FOOD FIRMS LOOKING TO BUY WHEAT EARLY, BUILD INVENTORIES BEFORE POLLS: Issue 15 Dec 25, 2012

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By Rene Pastor

The Philippines may soon be in the market to buy a large amount of milling wheat to take advantage of a softening in prices as demand for bread and other products is expected to remain strong before national elections in May and flour firms plan to build up their stocks in case wheat prices climb in the second half of 2013.

The Philippines does not produce any wheat and imports everything it needs.

The country is expected to buy about 2.0 million to 2.5 million tons of milling wheat in the coming year. The Digest believes flour companies there may front-load their purchases, and orders of up to 1.0 to 1.5 million tons are likely in the weeks ahead.

Aside from the elections, the reason for this is the strong demand in a robust economy. Election spending would further boost such demand for soft white wheat.

Even though wheat stocks in the Philippines are estimated by agricultural experts near 900,000 metric tons, up by a third from the level around 675,000 tons last year, the companies may book more early in 2013.

“Milling wheat consumption…is forecast up by one percent to 2.3 MMT (million metric tons) due to the continued strength of the Philippine economy and as a result of campaign-related spending on food leading up to national elections in May 2013,” a report by the U.S. agricultural attaché at the U.S. embassy in Manila said. The report is compiled by U.S. agricultural experts in Manila but is not official data of the U.S. Agriculture Department.

The Philippines is the second largest importer in the world of soft white wheat, according to an estimate by industry group U.S. Wheat Associates. Over 90 percent of the wheat imported by Manila every year comes from the United States.

In four of the last five years, the value of these imports stood at around $500 million. In the 2011/12 marketing year (August/July), U.S. Wheat Associates said the value of Philippine wheat purchases hit a record $676 million.

Soft white wheat is a type of the grain that is grown primarily in the U.S. Pacific Northwest, an area from which it can easily be shipped through ports in Portland, Oregon, to customers like the Philippines across the Pacific Ocean. Containing some 10 percent less protein, it can be stored for up to a year in a 50-pound bag. The wheat is used mainly to produce bread, cakes and pastries. In the Philippines, it is the top ingredient for the basic ‘pan de sal,’ the small round bread eaten for breakfast by millions of Filipino households.

With U.S. wheat among the cheapest in the world at this time and mindful of forecasts that supplies may shrink later in 2013, there is every incentive for Philippine flour firms to book coverage at this time.

The buying orders would probably be for March delivery and then June delivery. Inquiries from the Philippines should start picking up in intensity, especially after the New Year.

WORLD CASH GRAIN/OIL SEED PRICES SEEN STAYING FIRM AS END-2012 APPROACHES
By Jack Scoville, The Price Futures Group

The markets have turned quiet for the week due to the holidays. We expect that grains prices can rebound after many speculators and fund managers liquidated before the holidays and the end of the year. However, price action need not go too far yet.

World cash markets for grains and oilseeds remain generally firm. Soybeans traders are watching conditions in South America now to see if any relief in the tight supply scenario is coming. Weather is generally getting better in Argentina, so the soybeans will get planted, but are getting planted late. There is a chance for yield loss there. Brazil appears to be in good shape right now and capable of producing over 80 million tons of soybeans. Some are worried about somewhat drier weather in some northern areas, but for now conditions seem OK.

Corn is a little different story as some of the area in Argentina might not get planted. It should be hard for that country to produce 25 million tons this year. Brazil might have somewhat less corn as well, as crops got planted late this year. So did soybeans in some northern areas of Brazil, and this could hurt the Safrinha production down the road.

Sellers from the Philippines will have chances for good prices with corn.

Wheat prices should stay firm, and U.S. prices should start to rally. U.S. wheat is as cheap or cheaper than any other origin, and other origins keep getting higher priced. Argentina has had big problems with quality and quantity after all the rain over the last couple of months, and there is talk of winterkill developing in Russia.

The overall situation for wheat looks to be one of decreasing supplies as we move into and through next year. Buyers should make sure that they have good inventories into February. What happens after that will be a function of weather and production in South America.

Coffee, sugar, and cocoa markets are facing good production and weak prices, and these trends are likely to continue into the New Year.

Coffee is facing strong production from Brazil and Vietnam, but will look at decreasing supplies from Central America next year. For now, that might not matter to overall world coffee availability as production looks to be strong in other parts of the world. Sugar is still feeling strong production in Brazil and will be looking at good production this year in India and Thailand. There is no shortage forecast for anywhere. Cocoa has strong supplies coming from Ivory Coast against uncertain demand. Crop prospects look good in Malaysia and Indonesia as well.

PHILIPPINE MINE HALFWAY DONE IN CLEANING UP SPILL
By Rene Pastor

Philex Mining Corp., one of the top mining firms in the Philippines, said it has cleaned up almost half of the silt which contaminated a creek when heavy rains at its mining site in Luzon island caused a damaging spill.

The spill at Balog creek was caused by heavy rains from a string of typhoons and it caused a spill at the Padcal mines tailings pond in northern Benguet province on August 1. The government imposed fines of over 1 billion pesos on Philex, but the firm countered it was willing to pay the fine if the money would be spent on rehabilitation of the areas around the mine.

“We ensure that the remediation at Balog is continuous within our timeline and that all our workers have a safe working environment,” Libby Ricafort, vice president for operations, said in a statement released on the firm’s website.

“Once we are done with the Balog stretch, we’ll move on to the convergence area where some of the silt accumulated,” he said, referring to the part where the Agno river meets up with the creek.

The northern Philippines near the resort city of Baguio is a traditional mining area, and some of the operations there date back almost a century. Philex hopes to have the Padcal mine resume operations in the second quarter of 2013.

The Philippine government has come under intense pressure from environmental groups and the influential Catholic church to rein in or stop altogether mining operations in the country, pointing to accidents like what happened at Philex as posing unacceptable risks to the health and environmental safety of Filipinos.

At the end of November, a total of 85,000 bags of silt have been removed from Balog creek and facilities built on another creek to contain silt that may come from the mine operated by Philex.

IN OTHER ASIAN NEWS

THAI RICE SUPPORT PLAN COULD USE SOME TWEAKS: IRRI EXEC
By Rene Pastor

Thailand is well within its rights to support its rice farmers, but an official with the International Rice Research Institute said Bangkok should tweak its controversial plan to ensure stability in the world rice market since the country is one of the leading exporters of the grain in the world.

Samarendu Mohanty, the head and senior economist of the Social Sciences Division of IRRI said in a report that Thailand “needs to take steps to reduce uncertainty in the global market by announcing a mechanism for the release of (mortgaged) stocks to the market in a way that the market knows when and how the stocks will be released.”

Under the plan implemented by Thailand, the government pays farmers a guaranteed price for its rice. But Bangkok’s support price for rice purchases runs about 30 percent to 40 percent above the market price for the cereal. As a result, Thailand has had a tough time exporting rice because its grain is too expensive compared to its competitors.

“I personally believe that the Thai government has every right to support rice farmers if it wishes to. But, the government should be prepared to pay for the rising cost of the program over time. There will be year-to-year fluctuation depending on the global rice production situation. If the global situation is tight, then this scheme may not cost anything. But, the cost will rise quickly if the global supply situation improves,” Mohanty said.

Under his proposal, the market would know when Thailand would release its rice stocks and have time to prepare for that.

Mohanty also proposed that “farmers have the option of either mortgaging their rice or receiving the difference between the mortgage and market price and selling the actual paddy in the open market.”

“This will enable the government to support farmers, avoid an accumulation of mortgage stocks, and become competitive in the global market. This is exactly what the U.S. did in the mid-1980s to continue to provide support to farmers, eliminate government stockpiling, and become competitive again in the global market by reforming its price support loan program, which was similar to the Thai rice mortgage scheme,” he pointed out.

Indeed, what the Thais are doing is no different from what other agricultural powers are doing to support their farmers.

Mohanty said Bangkok “may also want to think about direct cash transfers to farmers that are not linked to current production. Japan and South Korea have recently moved away from price support to direct payments, and the government of India is pondering converting subsidies for food, petroleum, and fertilizer to direct cash transfers to beneficiaries.”

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