SHOULD THE PHILIPPINES BE SELF-SUFFICIENT IN RICE?: Issue 32 April 29, 2013

By Rene Pastor

Politically, the answer is simple.

All Philippine governments have declared as policy that the country should be self-sufficient in rice, the staple of its nearly 100 million people.

The reality is that it may make better sense to just import the shortfall in rice and admit that as things stand, the Philippines can never achieve self-sufficiency in the grain.

The Philippines plants about 4.66 million hectares to rice. Just for perspective, Vietnam plants over 7 million and Thailand sows more than 10 million hectares to the staple.

To boost output, the Philippine government is spending anywhere from 40 percent to 60 percent of the Agriculture Department budget on irrigation and infrastructure in mainly rice-growing areas.

GMO rice is being tapped along with increased use of fertilizers.

After all that, it may still not be enough for the Philippines to become self-sufficient in rice.

Demand for milled rice is running about 2 million metric tons ahead of production. The population is also increasing too rapidly for the country’s farmers to keep pace.

There is another compelling reason why self-sufficiency in rice may not, in the end, be good policy.

Rice needs a lot of water and nitrogen-based fertilizers to raise production. The fertilizer-laden runoff from rice farms will contaminate ground water and fishing grounds, leading to runaway algae blooms which will kill fish. Red tide is already becoming a critical problem in many areas of the archipelagic country.

“Pollution from fertilizers occurs when these are applied more heavily than crops can absorb or when they are washed or blown off the soil surface before they can be incorporated,” a report by the U.N.’s Food and Agriculture Organization entitled “World Agriculture: Towards 2015-2030” said.

“Excess nitrogen and phosphates can leach into ground-water or run off into waterways. This nutrient overload causes eutrophication of lakes, reservoirs and ponds, leading to an explosion of algae which suppress other aquatic plants and animals,” the FAO report added.

In plain speak, the viability of farms and fisheries in the Philippines are in real danger from excessive use of fertilizers to boost rice production to meet a goal that only makes sense politically.

The Philippines can increase rice production in the short-term, but farms and fisheries may suffer irreparable damage from fertilizer abuse.

Switching crops or getting Filipino farmers to reduce their use of fertilizer would require a determined government thinking of long-term consequences for the country.

Regrettably, the government of President Benigno Aquino is making decisions on agriculture which will only cover a few months. A longer-term horizon is seemingly not uppermost in their minds at this time.

I can understand the impulses driving the Philippine government to go for self-sufficiency in rice. But there are now compelling environmental and economic considerations which should be considered as arguing against becoming self-sufficient in a crop when less costly alternatives are available. After all, all of the flour used to make the breakfast staple pan de sal consumed in the Philippines comes from imported wheat. Rice should be no different.

TWO-TIER RICE MARKET PERSISTS, WESTERN SUPPLIES TIGHT
By Jack Scoville, The Price Futures Group

The two-tier market will continue, with western prices trading much higher than those in Asia. The big spread between the different halves of the world could keep right on going next year.

Rice worked lower in the U.S. rice futures market but not in U.S. cash markets.

There is a tight situation in rice as supplies near the U.S. Gulf Coast are all but gone. Prices for new crops are discouraging to producers and planted area for the year will be average at best. World prices are a little weaker as well.

The Philippines announced that it had very strong production in the first quarter of the year and will keep its import ideas less than normal, maybe even zero if it can. It is even exporting a very small amount of specialty Japonica Rice to Dubai. Probably just to show it can really do it.

Demand from other Asian countries seems down except for China, which has contamination and food safety issues that have been noted in rice as well. There are some nasty things in the water used to grow rice in that country, and the rice has soaked some of the nastiness in. They will continue to supplement their own production with supplies from neighbors.

The other major buying in Asia is coming from South Korea and Japan to complete treaty obligations. African demand will be interesting for both South America and Asia. Both will compete for business, and both will have to work hard as African countries are trying to join the self-sufficiency program.

STEADY RAINS IN CENTRAL AND SOUTHERN PHILIPPINES
By Aaron Cook, Metservice and Metraweather

Metservice.com
Metraweather.com

We’re staring at another sleepy fortnight in terms of Philippine weather. Easterly winds will ensure solid rainfall along eastern coastlines. Parts of Mindanao and Western Visayas will be a touch drier than normal this week, but they will still see occasional afternoon showers, as evidenced by the 7-day rainfall chart below.

Keep your eyes on forecasts near the end of the week however. We should see the quasi-stationary front beefing up rainfall total over southern China and Taiwan (as warm air from the south collides with cooler northerlies). This front may creep further south and east into the South China Sea, but at this stage is forecast to stay away from the Philippines.

We may also see a small depression moving through the East Philippine Sea come within about 1200 km of Mindanao on Thursday before drifting north and decaying. Its remnants are currently forecast to drift across the central Philippines around Monday and kick-start increased shower activity across most of the Archipelago.

Rainfall will be close to average in Thailand, Vietnam and Malaysia. Drier than average conditions across Java are about the only anomaly of note across the region.

ENSO conditions through the Pacific are still strongly favored to flat-line in neutral territory over the next few months. In a couple of weeks we should have updated climate model data from all of the major forecasting centers and will be able to complete a more thorough analysis of any early warning signs of El Nino or La Nina.

aaron pic

BUYING AND SELLING PRICEES OF RICE FROM THE PHILIPPINES’ NATIONAL FOOD AUTHORITY (in Philippine pesos per kg) As of April 26, 2013

selling

buying

POOR U.S. WEATHER PROPS UP GRAINS COMPLEX, CHINA BUYS NEW CROP CORN AND SOYBEANS
By Jack Scoville, The Price Futures Group

Futures markets remain supported by bad weather in the United States.

In addition, farmers here remain tight holders of grain, and the actual cash price in the U.S. Midwest is generally much higher than futures.

However, prices for both corn and soybeans and products remain much less in South America. The region has captured more export business than it can handle right now and waiting times in ports remain pretty extreme and still close to two months.

But those waiting times are starting to come down now as volumes traded are dropping a bit and as the ports work overtime to get the product out.

The U.S. cash market is becoming more and more of a domestic market short term as any export sales have started to move to the new crop, and the harvest for the new crop is still months away. In fact, we are having trouble getting crops planted right now so it will be at least late September before much becomes available.

Corn and soybean futures markets continue to show the difference between the crop years in a dramatic way. The tight nearby cash market is shown as prices for May or July delivery remain significantly above the new crop deliveries.

Their big spread difference will remain in place until the weather shows more improvement here and the crops get planted. We expect the spreads to start to weaken over the next month. This is because the buy side of the market will have bought whatever old crop they need by then and the demand will start to drop.

Meanwhile, new crop demand will start to increase. In fact, the new crop demand for both corn and soybeans has already started to increase as China has stepped up to buy. They got big problems there and sky-high prices.

People will still eat, even with reports of Bird Flu. They might eat less poultry, but might eat more pork. This seems to be happening already. Both require soybean meal and corn in rations, so the overall demand for these products in world markets might not drop too much.

Weather remains an issue here in the U.S. as the cold and now wet weather has not allowed for much planting progress. Reports are that conditions are better in Europe and Russia, but China and Australia have had mixed trends. The weather seems to be good for the winter crops right now in South America.

Overall, the world supply situation for soybeans and feed grains seems to be easing, but there are still some short-term shortages to work though, mostly here in the U.S. and over in Europe.

We expect prices to relax over time, but any meaningful move lower could still be three or four weeks away. Users should be booked through the middle of the year, but can then move to a more hand-to-mouth buying program as long as the weather in the northern part of the world stays good for crops.

PALM OIL OUTLOOK: MALAYSIA EXPORT DEMAND SURGES
By Jack Scoville, The Price Futures Group

Palm oil values held last week as export demand made a big jump higher in Malaysia.

The demand for the first half of the month had been lower than the previous month, but the trend reversed once futures made new lows for the move.

Now the export pace is above last month and is expected to hold strong right into next month. The upside potential for prices might be limited as trees should be about ready for a seasonal increase in production.

However, palm oil prices remain cheap enough for now that the demand can hold itself together. Plus, Argentina has not really started exporting soybean oil yet and they are the number one exporter in the world. The political and economic situation there is a mess, so the export pace might not be as strong as normal, even with the good soybeans crop they had this year.

The Argentine government seems committed to grabbing as much money from the sales as it possibly can and this will lead to a slow export pace as mills and producers fight the trend.

Palm oil will benefit if the sales from Argentina remain slow. The price action showed little carry through from the move lower, another potentially bullish sign for prices in the near term.

USDA PACIFIC NORTHWEST WEEKLY GRAINS SUMMARY FOR THE WEEK ENDING APRIL 25, 2013

July wheat futures ended the reporting week on Thursday, April 25, mixed, as follows compared to last Thursday’s closes: Chicago three cents lower at 7.0375, Kansas City 12.50 cents higher at 7.6150 and Minneapolis wheat futures trended six cents higher at 8.0825.

Chicago July corn futures trended 5.25 cents lower at 6.2450 while May soybean futures closed seven cents higher at 14.2350. Wheat futures were supported on Friday and Wednesday by strong export demand, and potentially crop damaging temperatures and weather conditions in the U.S. wheat growing areas.

On Monday and Tuesday, wheat futures were pressured by technical selling, new trade concerns over slowing demand and spillover pressure from the lower corn futures on Tuesday.

Corn futures were lower for the week with pressure on Monday and Tuesday from forecast crop-friendly weather and soil conditions. Buying support and expectations of flooding due to snow melt in the northern plains were supporting factors to the corn futures on Friday and Wednesday.

Soybean futures fell during the week due to ongoing concerns over the bird flu epidemic in Asia, profit taking, a lower-than-expected inspected-for-export figure of 4.8 million bushels (mb), a stronger U.S. dollar on Tuesday, and trade concerns that more acreage will switch from corn to soybeans.

CASH BIDS FOR WHEAT AND CORN AT PORTLAND AS OF APRIL 25, 2013: USDA

Cash wheat bids for April delivery ended the reporting week on Thursday, April 25, higher compared to week-ago bids for the same delivery period. Hard red winter wheat and dark northern spring wheat bids moved higher and soft white wheat bids were not available.

Bids for US 1 Soft White Wheat delivered to Portland in unit trains or barges during April were not available as most exporters were not issuing bids for nearby delivery.

Bids for 11.5 percent protein US 1 Hard Red Winter Wheat for April delivery advanced by 14.75 to 17.75 cents per bushel compared to last Thursday’s noon bids for the same time period supported by the higher Kansas City July wheat futures, and a higher basis bid by some exporters.

Bids for US 2 Yellow Corn delivered to Portland in single rail cars were 267.75-273.00, 1.75 to 2.00 per ton lower than last Thursday’s bids of 269.50-275.00.

Bids for US 2 Yellow Corn truck delivered to the inland feeding areas of Yakima, Washington, and Hermiston, Oregon were 272.75-276.75, mixed, from 1.75 cents lower to 0.25 of a cent per ton higher than last Thursday’s bids of 274.50-276.50. Lower Chicago May and July corn futures pressured most corn bids lower.

All exporters have switched their nearby basis to over the July Kansas City wheat futures.

On Thursday, bids were as follows: April 8.9650-9.0650, mostly 9.0150; May 8.8650-9.0150; June 8.7650-8.9650; first half July 8.5150-8.8150, last half July 8.4150-8.6650 and August New Crop 8.3675-8.5175.

Bids for non-guaranteed 14.0 percent protein US 1 Dark Northern Spring Wheat for April Portland delivery trended one to 11 cents per bushel higher compared with last week’s noon bids for April delivery.

Higher Minneapolis July wheat futures were supportive to the cash bids. All exporters have switched their nearby basis to over the July Minneapolis wheat futures.

Protein scales for non-guaranteed 14.0 percent protein were plus zero cents each 1/4 of a percent of protein up to 16 percent protein and minus four to five cents each 1/4 of a percent of protein down to 13 percent protein.

On Thursday, bids for non-guaranteed 14 percent protein were as follows: April 9.3825; May 9.3325-9.3825; June 9.2325-9.3825; July 9.0825-9.2825 and August New Crop 8.9550-9.1550.

COLUMBIA, OREGON GRAIN VESSEL UPDATE AS OF APRIL 25, 2013: USDA

There were six grain vessels in Columbia River ports on Thursday, April 25, with two docked compared to six last Thursday with three docked.

New confirmed export sales this week were limited to Japan. Japan purchased the following wheat in metric tons: 22,359 of maximum 10.5 percent protein western white wheat for May 21 to June 20 shipment and 23,520 of minimum 11.7 percent protein hard red winter wheat and 19,942 of minimum 14 percent protein dark northern spring wheat for arrival by July 31.

Outstanding U.S. white wheat export sales as of April 18, 2013 for the marketing year beginning June 1, 2012 and ending May 31, 2013, totaled 409.0 thousand MT compared to 475.3 thousand MT on April 11, 2012, and 833.8 thousand MT one year ago.

Outstanding white wheat export sales for the 2012-2013 marketing year were to the following countries in 1000 MT:
Japan 106.8
South Korea 61.4
Philippines 56.0
Yemen 45.0
Thailand 39.4
Taiwan 10.4
Nigeria 8.7
Canada 1.6
Malaysia 1.0
Burma 0.5
Hong Kong 0.3
Vietnam 0.3
Total unknown 77.6.

Accumulated white wheat export shipments as of April 18, 2013, in 1000 MT for the 2012-2013 marketing year, totaled 4161.9 compared to 4966.4 one year ago.

COFFEE, SUGAR AND COCOA OUTLOOK: COFFEE AND COCOA ADRIFT, SUGAR WEAK
By Jack Scoville, The Price Futures Group

Coffee prices were sideways to weak last week and might hold these trends this week. The robusta market really took the brunt of the selling pressure as rains were reported in Vietnam. Arabica prices tried to rally, but the arabica bulls lost their nerve due to the weakness in robusta and on reports of increased selling from Brazil.

Brazil and Vietnam remain the big gorillas in the room and have been able to keep prices cheaper. Good news for buyers but not for the sellers in Philippines. We think prices are near some short-term lows as the drop in futures has been pretty extreme for both markets. However, it is hard to see much upside for prices with big crops expected in Brazil and in Vietnam.

The International Coffee Organization (ICO) data shows the potential for surplus production this year for the first time in a few years, so this will keep futures pinned near the lows.

Look for stronger differentials for pricing chances for sellers, and use futures to fix prices if you are buyers. Keep the sales moving and move any extra production out so there can be chances for stronger prices down the road.
Sugar remains a weak market, but might also be getting close to some lows. The big reason for the low prices remains the big crops coming out of Brazil.

But the noise is a little different now. Mills in Brazil are expected to produce ethanol now and then sugar if and when prices start to improve. They might have to wait for a long time as trends remain down in prices.

But, as in the case with coffee, the sugar price drop has been pretty extreme, and the news that Brazil will concentrate on ethanol first might at least keep the seller from pressing the market much more.

Like the grains and coffee, upside potential seems to be limited with the big production estimates for Brazil and other countries still around.

A turn to a sideways trading range seems possible with the moves by the mills in Brazil.

Cocoa prices took the week off last week, but the market is in a bull trend due to ideas and reports of smaller production in West Africa.

The price trend remains generally up, although futures are very close to initial targets for the rally now. It is possible that some down or sideways trade could develop for a week or two before any rally resumes.

Reports from Asia imply that production can be good to very good there, but the reports from West Africa show smaller beans that hurts quality and smaller mid-crop harvest yields as well. Ideas are that production for the coming year will be down, although the current rally in prices could cause farmers around the world to work a little harder to get the best potential production going.

Sellers should note that the market has moved a lot higher and should make any short term sales that need to be made. They should also watch deferred prices for chances to start the selling program for the next crop. Buyers might choose to wait to see if a correction develops, but should make sure they have good coverage levels on if and when it does as the overall trends remain up.

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