Palm oil is the latest food commodity being targeted for an imminent price rise. Malaysia, the second-largest producer of palm oil, looks likely to miss the government’s 2009 production forecast after rains affected pollination in the eastern state of Sabah – source of more than one-quarter of the country’s output. Upward pressures are also coming Chinese and Indian demand, which is currently rising by 10 per cent a year, and drought damage to the main competing crop, soya, in major growers Argentina and Brazil.
London quoted palm plantations shares firmed on the back of the forecasts. MP Evans was up on Friday by 10p at 340p against the year’s range of 238-365p, REA was up 1p at 358p against a range of 229-474p and Anglo Eastern was 19p better at 369p, against 270-410p Royal Bank of Scotland Asia Securities (RBS) in Singapore is just one of those cutting Malaysian production forecasts. . “Palm oil is the one to bet on from the commodity perspective and an equity perspective,” said Nirgunan Tiruchelvam, plantation analyst at RBS. DBS Vickers Securities (Singapore) had already cut its full-year Malaysian production estimate to 17.6 million tons from an earlier forecast of 18.1 million tons. That compares with the record 2008 output of 17.7 million tons.
Palm oil futures traded in Malaysia gained 2.6 percent to 2,155 ringgit (US$617) a metric ton. Prices may average US$717 a metric ton this year, rising to US$750 next year and $785 in 2011, RBS said. The broker has raised forecasts by 2.4 per cent for this year, 2.7 per cent for next year and 4.7 per cent for 2011. Palm has slumped from around US$1,200 last year.
In corporate news, Asia’s largest diversified commodity trader, Hong Kong-based Noble Group said it was in “detailed negotiations” with an investor, which may lead to a stake sale. Noble shares last traded at S$2.30 before they were suspended yesterday. The stock has more than doubled this year, making it the fourth-best performer on the Straits Times Index.
Fertilizer companies were tumbling last week as the largest listed producer, Canada’s PotashCorp, cut earnings guidance for the second time in three months, warning that the slump in potash demand was hurting than more than it had expected. Guidance for full-year earnings is now C3.25-3.75 a share, down from a forecast of $4.00-5.00 a share made in July. Analysts had been expecting a C$4.12/share result. PotashCorp shares closed down C$1.38 at C$101.87. Shares in Agrium, Intrepid Potash and Mosaic's were down nearly two percent. Smaller falls were seen in CF Industries.
Bad news, too, from UK milling, fertiliser and feeds group Carr’s Milling Industries, which revised down profit expectations for 2010 and 2011, although it should be able to meet this year’s forecasts. Carr’s blamed poor demand for fertiliser and its US Animal Feed Supplement unit had been hurt by the cut a decline in the US cattle herd, which is at a 36-year low. Carr's added that it was keeping its final dividend steady 17.0p a share, with payouts "well covered by earnings". Carr's shares closed down 30p at 430p in London.
Adding to gloom in US agriculture markets, the University of Illinois agriculture economists warned that farming's period of high profits was over. They predict losses of US$15 an acre for soya farmers, compared to $108 profit last year, and US$8 losses on corn against profits of US$228. This would be the first loss in 20 years, and reflects higher costs for fertilisers, seed and pesticides while the huge harvests around the world are depressing international prices.
Cocoa prices struck more multi-month highs in both London and New York on the back of speculative buying. Traders are dismissing stories that the main West African cocoa belt might be about to produce a bumper crop after heavy rains followed by good drying weather. As yet, they say, there is no hard evidence. By Friday on LIFFE, London's futures exchange, the price of cocoa for delivery in December jumped to £2,019 a tonne from £1,948 a week earlier. On the New York Board of Trade (NYBOT), the December cocoa contract increased to US$3,126 a tonne from US$3,089.
Sugar prices fell back from the week’s highs as India, the world’s largest consumer, curbed imports and the dollar’s rebound reduced the appeal of commodities as an inflation hedge. Plus, there was news from the government in New Delhi that India’s cane crop is in good condition. The dollar’s gains have “put the commodities under immediate pressure,” said Michael McDougall of brokers Newedge, adding: “India’s buying has calmed.”
Raw-sugar futures for March delivery fell 2.9 per cent to 23.24 US cents a pound on ICE Futures US in New York on Friday. On the week the price climbed 1.7 percent following a 5.8 percent jump the previous week. Futures have almost doubled this year as adverse weather limited harvests in Brazil and India, the largest cane growers, contributing to a second straight global-production deficit. By Friday on LIFFE, the price of a tonne of white sugar for delivery in December rose to £582 from £580 a week earlier. On NYBOT, the price of unrefined sugar for March eased to 23.67 US cents a pound from 23.70 cents.
Coffee futures firmed on investor buying. By Friday on LIFFE, Robusta for delivery in November climbed to US$1,508 a tonne from US$1,494 a week earlier. On the NYBOT, Arabica for December rose to 136.65 US cents a pound from 126.90 cents.
Tea prices are still creeping up, this time on threats from Sri Lanka’s unions that they will block access to the Colombo auctions. There are already concerns about world shortages this year, with McLeod Russell India saying that the growing deficit could bring a further 15 per cent price rise in Indian and Kenyan origins. The Sri Lankan unions are targeting high quality teas. The dispute is over wages, with plantations companies saying they cannot increase them because the drought earlier this year reduced production by 32 per cent and input costs are still high. Prices currently for Colombo teas are generally around double the year’s lows, levels ranging from LKR385-420 a kilo. Kenyan tea is also around double, ranging from US$3.63-4.03 a kilo. Bangladesh teas prices, however, eased back a little last week on lack of demand.
Gourmet Corner:
Pepper from all origins is continuing to increase in price and is generally now up around 50 per cent this year. Stocks are virtually sold out in all the major producers - Indonesia, India and Malaysia. Hopes that supplies from Brazil’s new crop would fill the gap have been dashed – it has become apparent that up to 40 per cent of the harvest has already been sold. So now it is down to the usually large Vietnamese crop to ease the market shortfall, but its harvest is not due to February or March. However, stories are circulating that the harvest will not be a good one.
Olive oil demand has picked up – much to the relief of major producer Spain. Total exporters in the first six months rose by eight per cent to 327,179 tonnes. Health-conscious US and Australian consumers bought more, bringing doubled orders from both countries. In Europe, only France bought less. Prices for EU origin extra virgin oil in the UK have risen from £1,969 to £2,398 a tonne this year.
