By Rene Pastor

Philippine Agriculture Secretary Proceso Alcala said Manila will aim to sharply increase its dairy herd and breeding program, but analysts feel the country faces a long arduous fight to reduce its heavy dependence on the U.S., New Zealand and Australia because of a rapidly growing population and strong demand for products like milk.

The Department quoted Philippine agriculture officials as saying milk production has been expanding by 7 percent the last five years.

National Dairy Authority administrator Grace Cenas said the country produced a record 18.45 million liters of milk in 2012, up 2.0 million liters from 2011.

You would think that sounds impressive. It is not.

Philippine milk production stands at just under 19,000 tons, or less than one pint per person. That means the Philippines is producing less than one percent of the dairy products it consumes in a year.

With resources being eaten up by the politically demanding task of hitting rice self-sufficiency, the idea of reducing dairy and milk imports looks out of reach at this time.

There just does not seem to be enough resources on hand to take care of this issue even though an agreement is in the works with New Zealand, the leading supplier of dairy products in the Philippines.

The U.S. agriculture attaché at the U.S. Embassy in Manila said in a report late last year that “dairy products are the country’s second largest agricultural import after wheat.” Attaché reports are not official data of the U.S. Agriculture Department, but they are considered authoritative and influential by the commodity community.

New Zealand is the market leader with 45 percent of dairy imports by the Philippines. They are followed by the U.S. with 25 percent and Australia with 11 percent of the market.

After rocketing (up) 50 percent in 2011, U.S. dairy exports to the Philippines in 2012 are forecast to reach a record $328 million in 2012,” the attaché said. “While milk powder exports dominate this category, there has also been strong growth in U.S. cheese and whey sales as well. The Philippines is the 4th largest market for U.S. dairy exports.”

Livestock experts said that at best, the Philippines will be able to increase its dairy herd by about 1,000 head a year.

Numbers aside, a major hindrance to the Philippines is the productivity of each animal in its herd.

“The average Philippine milk production per animal (of) 8 liters/day remains low due mainly to poor feed and management practices,” the attaché report said.

In contrast, U.S. herds are able to produce 30-34 liters per day.

It is obviously not just a question of raising the number of dairy animals in the country. Farm and feed practices need to be overhauled as well.

The United Nations’ Food and Agriculture Organization calculates annual per capita milk consumption in the Philippines at 22 kg, just behind Thailand’s 26 kg, Malaysia’s 26 kg and the 287 kg seen in the United States.

That picture could soon change rapidly. “With a strong economy and a growing population of roughly 100 million in 2012, the Philippines is a large and rapidly expanding market for milk and milk products,” the U.S. agriculture attaché report concluded.

The report said an expansion in cold chain capacity, an increase in the number of supermarkets, and a blossoming food processing industry are helping to boost the market.

The stronger Philippine peso, which rose over 6 percent against the U.S. dollar in 2012, and the weak U.S. dollar when compared to competing countries would “make the Philippine market attractive for U.S. dairy exporters,” the attaché said.

By Rene Pastor

Rice stocks in the Philippines, a major importer trying to become self-sufficient in the staple food of its 100 million people, have tightened slightly going into 2013, the government’s Bureau of Agricultural Statistics said.

The BAS said in a monthly update that the rice stock inventory as of January 1 is enough for 74 days of daily consumption, down from the 77 days available on December 1. Normally, the Philippines should have 90 days or three months’ worth of rice stocks for Filipinos.

But that number by the BAS is misleading. Rice stocks are actually down to just over a month, or 35 days, of daily consumption. The BAS said privately held household stocks are good for 39 days, with stocks in commercial warehouses stand at 18 days and those in government-owned National Food Authority warehouses are good for 17 days.

Last month, NFA warehouses held 18 days of rice stocks and commercial warehouses had 20 days as both slipped by a few days. Private household stocks remained unchanged at 39 days. Stocks in private households tend to make the number look better than it actually is.

The Department’s BAS said rice inventories as of Jan. 1, 2013 fell nearly 4 percent from year ago levels to 2.52 million tons.

The Philippines is aiming to increase unmilled rice production in 2013 to 20 million metric tons, up over 11 percent from the record harvest of 18 million tons in 2012.

By Jack Scoville, The Price Futures Group

Corn and soybeans, along with most commodities markets, had a down week.

The main reason for the move lower in prices can be found in the southern hemisphere. Our best crop scout is still impressed by the crops in Brazil.

He estimates the (soybean) production there at least 83 million tons. The rains did not do too much damage in the north, only slowed harvest progress. He says that rains in the south have been beneficial and that the crops there should not see any real losses.

He is in Argentina this week and likes what he sees there as well. He is only part way through the tour and told me that (soybean) production there should be at least 55 million tons.

That is a strong rebound considering just how poor the growing conditions have been. It sure looks like sourcing soybeans from South America will only be constrained by logistics this year, not production.

Corn production looks strong in both countries too. The Bolsa de Buenos Aires now estimates corn production in Argentina at 25 million tons, and my scout would agree with that and perhaps say it could be more.

That is also a strong rebound considering that earlier estimates were between 22 and 24 million tons.

Brazil production also looks strong now that weather is better in northern areas. That is because Brazil depends on the Safrinha crop, or winter crop, to make the big production estimates.

The main crop production is good in the south as the rains that helped soybeans also helped corn. But northern growing regions were getting too much rain that hindered harvest progress for soybeans and prevented the winter corn crop from getting planted.

Now the weather has turned and the soybean harvest is moving fast. Moving right behind the soybean harvesters are corn planters.

The winter crop will get planted on time and can get far enough developed before the tropical rains stop as they do like the turn of the calendar each year.

So corn production potential looks strong. Demand for U.S. corn is already poor in the export market and does not look to improve with ideas of big South American production being available just around the corner.

Buy side traders will most likely start a hand-to-mouth policy in earnest now that good production seems assured.

That is bad news for sellers who had hoped for a demand-led rally to sell into. That rally can still happen in the short term as the products are not at port and getting loaded onto ships yet.

Getting to that point could still be several weeks away. But it is a short-term concern and likely to provide only a short-term rally, if any develops in futures prices here in Chicago.

Producers in the U.S. are already enjoying some very strong, perhaps historically strong, basis levels.

They might not see all that much movement to their liking in futures now, and should be prepared to use even small rallies to fix prices.

Buy side traders should make sure that usual needs are covered but no more. It looks like prices could work lower as the South American crops get harvested, fight through logistical snarls, and find their way to the ships and new homes.

Wheat and rice, on the other hand, should hold stronger price levels. Both are just too cheap right now. U.S. SRW (Soft Red Winter) wheat is perhaps the cheapest wheat and maybe even feed grain in the world.

We heard last week that some quantities of Indian wheat sold for prices $2.00 per metric ton higher than U.S. values on a comparable FOB basis. This cannot be! Indian wheat does not have the quality of U.S. wheat and also contains much more foreign matter than U.S. wheat.

U.S. SRW is the bargain in the grains right now. There has been a lot of talk that Russia and Brazil are looking at buying U.S. wheat, and given the current prices, we are sure they are not the only ones.

Rice demand remains solid, and the U.S. has sold lately to Iran and Venezuela, two countries where the leaders are hardly friends of the U.S.

However, the speculator looks east and sees a lot of cheap rice in Asia and thinks that affects the U.S. market. This is not really true. We sell to Latin America, Europe, and some Middle East countries, and that demand is holding up fine. Stocks will get tight for the current crop before the marketing season is over and prices will most likely have to rally.

Prices will also most likely have to rally for more area to get planted to rice. Prices might move lower for corn and soybeans but they are still a better deal than rice right now.

Texas will be constricted due to water supply issues from the drought, and farmers in other states are very unhappy about rice prices. The market will have to give producers a good reason to plant rice and right now it is doing just the opposite.

By Rene Pastor

The Philippines has become the largest market for U.S. food and beverage products in Southeast Asia as a surging economy and rising tourism are seen stoking demand for American goods in 2013, a report by the U.S. agriculture attaché said.

“U.S. consumer oriented food and beverage exports to the Philippines have increased an estimated 12 percent in 2012 to a record $850 million and have doubled since 2009,” the report said.

The report by the attaché is compiled by U.S. agriculture experts and is not official data from the U.S. Agriculture Department. But they are considered as authoritative and influential in the commodity trading community.

“The Philippines remains the largest U.S. food and beverage market in Southeast Asia, and one of the fastest growing in the world,” the report said.

The latest U.S. Customs data through November showed that at least 10 of the 16 food and beverage categories will hit record sales in 2012. The list of U.S. food and beverage exports to the Philippines includes dairy products, red meats, poultry meat, snack foods, processed fruits and vegetables, and fresh fruits.

The U.S. attaché urged American exporters to take part in trade shows so they can meet potential importers of their products. U.S. exporters should partner with Philippine importers, with some setting up buying offices in the U.S. to consolidate their shipments on the U.S. West Coast.

“U.S. exporters are encouraged to maintain close contact with their Philippine importers and support efforts to introducing the products to foodservice customers by participating in technical seminars, product demonstrations, and local trade shows. Regular market visits are also highly valued by Philippine importers and regarded as a show of support,” the attaché said.

By Jack Scoville, The Price Futures Group

Palm oil remains in a trading range right now as the Lunar New Year and its extremely long holiday period comes to an end.

The main month in Kuala Lumpur futures is now the May contract, and it looks locked into a trading range between 2400 ringgit/ton and 2600 ringgit/ton.

Users should look at buying in this range. It sure looks like the market is trying to forge a bottom in this area.

The fundamentals are starting to shift. Before it was increasing production and demand worries. Now some of those worries, mostly about Chinese demand, have been eased as China has accepted some shipments under the new quality rules.

Plus, the production is in a seasonal decline. None of this might add up to major rally potential, but the down side becomes that much harder to see.

Prices usually turn higher after trading sideways and seeing supply and demand fundamentals shift by even a small amount. That means that a small rally, or perhaps more, should be coming to a market near you soon.

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