   It is expected that Customs will focus on the more severe violations, such as missed or late filing and can assess liquidated damages up to $5000 per violation. 

 

CURRENCY:  Given the sluggish European economy and the comparative strength in the USA, along with the expectation for increasing interest rates in the USA, the dollar has been strengthening against the euro for a several months and is currently around 1.09. The dollar has also been gaining against the Canadian dollar, now at about 1.23 after trading around parity for a number of years.

 

TUNA:  Skipjack has reached its lowest levels in years with raw material price hitting as low at $1000-1100/MT.  The drop in price is being attributed to good catches and lower market demand.  Ecuadorian catch have been especially strong.  It has been recently reported that some major fishing companies have stopped fishing in order to force prices up. Yellowfin pricing normally follows skipjack and has been running at $1300-$1400/MT.  Tongol and albacore have remained firm at $1800/MT and $ 3100/MT respectively.

 

ARTICHOKES:  While the initial expectations from Spain were for a good crop, weather conditions did not quite unfold as expected.  Frost hit a major growing area in Murcia and it was reported that about 40% of the crop was lost.  Then quite suddenly the weather turned and temperatures rose too quickly.  As a result, raw material prices have increased by 30-40% and many packers have withdrawn their offers.  Prices from the few who are offering are about 10-13% higher than last year.  Peru’s season will not start until July/August but over the past few years Peru had decreased its plantations as their higher cost rendered them noncompetitive in the US market (and several firms have closed up or sold their artichoke lines).  Egypt’s crop started early this year and was reported to be short as well.

 

MANDARIN ORANGES:  The Chinese mandarin packing season ended around mid-February.  Initial expectations were for prices to be lower than last year.  However, due to higher labor cost and higher prices that the domestic fresh market was willing to pay, prices remained firm throughout the season.   Raw material quality was good which meant that there was not enough mandarins being diverted to broken packs, most went for whole mandarin packs.  There has also been a strong demand from juice manufacturers for orange sacs, which meant further reduction in raw material available for broken mandarins.

 

OLIVE OIL:  Spain, which accounts for 50% of total olive oil world production, reported a 30% decrease in its crop. At the same time, blight affected trees in Puglia, Italy’s main growing region. Italy accounts for 15% of total world production. Prices have been on an upswing from an average of about 2.40 euro/kg in 2014 to a peak of 3.60 euro/kg in early March.  Thankfully, the stronger dollar has tempered the sharp increase in the US market. Indications about the next crop season will not be available until the flower season in May.

 

OLIVES:  The predicted 20% shortage (vs. 2013) of the hojiblanca variety used for ripe olives has materialized and ripe prices have been steadily inching up.  It is now about 15-20% higher than last year.  As with oil, the stronger dollar is helping to mitigate the increases.

 

PINEAPPLE:  Thailand’s crop of 2014 was reported to be one of the worst in the recent years and packers continue to report that the raw material situation is still very tight.  Last year’s drought has severely affected the Thai winter crop, causing a drop in output of 15% from the average of 1.9 million tons annually.  This has pushed raw material prices up to 10-11.0 baht/kg (in a normal year, price levels are around 4.50 baht/kg).  This sharp increase in price has prompted farmers to harvest earlier, leading to unripe fruit, high nitrate levels, and de-tinning.  Indonesia is being swamped with orders to make up for Thailand’s shortfall.  The upcoming summer season does not look promising; with no carry-over and packers behind on commitments, they are not expecting significant relief in the upcoming crop.  Indonesia is expecting about 20% lower output for this summer season due to dry weather conditions.  It’s been reported that Del Monte formally withdrew on foodservice pineapple packs. Per their notice, “This action is due to industry wide raw product shortages and seasonal drought conditions that have limited and reduced our pineapple pack.   This withdraw from sale notice will be effective immediately and continue through October 2015.”

 

MUSHROOMS:  Since India and China’s troubles began several years ago with antidumping and the pesticide carbendazim, main import supply for the US has been coming from Holland, Spain, France and Poland.  In past years, these countries have been unable to compete with China.  The favorable dollar-euro rate has also helped keep them competitive even as costs have increased.  Supply and price have been relatively stable.

 

ANCHOVIES:  The past two seasons (2013 & 2014) have been quite disastrous for anchovies.  Morocco, a major source of anchovies, reported about 30% lower fish landings.  Peru reported a similar drop.  Packers are reporting that the shortage in raw material has prompted prices to rise by more than 50%.   The new season will start in July and packers are hoping for some relief; however it may take some time and since there’s no carry-over stock, packers will aggressively buy any fish that comes to market during the initial season to serve their long-standing and overdue commitments.

 

TOMATOES:  Last year, California produced its largest crop in history, at 14 million tons, along with record yields of 48.3 tons/acre and all-time high grower prices of $83/ton.  For 2015, California is predicting 13.9-14.3 million tons.  Export sales have more than doubled over the past six years.  In Italy, the market is expecting for 2015 raw material prices of euro105/MT for plum tomatoes