• Sunflower oil (R’dam) +7%
• Wheat (UK) +19%
• Almonds (US) +18%
• Tea (KE) +17%
• Iron ore (CN) +16%
• Apple concentrate (EU) +13%

Down

• PS (EU) -4%
• WMP (DE) -6%
• Cocoa beans (LIFFE) -11%
• PVC (EU) -9%
• Potato processing (EU) -9%
• Electricity (EU) -8%

The figures are reported through the Mintec Ltd.

- Early Season: Cold & Dry
- Mid Season: Hot & Dry
- End Season (now): Cold & Wet

The Potatoes are not harvested yet, but growers are not expecting the quality to change significantly: The potatoes are simply too small – and the risk of secondary growth is very high.

The overall average GB price rose over 5% last week. Polish prices have returned to 2006 levels but imports are not featuring on wholesale markets. Some German buyers are already reported to be securing supplies from France, and export demand from Eastern European countries and Russia is expected to be high in the 2010/11 season.

Analysts expect the exchange rate to further drop into the regions of 1 EUR = 3.19 PLN in the next weeks.

Russia: Vladimir Putin has halted all exports of wheats – at first due to severe droughts in his country, then due to the fires going on in the greater Moscow area. Russia traditionally is a net-exporter of wheat.

Generally bad growing conditions in Europe (it has been too wet in the EU since the beginning of August to harvest), small crop numbers and yield losses have lead to a sharp increase in wheat prices all over the world.

The past weeks have provided too little rain to the fields, which lead to too small tubers. Secondary growth of the potato is the highest risk factor at the moment.

Fry exports are increasing exponentially, which are at future risk if crop yields this year are too low.

Autumn potato plantings in the US have decreased by ca 4%.

Situation today: The current exchange rate is 1.25€/$. Chart analysts see an immediate potential for the value to rise to 1.28 €/$.

Outlook: If the rate of 1.28 €/$ is met, a rally will start to the level of 1.32€/$ – which then points to 1.37-1.40 €/$. This is more likely to happen than a decrease of the value (to the regions of 1.20€/$.

• Consumer prices in the OECD changed over the past 12 months by +2%, compared to +2.1% versus previous year.
• US Crude Oil Inventories decreased in the past week by -2 million barrels, after they had increased by 2.02 million barrels in the last week.
• The hogs and cattle count decreased by 1.1% and 0.7% from November 2009 to May 2010.
• French Producer prices remained unchanged month-over-month, but compared to the previous year, producer cost increased by 4.3%
• The weak Euro is showing its effect in global trade: Exports from the Eurozone (especially industrial machines from Germany) increased by as much as 35% vs the previous month.
• The UK CIPS (Chartered Institute of Purchasing and Supply) has decreased slightly. More information on CIPS can be found here.

• The current heat wave is making traders nervous: Prices for Eurex April 2011 contracts have spiked, similar to what we saw in 2009 for April 2009 stocks.

• The French national interprofessional potato committee CNIPT has decided not to renew the interprofessional agreement covering the advertising of potato promotions beyond the point of sale.

Since then, the exchange rate has rebounded to the regions of 4,13.

The outlook is a strengthened Euro, which should rise back to the regions of 4.50 PLN/EUR in the next 2 weeks.

Today’s rate is 1.50 GBP/USD

The British Pound is gaining strength against the US Dollar – reasons for this are so often not clearly identifiable. Partially, the gains are not an expression of the British economies’ strength, but the weakness of the Eurozone’s economies: Traders have money to invest and they look to put their money where a loss is least likely.

Analysts recommend to observe the FX rate: Should it rise throughout this week to 1.53 GBP/USD, its is very likely to rise to the regions of 1.60 £/$. Should it not break through the 1.52 barrier, it is very likely to fall by 0.10£ into the 1.42 £/$ region and stay there for a while.

Processors have difficulties bringing new crop into their facilities as the market is short of supply, whereas the market is still sufficiently supplied with old crop. Traders are nervous to see another season like in 2003 and 2006 (draught seasons).

• Increased demand from China and other developping countires
• World Economies expected to settle from the disruption
• Low-Interest Rate politics from the central banks and
• Increased fund buying from Financial investors in the commodity sector

Frank Schallenberger (LBBW – Landesbank Baden-Würtemberg) expects Commodity prices to increase by ca 15 percent.

Regarding Energy prices: One may expect Oil to settle at ca 90 USD per barrel (roughly where it is today), but Coal and Gas need to catch up (increases expected).

On Food-Grains, the high uncertainty on weather will dominate the price building processes.

More info at www.ftd.de

The “old” rational was: Dollar devaluations were compensated by a higher price of crude oil (like a safe haven for your investments).

With the continuing combination of insecure markets, varying demands etc., commodity investors focus more and more on the price differences between spot prices and the futures/options market. Traditionally, the premium on spot market was in the mid-1 dollar regions. Since mid November 2009, a discount has developed to ca 2 USD (meaning that nearby contracts – spot prices – are cheaper than futures; this is called contango. Some analysts believe that this discount will lead to falling prices for the short and mid-term time horizon because buyers will focus on the (short term) supply and demand side of price-building, rather than building prices on fundamentals like economic development, number of refineries and their shape.

BUT: Before we get all excited about falling energy prices, we must keep in mind that even IF spot prices for Oil fell – the oil still must be kept in containers somewhere as global consumption remains to be low. Currently, a lot of oil is kept in floating containers off shore. The cost for storage (arbitrary costs) still eat up some of the margin that you could make by buying in the spot market, and immediately selling a future contract at a higher price. Fundamentally, the storage costs (for tankers: shipping rates) will determine whether prices will fall in the mid term time horizon, or whether they will stabilize.

Enery-Expert Mike Bujold expects the prices to remain stable – for the fact that arbitrary profits will be eaten up by storage costs.

http://www.time.com/time/business/article/0,8599,1929502,00.html

As Supply Chain Managers, we should all read this and take our risk management measures!

• Wheat: U.S. wheat ending stocks for 2009/10 are projected 121 million bushels higher this month as increased production and lower expected use more than offset a 10-million-bushel reduction in carryin. Global wheat supplies for 2009/10 are projected 2.2 million tons higher as a 4.4-million-ton increase in world production more than offsets a 2.2-million-ton reduction in beginning stocks. September rains were favorable for flowering and heading wheat in Australia’s western and southern growing areas where higher yields are expected to more than offset losses from sustained dryness and heat in eastern growing areas.
• Oilseeds: U.S. oilseed ending stocks for 2009/10 are projected at 7.7 million tons, up 0.4 million from last month as larger supplies are only partly offset by increased exports. Total U.S. oilseed production is projected at 96.1 million tons, up 0.3 million from last month as higher soybean, sunflowerseed, and canola production more than offset lower peanut and cottonseed production. Soybean production is forecast at a record 3.250 billion bushels, up 5 million from last month based on higher yields. Prices for soybeans and soybean meal are projected lower for 2009/10. Global oilseed production for 2009/10 is projected at 425.4 million tons, up 2.6 million from last month.
• Livestock, Poultry, Dairy: Total U.S. meat production for 2009 is raised as higher pork production more than offsets lower beef and turkey production. Pork production is raised mainly due to higher third-quarter slaughter and significantly higher weights due to favorable summer weather.

EU-27 Rapeseed Imports Expected Higher for 2009/10 Due to Weather-Damaged Crop. The forecast of EU-27 rapeseed production for 2009/10 is lowered 600,000 tons this month to 18.5 million, primarily due to lower yields. Gains in Western Europe (France) were more than offset by losses in Eastern Europe, especially areas of Romania, Hungary, and Poland where rapeseed is not widely irrigated. Eastern Europe had below-normal rainfall in April that depleted topsoil moisture. In May, rainfall across Eastern Europe remained light, and hot temperatures during the flowering stage reduced yield potential for rapeseed. With less domestic production, EU-27 rapeseed imports for 2009/10 are forecast 100,000 tons higher to 2.35 million. Rapeseed imports for 2008/09 are also increased 300,000 tons this month to 3.1 million, as significant quantities have arrived from Australia. A steady increase in EU rapeseed oil demand is seen because its stable price (compared to crude petroleum prices that have doubled since early 2009) has improved the profitability of biodiesel production there.

Taken from the USDA Oilcrops Outlook: http://usda.mannlib.cornell.edu/usda/current/OCS/OCS-06-11-2009.pdf

World wheat production prospects for 2009/10 were reduced slightly this month, but increased beginning stocks and a small reduction in projected use combine to boost projected ending stocks slightly. Projected 2009/10 world wheat trade is down slightly this month, but forecast trade for 2008/09 is up 3.0 million tons to a record 135.0 million tons.

Taken from the current USDA Wheat Outlook: http://usda.mannlib.cornell.edu/usda/current/WHS/WHS-06-12-2009.pdf

to the embargo in the first place.
Source: www.agra-net.com, 1/5/09

estimated 153 million pigs in the EU last December,
some 4% less than a year earlier with a drop of as
much as 6% reported in the breeding herd.
In Germany, Denmark and Spain, the largest
producers within the EU sow numbers fell by at least
5%. The greatest rate of decline in pig numbers was
evident in Eastern Europe. Falls of up to 20% in sow
numbers were reported for Poland and the Czech
Republic.
EU production is forecast to fall by almost 3% to 22
million tonnes in 2009 according to the group.
However, given the level of the decline in the latest
pig census, the rate of decline could be greater
despite an increase in sow productivity.
Within the EU 27, Germany remains the dominant
pigmeat producer, accounting for around 20% of
production. It has been estimated that domestic
German pig supplies would fall by at least 4% by mid
2009. Following a 5% fall in production last year and
the continued decline in their herd, Danish
production this year is forecast to decline by a
further 5%. UK pig supplies are expected to be only
marginally lower in 2009.

Source: www.bordbia.ie, 22/5/09

The recent spike in commodity prices has grabbed headlines and sparked wideranging debate about just how much higher
prices can go. Some of the price moves, notably in the oil markets, seem to defy
the underlying fundamentals of plentiful supply and rather anemic demand. Since the start of the year, oil prices are up nearly 50%, copper is up more than 60%, and gold has gained more than 10% and recently flirted once again with $1,000 an ounce. Even foodstuffs have recorded low double-digit gains. Is the rise in commodity prices stemming from the whiff of global economic recovery or simply a rebound from absurdly low levels which may not even
be sustainable? Underlying the debate is the nascent concern about inflation. Longer-term Treasury yields have retreated in the past few days, but they remain higher than a month ago, which some read as a revival of inflation fear in the bond markets, despite all evidence to the contrary. A sustained rise in commodity prices would certainly buttress the so-called bond vigilantes who fear future inflation. Carl Weinberg, Chief Economist at High Frequency Economics, a Valhalla, N.Y., research firm, believes the rise in commodities is not justified in the long term by fundamentals. He sees prices rebounding a bit from a “crash of historic proportions.” He argues that global demand is too weak to sustain an upward move in commodities, at least for now. The bull case for commodities depends on two factors. One, that a weakening dollar will underpin an upward move in dollarpriced commodities. If the dollar is weaker, fundamentals dictate that more bucks are needed to buy the same bucket of soy beans.

The second factor is the notion that China is moving again, sucking enormous
amounts of raw materials into its industrial maw.

• The weakened US Dollar re-introduced some momentum for global trading activities: Net importers of wheat and corn were encouraged to buy from US stocks, which in turn led to increasing prices.Last week, wheat prices came to a five month high.
• Soya jumped over an eight month high in the light of increased buying activities from China (mainly in the USA, who by the way mark a 10 % increase in Soya-exports vs PY). Analysts expect farmers to switch from wheat and corn to Soya, which may put enough pressure in the market to bring prices back down.
• Corn plantings are far behind average. In addition to higher prices for crude oil, analysts expect the domestic demand for Ethanol to increase again, which in turn (yes) may lead to even more increased prices. A softening factor on the prices is that demand by domestic feedmillers has decreased significantly and thus less corn is put into cattlefeed.

The slight decrease in production and yield is reflected in an increase in prices again:

In Pizza Hut, this development affects us as some of the Pizza Hut Wheat is sourced from Canada. KFC is not directly affected, as the flour is generally sourced in Europe; yet in general, flour and grain prices follow the same trend.

Pepper:

The global Black Pepper Market has continued to remain steady during the last 30
days. India’s planting has decreased due to other more profitable crops being planted, and their internal use of available crops has increased. The projection is that India will only export 20% of their harvest, down from 40% in 2007. Viet Nam, on the other hand has increased their production and export for 2009. Viet Nam will account for one third of global production and will export almost the entire amount as only a very small percentage is used internally.

Seeds:

The acquisition of Morton Salt will make K&S the North American and global leader in Salt. Morton Salt operates 6 rock salt mines, 7 solar mines, 7 solar evaporation facilities, 10 vacuum pan operations, 62 salt stockpiles and 61 distribution centers. With tight supply and demand, Salt pricing is expected to remain at current levels.

Flexible Packaging:

PE Resin pricing remained flat in May; however, rising feedstock prices and
increased export demand are putting pressure on higher prices although domestic
demand is still down.

Corrugated:

42# linerboard and 26# corrugated medium pricing appears to be leveling off after a $60/ton decline in 42# linerboard and a $70/ton decline in medium over the last six months. Containerboard inventory at US box plants and mills dropped 114,000 tons in April from March down to 2.31 million tons due to continued downtime across the country.

Energy:

Crude oil has fluctuated between $52-$58 per barrel. Gasoline prices have risen
about $0.16 a gallon the past three weeks while Diesel has remained firm during this time. Feedback from Oil companies is that Summer driving season justifies higher Gasoline prices. The global consumption of Diesel and Gasoline is still flat. The OPEC countries have been trying for the past three months to drive crude oil to $70 per barrel which is where they need it to be in order to generate the level of profits they expect. Thus far, the market has been unable to sustain that level of costs. The transportation industry globally continues struggling. We still anticipate higher freight rates by end of third quarter 2009. Capacity continues to be withdrawn.
Ocean carriers continue to be under pricing pressure as they continue to pull capacity from the market. The reduced volume of imports into the USA and Canada has caused a shortage of 40 foot ocean containers used for domestic and export shipping. Food Safety legislation is a hot topic in Washington DC and expect the introduction of new legislation by June of 2009. Check carefully before exporting pork related products to the EU and Asian countries as many have placed an embargo on these items. The Swine Flu issues while no longer being hyped in the media as a pandemic, are still with us.

Attached is an overview of the latest figures, taken from zmp.de

Via

In February, producer prices for slaughter pigs were around 4.45 PLN (ca. 0.96 €) per kg, which means a massive increase by 36% vs 2008 and 41% vs 2007.

Higher end-prices result in increasing numbers on the input side: 20 kg piglets trade for ca 176 PLN per head – a massive increase versus 2008 (154%).

Additional pressure is put on pigmeat processors by the devaluated Zloty – 29% decrease y-o-y.

All oilseeds are expected to show lower yields due to reduced inputs and lower seed quality – gains in rapeseed production will not manage to offset the decrease.

Russia produced about 6 mmt meat in 2008, and consumed ca 9 mmt (3.1% of the world’s entire meat consumption).

The (Russian) National Meat Association expects further that the import quotas will rise by 20-25% by 2010 as cattle numbers continue to decline. With the limited availability of cheap loans, the association does not expect this situation to change in the next ten years.

(Via The AgraFood East Europe, April 2, 2009)

The Obama administration may put
the last nail in the coffin of the troubled
soybean-oil-based biodiesel industry by
snatching away a production mandate the
industry had been counting on to reverse
sliding demand.
Plants that make biodiesel from soybean
oil are struggling to produce a fuel
that can compete with traditional petroleum-
based diesel, but even with a $1-pergallon
tax credit they are failing,
American Farm Bureau Federation economist
Terry Francl says.Soyoil is one of
the two products created when soybeans
are processed, and it is traded on the
Chicago Board of Trade. May contract
CBOT soyoil rose 8.95% on the week to
35.32 cents a pound, on expectations for
smaller-than-expected U.S. soybean
acreage this year and strength in equities.
Only about a third of the production
capacity in the U.S. is being used, says
National Biodiesel Board spokesman
Michael Frohlich, who chalked the up the
idle plants to the current recession and a
lack of capital.

As mentioned in our latest report corn and soybeans are each others competitors when it comes to the number of planted acreage. Corn seems to have won. The estimated plantings for this crop are 84.98 million acres which is 0.5% more than initially estimated. Soybeans have lost acreage in comparison to what was earlier expected. The estimated figure is now 76.02 million acres, a loss of 4%.

Although this number is still big (also in comparison to the years before) growing conditions will need to be excellent to avoid a supply shortage at the end of the season. Global demand is still good and there’s no reason to believe that this will change.

Fewer beans would mean a reduction of the crushing which would lead of course to less available soybean oil. This reduction of the estimated soybean plantings was the main reason that prices of the whole soybean complex have moved up last week.

Additionally the soybean yields (the number of beans harvested per acre) in Argentina appeared to be less than expected.

So the supplying side of the market was a hot issue last week.

Other increases come from Morocco, India, Mexico and Bangladesh.

Projected Wheat Use is down

Wheat uses in Indonesia, China and Russia fell significantly. In addition to good harvests in Australia, Mexico, Turkmenistan and Bangladesh add to increasing stock levels, outside of the EU. Projections for the EU are stable.

Export competition has been intense during 2008/09. Based on the recent pace of
exports and continued price competitiveness enhanced by weak exchange rates,
exports are increased this month for Russia, Australia, Ukraine, and the EU-27.

Faced with intense competition and a relatively strong currency, U.S. wheat exports
are reduced 0.5 million tons to 26.5 million (down 20 million bushels to 980 million
bushels for June-May 2008/09).

Via

German farmers currently receive an average of 0.255€ per liter, which is 0.02€ lower than in December 08, and good 0,14€ below January 08 delivered prices.

Via

Via

This massive growth is mainly due to an increase in chicken production (+8% / 8,66 million tons).

The chart below displays the continuous development in the past years: The bottom line shows production, the top line portrays per capita consumption.

Via: bEU-Geflügelproduktion leicht gewachsen

Living in the Eurozone – and being comfortable with one currency across the region – one may forget what is happening in other EU member states that have not joined the Euro currency.

Below are the currency charts for the major Central European currencies:

Polish PLN vs EUR:

Romanian Leu vs. EUR:

Hungarian Forint vs. EUR:

Bulgarian Leu vs. EUR:

The charts draw the same picture across the region (all except for Bulgaria): The currencies devaluate; or to phrase it differently: The Euro gains against the major Central European currencies. What is happening though?

Looking at the chart of the Euro versus the US Dollar, one may state that the Euro has weakened, too.

And in addition, the Central and Eastern European currencies seem to have dropped even further. So: The Euro is weakening – due to the late response of the European Central Bank to the bank crisis.

The Outlook is yet better for the Euro: Georg Soros said in the World Economic Forum in Davos, Switzerland, that :

“In a crisis condition, it will be resolved and the euro will emerge as a stronger, more constitutionally complete currency.”

The effect: Euro Imports become more and more expensive. We understand the necessity no move as quickly as possible, and to help you overcome this difficult situation.

The SCM Team is happy to support you, to consult on how to book the currencies with your banks and suppliers. Should you have question, don’t hesitate to call Enrique, André or myself.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_YTLOsiNWMM&refer=home

General Information:

The leading tradefloor for Soya is the Chicago Board of Trade. The trading unit is 1 bushel, which equals 27.2 kg.

Major global producers of Soy are:

1. USA: 43.3%
2. Argentina: 15.4%
3. Brazil: 22.1%
4. China: 8.9%

Planting Soy:

In the US, planting season for Soy is early May and lasts until early / mid June. Ideal weather conditions are a must at this time, to guarantee a good harvest. Once the roots are developed, the soy plant turns into a very robust plant, which decreases the dependency on good weather conditions.

Harvest begins in late September and lasts for ca. 4 weeks.

Trading Soy:

Seasonality plays a big role in Soya trading:

• Prices are lowest when the harvested grains reach the markets.
• Prices rise when the seeds are planted and most delicate to weather changes and parasites.

Throughout the year – as with all agra-commodities – a risk premium is added to the basis price, to reflect the certainty, or uncertainty of the harvest. The most significant chart signal of Soya is a dip in early February: In late January / early February, farmers tend to sell their stocks (to the lowest prices) in order to finance the following marketing year.

This year’s expectations on the February Dip are significantly lower, than usual; mainly for weather reasons that will have further affects throughout the year: Because of the La Niña Weather phenomenon, which causes a major draught during the time, when the plants are the most vulnerable.

(Via the Rohstoff Report Nr 0309)

http://www.bloomberg.com/apps/news?pid=20601087&sid=aWkTImFCIfEU&refer=home

El Niño and it’s sister La Niña are weather phenomena that are associated with floods, droughts and other disturbances in a range of locations around the globe. More precisely, the South American continent expects less rain in the first Quarter of 2009, and wetter-than-usual conditions in the planting season on the North American continent. Later through the year, more Hurricanes are expected in the North American Gulf of Mexico.

As of today, the Australian continent is seeing more rain, as well as South East Asia, whereas Argentina and Brazil are seeing less rain than usual.

In the latest observation – in 2001 – the impact on wheat and corn harvest was a deficit of ca 5%, and a deficit of 2% in soya.

One may observe the fear of La Niña already: The price for Soya has steadily increased.

Chicago Corn	Chicago Wheat
Paris Corn	Paris Milling Wheat
Soya	Skim Milk Powder Europe

Two possible reasons stand behind the strengthened prices:

1. Change in Macros – World factors now support higher consumption of energy, feed, food.

This would mean that there is an end to the recession we are in. Not quite the solution we are hoping for as the exchange rates of the US Dollar and British pound have dropped even further in the past days – in fear of darker outlooks to the economy (http://www.bloomberg.com/apps/news?pid=20601087&sid=a6uPMxEFQ31g&refer=home)

The Euro is gaining strength against the US Dollar to currently 1.42 €/$ and the British Pound is 3 €cents away from parity to the Euro. So we can guess on

2. Year-End Rally – Profit takings

In seven of the past eight years, stock markets have attracted buyers in the last days of each year for an additional profit taking. On average for the past 40 years, this “Year End Rally” gave investors an additional 1.6% return on their investments. As this YER has been missed so far this year, we may suspect that the rally is taking place in commodity markets, rather than in stock markets.

Dow Jones -36%	Brazilian BOVESPA -40%
German DAX -40%	UK FTSE -35%
Japanese NIKKEI -40%	US Standard & Poor’s -40%

Commodity market trends tend to move slower on bullish or bearish news than stock market indices – a possible explanation why investors are shifting money back into these products, rather than into companies. For a limited period of time, production and consumption (and thus: returns) are safe.

FT.com / Markets / Insight – Light at the end of a dark tunnel

General Situation Energy:

• The Credit Crunch and upcoming recession attack the investment plans of energy producing companies from the cost and return sides: On the one side, producers’ access to capital for investments is more difficult than ever. Banks simply do not lend enough money and securities are not sufficient to provide such low interest rates like previously achieved. On the other sides, returns on energy production (focus on oil) were reduced to one third within the last six months. Investments have been reduced to cash-flow financed projects.
• Both OPEC and non-OPEC members agree to shorten supply of crude oil, to ensure rising energy prices. (Just imagine your supplier telling you: We’ll increase your prices and tell you exactly how we’ll do this.)

• Saudi Arabia has announced that they target 70-75 $ per barrel for the future; Producers like Exxon state that pure production costs (cost to get the oil out of the ground – no transport & refining) lies at 40$.
• Russia is planning to enter into the OPEC, and is apparently planning to found a “Natural Gas OPEC” to gain power in the world energy market.

Grains

• Chicago Corn is at its 15 month low, trading at ca 60% of the all-time high value.
• US Corn outlook for 2009 is very positive: US Farmers plan to plant ca 6% more corn. This should put more pressure on Corn prices as both export volumes have decreased significantly (due to the strengthened USD) and decreasing demand for corn based ethanol.
• Wrong Estimations have shown that stocks of all grains in the US are higher than expected.
• The Ukraine will achieve a record production of Wheat this year with 53.6 mmt (+86%); under the condition of suitibility for us, we should tap into these volumes: Both high production volume and weak currency make these products very attractive.

Forex

• As I am writing these lines, the British pound is at 1.05 €. This is ca 15% below its four week high from November 28 and ca 30% below its value in January 2008. On the one side, this makes spot prices in the UK very attractive, but please keep in mind that we have committed to different contract lengths with different suppliers. We may not see the effects immediately.

• World macros state that the GBP will continue this direction – but at a slower pace.