A good weekly review of what is happening in the sector
That Was The Week That Was … In Soft Commodities
By Sally White
Growing biofuels may be easy, but ensuring a balance and resolution of the issues of food versus energy use is going to take a lot of (unusually) good management at government level. The rich mix of investors, speculators, producers and such radical change as Asian urbanisation is going bring a lot of price swings. At a time when major new crop stories are lacking, there is plenty of market talk about these crucial problems. Lessons have been taken from this year’s soaring sugar price, followed by the 40 per cent reversal as a surplus materialised.
At the London Grain Market Outlook conference of the Home-Grown Cereals Authority, Rabobank’s Steve Jesse warned that while biofuels were the exciting new growth sector, these crops were not immune from the normal market rules of supply and demand. He cautioned against over-estimating the momentum of biofuels, and noted that Europe and the US were a long way behind Brazil, where 70 per cent of the cars were flexi-fuel.
Another key point, from Clare Wenner, head of transport fuels at the Renewable Energy Association was need to stretch “long-term planning” beyond 2010. Others raised the need to reform the EU’s grain intervention post its expansion, with politics still getting in the way of sensible economics. Another complaint was lack of good cheap East-West transport, such canals.
Producers blame government that ethanol production targets in Italy will be missed this year. Around 1.3 million hectolitres are expected, up from last year’s 1 million, but well below the 3.1 million needed to reach the goal posts. Italy has pledged that bioethanol and biodiesel components in petrol would rise by one per cent a year as it seeks to reach EU standards.
Producers are lobbying hard for tax-reliefs, which they say might help producers catch up. Delia Francese, vice president of Italy’s industry body, Assobiodiesel, has admitted that Italy will find it hard to meet 2010 targets as it has not the necessary raw materials. At present domestic oils, sunflower and soya oil, account for only 20 per cent of Italian biodiesel output, the rest coming from imported European rapeseed and soya. There are plans to increase the area devoted to oilseed crops from the current 30,000 hectares to 400,000.
Biodiesel taxes, not incentives, are the unpleasant experience of biodiesel producers in Germany. The government has said that it could not afford the revenue loss as motorists switch from conventional diesel to biofuels. So an €0.09 per litre tax has been introduced. Although demand has been stable so far, producers are extremely worried. Given the lack of impact on sales, the government plans to increase the tax by €0.06 a litre each year until the full level of fossil diesel tax is reach in 2012.
In China the current concern is possible ethanol overcapacity with a large number of existing producers ramping up production and new players entering the market. There are now dozens of private ethanol and at least 30 biodiesel producers in China. The obvious danger is that too many producers will lead to a shortage of feedstock supplies. This has already happened with the cornstalk used in ethanol production. Cornstalk prices in China have jumped 500 per cent to US$30 per tonne since 2005, according to a report in China Daily.
Soaring supplies of palm oil, and record-high stockpiles are causing futures market concern in Malaysia, the world’s largest producer, although producers are saying they are not worried. Output was up by 4.7 per cent last month and at 1.432 million tonnes were 12.4 per cent higher than a year earlier. Stocks are up 6.8 per cent on a month ago, and exports last month were down by 1.31 per cent. . Alarmed by this, futures traders sold palm oil futures on the Bursa Malaysia Derivatives exchange, taking prices down by M$5 a tonne to M$1,553 a tonne. Palm oil prices have been slipping in line with crude oil prices as well as mounting stocks.
However, producers say that production will come down this and next month in a number of Asian countries because of the Diwali and Eid religious festivals. Plus, biofuel demand, particularly from Pakistan and India, is on a strong underling upward trend. Malaysia’s exports so far this month are up 35 per cent on September.
On the commodity markets wheat prices – still at US and Australian drought-induced ten year highs - dipped on profit-taking following record gains the previous week, while soya prices rose on increased buying interest. On the Chicago Board of Trade, the price of wheat for December delivery decreased to US$5.08 per bushel, from US$5.32 a week earlier. Maize for December delivery gained to US$3.14 per bushel, from US$3.07. November-dated soyabean meal for used in animal feed advanced to US$6.07, from US$5.89 the previous week. On the LIFFE, the price of a tonne of wheat for November delivery slid to £95.25 from £98.10.
Delight was reported from among UK malting barley producers, following an unprecedented urgent appeal from the Maltsters’ Association of Great Britain for them to keep on growing the crop. Malting barley production is down 12 per cent this year after farmers, complaining of too many years of being squeezed, failed to win a campaign for forward contracts at £100 a tonne last year. Now, due to a combination of world shortage, better yields from wheat and demand for oilseeds for biodiesel, the maltsters face shortages. The reports continue that two year contracts at £100 a tonne are now being offered.
Coffee prices slid as speculators sold their holdings on news of rain forecasts for major producer Brazil. Rainy weather weakens prices as forecasters expect it to lead to increased supplies on the market. On LIFFE, Robusta quality for November delivery stood at US$1,494 per tonne, from US$1,498 a week earlier. On NYBOT, Arabica for December delivery edged down to 101.85 US cents per pound on, from 104.50 US cents.
Rubber prices firmed as traders tracked the rainy season in major producing Asian nations. "The main underlying problem is still the rains that are keeping prices on the simmer and the availability of latex isn't quite coming through," Corrie MacColl rubber analyst Rashid Ahmed said. The rainy season, which began in October, makes it harder for farmers to collect latex. On TOCOM, Tokyo's commodity exchange, natural rubber for February delivery rose to 230.40 yen per kilogramme on Friday, from 222.10 yen a week earlier. Singapore's RSS 3 January contract gained to 192.25 US cents per kilogramme from 183 US cents a week earlier.
Cocoa prices were mixed, supported partly by simmering tensions in major producer Ivory Coast, but traders shrugged off news of a strike. "Market participants said it is possible that some support came from political tensions in Ivory Coast but news about the growers' strike there had little impact on the market," Sucden analyst Michael Davies believes. On the LIFFE, London's futures exchange, the price of cocoa for December delivery dipped to £816 per tonne on Friday, from £818 a week earlier.
Sugar prices remained under pressure because of the forecasts of oversupply in 2006/7. Many more crops have been planted following record price levels last May. By Friday on LIFFE, the price of a tonne of white sugar for March delivery changed hands at US$358.10, compared with US$352.70 dollars a week earlier. On NYBOT, the price of unrefined sugar for December delivery stood at 11.53 US cents per pound, from 11.19 US cents the previous week.
Cotton prices remained close to their lowest levels since August 2005 as Chinese buyers remained notable by their absence. On the NYBOT, the December contract fell to 48.70 US cents per pound on Friday, from 49.03 US cents a week earlier. The Cotton Outlook Index of physical cotton dropped to 56.20 US cents, from 56.50 cents the previous week.
Wool prices jumped thanks to strong Chinese demand. "The demand was widespread, but led by buyers for China," said the Australian Wool Industries Secretariat. The Eastern index rose to A$ 7.55 per kilo on Thursday, from A$7.41 the previous week. But the British Wooltops index stood at 391p, down 4p.
World tea production could suffer the first decline this decade, according to commodity traders, FO Licht. The reason for this forecast, which Licht warns is a preliminary one, is the impact of drought on the major African producer, Kenya, as well as a number of smaller origins. Plus, the rise in crude oil prices has raised the cost of leaf processing and of fertilisers. Last year world production was up 3.3 per cent at 3.47 million tonnes, and it has risen by an average 2.9% a year over the last six years as a result of rising output in China, India, and to a smaller extent, Sri Lanka, Kenya, Vietnam and Turkey. This year India, however, produced 466,847 tonnes in the first eight months, up 1.8 per cent.
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