TYPHOON RAISES PROSPECT OF FALLING PH COCONUT PRODUCTION: Issue 17 Jan 14, 2013

By Rene Pastor

A typhoon which struck some of the prime coconut-growing areas in the southern Philippines may undermine production for years to come in the world’s top source of coconut oil, a key ingredient in food and health care products.

If one adds the fact that Philippine industry analysts believe up to a fifth of the 340 million coconut trees in the country are past their prime, the recent trend of lower output will likely accelerate.

In two years, official and industry estimates said coconut oil output by the Philippines declined over 16 percent to around 1.5 million metric tons. The government said coconut product exports dropped 35 percent in 2011 to 1.505 million metric tons from 2.332 million tons in 2010.
Officials in Manila would blame the weather, but that is not the main culprit for the fall in production.

The top reason is age.

Average nut production per tree is around 15 at this time and slipping. A total of 50 million trees are now too old. Three years down the road, that proportion of old trees could climb past 100 million.

The government regulator Philippine Coconut Authority (PCA) recently handed over 30,000 coco seed nuts to former rebels and farmers in South Cotabato province on Mindanao. Even if all those trees mature, it would take years for them to begin producing nuts on a regular basis. The simple fact is the government does not have enough money to replace all the rapidly ageing trees.

While lower coconut production should boost the prices of items such as coconut oil, analysts believe this may not happen since palm kernel oil provides stiff competition to the vegetable oil.

PHILIPPINES’ BIGGEST GOLD PRODUCER MULLS REOPENING MOTHBALLED MINE

The biggest gold and copper producer in the Philippines, Philex Mining, is studying the possibility of reopening a gold mine it had mothballed in the central Philippines to take advantage of strong world gold prices.

Philex Mining said in a statement the Bulawan Project in Sipalay City on the central island of Negros is a gold operation that was mothballed in 2002, and has since been kept under care and maintenance.

“The mine was decommissioned because of low metal prices prevailing at the time. But with gold prices becoming significantly higher since then, Philex Mining Corp. started looking into the possibility of reopening the mine for operation,” Philex said.

It is now undertaking a drilling program to establish if its current reserves of 23.9 million tons containing 1.91 grams of gold per ton “could be increased before committing further funds for the project,” it added.

Gold prices have been rising annually for the past 10 years. At the end of 2001, the price of the yellow metal was under $300 an ounce. Now, it stands above $1,600 per ounce at the end of 2012 and market players are talking about the price rising to the psychological $2,000 an ounce level. Gold is normally used by investors as a hedge in volatile economic conditions, luring safe-haven buying from investors leery of stocks, bonds or treasury notes.

A total of 4,944 meters were drilled in 17 holes at the Philex mine site. The drillings focused on testing deep root systems in the North Block, the Central Block, and in between the South Block and Korokan areas of the project. No dates were given when the mine may be opened for production.

USDA DATA PORTENDS HIGHER PRICES
By Jack Scoville, The Price Futures Group

The U.S. Agriculture Department (USDA) released the annual production report covering U.S. grains and oilseeds production from last year. It also issued the quarterly stocks report and wheat planted area report for winter wheat.

The reports were bullish and imply that higher prices are coming.

The most bullish aspect of the USDA reports was the quarterly stocks report especially for corn and wheat. Both reports showed less than expected inventories of grain, and in the case of corn the inventories were much less than expected.

These reports imply much higher than expected feed use by cattle and hogs producers here in the U.S. Such news is bullish, and is very bullish this year in light of the tight supplies on hand.

Prices responded strongly to the upside and should be able to keep moving higher as winter moves into spring. It is possible to imagine nearby corn futures prices trading to $7.50 or $7.60 per bushel at some point in the near future. Chicago wheat futures could trade up to $8.50 per bushel, especially if the weather does not get better in the U.S. Great Plains.

It is still much too dry there and unless the region has a very wet spring it seems that crop losses are almost inevitable.

Only soybeans did not get much of a boost from the Friday reports as the data presented by USDA was considered neutral to prices. But the bulls in the soy complex got a boost today with the release of the NOPA crush data.

NOPA showed a very strong domestic demand, shooting prices higher. In addition, China is back in the U.S. market buying soybeans. They cancelled some purchases a few weeks ago, but bought a lot last week and again over the weekend. The demand is there for soybeans, and in fact the demand is there for most, if not all, U.S. agricultural goods.

Prices should continue to work higher into March or so, then the market will start to buy South American products. However, the wheat crop in Argentina was not great last year so there might not be much wheat available to Brazil and the rest of the world from that producer for another year.

Corn might not be easy to find after the delayed plantings there that could hurt planted area and yield potential. Soybeans look to be very available by this summer, especially from Brazil. That will limit the time horizon for the exceptional U.S. demand to sometime this Spring.

Bull spreads should remain a big feature of trade moving forward as the market digests these varying fundamentals. Real price weakness will need to wait until later this spring or this summer.

CHINA LOOKING AT U.S. WHEAT, THAI PURCHASES UP

China is supposed to be looking at U.S. grain to bolster wheat supplies, and the pace of buying by Thailand seems to be picking up, industry group U.S. Wheat Associates said.

The group said demand for western-style wheat foods is growing, and Chinese imports of high protein wheat have increased over the past several months. Indications are that weaker U.S. wheat prices are apparently attracting the attention of China’s buyers once again.

“It remains to be seen whether or not increased demand for U.S. wheat and ongoing concern about next year’s winter wheat crops encourage a reverse in the month-long futures price slide. For now, more U.S. wheat customers are taking the opportunity to acquire high-quality U.S. wheat at the best values of 2012/13,” U.S. Wheat Associates said.

The group said Thailand entered December with year-to-date sales running 2 percent over 2011/12. But thanks to 73,500 MT purchased last month, 2012/13 U.S. wheat sales to Thailand are now 20 percent greater than at this point last year.

The U.S. Wheat Board said its teams have scheduled regional visits to Asia to learn about the needs of milling wheat in several countries. Teams will travel to Taiwan, Singapore, Indonesia and South Korea before returning to the United States in about two weeks.

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