Market Trend 2017

06.02.2017

MARKET TREND

CUMIN 

On an average sowing, over the main growing areas in north and central Gujarat covering Viramgaon, Sanand, Surendranagar, Dhrangdhara, Halvad, Morbi, Jamnagar, Jodiya, Khambhala, Bhatiya, Baradi, Barada, Junagadh, Gondal, Rajkot and Limbdi contributing about 65-70% of the cumin output, is estimated to be the same as last year in this belt (plus/minus 10-15%). However, most of the sowing was delayed (early December) because of the following reasons: 





1. Delayed rainfall received in many growing areas – instead of June/July, the rainfall was received in August 2. Demonetisation – this led to a delay in the sowing of most of the winter crops across India due to shortage of cash and farmers queuing in banks to exchange their old currency Many farmers have preferred coriander over cumin this year, as compared to the cumin crop, coriander is a much safer and risk-free crop. Farmers are very happy with the prices they have seen in cumin during the last year. However, the weather changes and demonetisation have robbed them of the incentive to sow cumin on a much larger scale. It is estimated that the Gujarat cumin crop to be about 100,000 mts. The new crop arrivals should begin from middle of February, 2017 from Gujarat and from April onwards in Rajasthan. On Rajasthan, we learn from reliable sources that sowing for cumin is about 20% less than last year and we expect the crop from Rajasthan to be about 88,000 mts; total about 188,000 mts – lower than last year’s crop.

The above is based on current weather conditions persisting till the harvest time. We are witnessing a trend wherein after the bumper crops of 2013, 2014 & 2015 – the cumin crop is slowly decreasing, even though prices are increasing. This is mainly due to the inherent risk of the cumin crop and the fickle weather conditions.

CUMIN Conclusion:  Cumin touched historic high of INR 200/- kg during 2016 based on empty pipeline, speculation and good demand. 

Bullish factors: 

 

 



1. There is neglible carry forward stock from the 2016 crop and the pipeline is empty across all trading centres within India and outside. We have recently seen 2012/2013 cumin material coming out to be sold in the market yards because of the high prices.

2. Turkey and Syria are practically empty currently, with their new crops in June/July.

3. Speculators on the commodity exchange (major factor in cumin touching INR 200/- kg last year) appear quite bullish on cumin currently – after their success last year 4. China demand is expected to be quite strong after their New Year holidays 5. Farmers will not get their cargo in one lot at the start of the season and will bring them in stages – this will create an upward pressure on the prices.

Bearish factors: 



1. Speculators – in the spot as well as futures market - may try to suppress the prices going forward to enable themselves to cover big quantities for latter speculation. So we may see a big dip in cumin prices in February/March.

2. It remains to be seen whether China will buy as much quantity as last year at higher prices Overall, we believe prices should remain firm throughout the year and we may see cumin making historic prices in 2017.

TURMERIC 

Turmeric ruled stable with the new season produce entering into the markets in Nizamabad. Prices fluctuated based on the quality of turmeric. New crop arrivals generally weigh on prices. However, during the first couple of months of the new season Nizamabad will be the only supplier. Due to adverse seasonal condition and failure of seasonal rains in Tamil Nadu, the production of Turmeric decreased this year. As a reason the market may see occasional spurts during this period.The arrivals have improved after the Pongal and Maharsankranthi festival. Current arrivals are with high moisture of more than 16% and with quality issues in Nizamabad.



The trade will be in full swing from mid-February onwards across markets.“Demonetisation related cash tightness can affect the long term stocking up interest to some extent, but is not currently affecting the trading activities directly,” The prices remained steady to slightly low, easing by 3-5% over the last few days, mainly due to subdued domestic demand on low quality arrivals as well as low quality carry-forward stock liquidation pressure.



Is expected for the prices to be range bound for the near term until the end of this month. Overall better crop conditions – with the exception of Tamil Nadu – are expected to support this trend.

TURMERIC ďƒ’

Long term price levels are steady to slightly bearish, with an expected maximum movement of 5-10% from the current levels during peak arrivals in March to April. However, good up country demand and buying interest among the stockists may keep the prices volatile. On the export front, country exported about 65,848 tonnes of turmeric during April-Oct period, up by 27% to 51,910 tonnes compared last year, as per government data.

CHILLI ďƒ’

Increased new crop arrivals across markets, combined with demonetisation related cash tightness, had a major impact on market sentiments in the chilli market. Chilli prices showed downward pressure during the week with new arrivals increasing at the producing centers in Andhra Pradesh, Telangana and Karnataka. The estimation of big new crop has kept the traders quiet at the beginning of the new season.

ONION 

Onion season is a bit late (Approx One Month at least) reason is continues rainfall during September (until 23 September) which is really not good for First Harvest or Winter Harvest / Rabbi crop, Secondly as the Monsoon season was late all Rabi Crops are late and further delayed the winter Crops. However as the Ground water is expected to be normal for summer harvest we expecting a average (Normal) Summer Crop for Onions, due to late season and last year low prices has affected the interest of Farmers resulting the less sawing of the Crop.



All in all is expected to be approx 25-30 % Less crop at least compared to Normal Crop size (Last crop), total Sawing has reached 62 to 65% upto now (different studies in different areas).



As usual the summer crop size will be deciding the future since the sawing may continue, if the summer season starts late will be normal crop (if the temperature during March to May is below 38 Degree), but if the Summer starts earlier (if starts by Feb End) this will decrease the output of Summer harvest.



New crop peak season expected to starts around Feb end.

NUTMEG 

As 2016 is allready passed the Indonesian nutmeg and mace market remains mostly unchanged from its state of play back in June. With Grenada still struggling to recover output after being hit by Hurricane Ivan in 2004, Indonesia holds position as the main global producer.



The prices have dipped slightly of late on a strengthening of the US dollar and because buyers have spread their purchasing this year. A lot of people did not take any risk with nutmeg anymore and they bought it spread out throughout the season, so there was no peak demand this year. But in general, there is no fundamental change in the market. What you see is there is more selling pressure at the end of the year. People want to cash in stocks in origin, but you don’t see that much demand anymore because buyers are closing their books and they already bought by spreading their buying activities over the season.



In addition, the nutmeg as suffering any major production issues this year as most of the heavy rains occurred during the summer months and not during February, which is the usual first peak production month, and had stopped by the second peak output phase of September/October.

CASSIA 

International cassia and cinnamon prices remain on the firm side due to lower output and increasing demand. It as has been seen increases of around USD1,000 per tonne on Indonesian cassia prices since this August. This was mainly due to lower production in this origin. Cinnamon prices in Sri Lanka and Madagascar had also shown strong gains. This is not a short term price increase. It is generally expected that this increase might last for a longer time and that the price will remain on a high level for the months and maybe even the years to come.



The cassia and cinnamon production is becoming smaller and demand is increasing each year from various consuming countries – not only the western part of the world but also Asian countries. Also, the younger generation is less interested in being involved in the production of cassia or cinnamon.



Both spices are labour intensive and the global farming community on spices in general is dwindling as long-established farmers find that their offspring do not want to follow their footsteps into farming, preferring instead to venture into more lucrative office roles. So for the time being, prices are expected to remain on a higher level. At this time of year there is more rain in Indonesia than during the summer months, which means that the drying of the cassia is taking longer and shipments are being delayed, lending fuel to current prices.

CASSIA  



Vietnam was suffering extreme weather which was impacting its cassia output.

Madagascar’s production of cinnamon as lessening and this origin has also suffered rain delays to drying of the spice.

Sri Lanka is also facing a decline in output. This origin has been selling its high quality cinnamon to Mexico.

COCOA 

ICE cocoa contracts continued to drift lower during the week ended February 1. Cocoa has been grappling with ideas of large world supplies and falling demand since last fall with few signs as to when the bearishness will end The Marchcontract lost US$83 during the week and tested the technically-important levelof US$2,100 per tonne.



“The cocoamarket has been dealing with big supply issues here. That’s why it keeps makingnew contract lows,” Cocoa futures traded higher this week due to a slight slowdown in supply over the last week, but values are still close to their lowest since 2013 on continued expectations of a global surplus.

PEPPER 

Kuching Grade 1 white pepper has slumped to RM28,500 per tonne based on Malaysian Pepper Board published price against historical high of RM50,000 per tonne, down by a hefty RM21,500 per tonne or 43%.



Similarly, Kuching Grade 1 black pepper nose-dived to RM17,000 per tonne from the peak of RM30,000 per tonne, losing RM13,000 per tonne or by nearly 43.5%.



The price fall, which was particularly steep last month, came as a rude shock to many pepper farmers who are baffled by the sharp decline. The current prices are back to the levels in 2013 when the pepper market started the steep climb until first quarter-2016.



“Local vietnam pepper prices come down drastically last month. The drop was a straight line down and this has shocked the farmers who got caught with their holding, however, that domestic prices should have corrected about three months ago after a six-year bull run as global prices had been on a downtrend then.



At current levels, domestic prices are tracking closer to global prices. The pepper prices in Indonesia, the world’s second largest producer, showed an increasing trend, going up by 9% for black pepper in Lampung and 2% for white pepper in Bangka. Vietnam exported close to 145,000 tonnes of the spice worth US$1.2bil in the first nine months of this year, an increase of 31.5% in volume as compared with the corresponding period last year. The average export price in the first eight months had a decline of 13.6% from a year ago.

PEPPER 

Vietnam’s pepper farm area expanded to 100,000ha in first quarter-2016 from 85,000ha in December last year and that even unsuitable land has been cultivated with the golden crop in view of the attractive returns.



Vietnam’s pepper production is expecetd would go up to around 200,000 tonnes next year from 175,000 tonnes this year. That country accounts for more than 30% of world’s production. “The rise in production is expected to put a lot of pressure on prices, noting that other countries like Cambodia which are non-IPC members, have also significantly raised productions because of big scale planting. Indonesia had significantly raised its production this year from 20,000 tonnes last year as large tracts of its new plantings in the past several years had produced mature berries.

“Many years ago, Indonesian farmers abandoned their pepper farms and went into the booming mining sector. When the mining sector was not doing well because of the depressed mineral prices, they went back to cultivate pepper because of the soaring prices.



Back in Sarawak, which contributes more than 95% of Malaysia’s pepper production, local prices are expcetd to further weaken as it has entered the bear market.The bear market may last another few years. At current levels pepper is still an attractive cash crop compared with rubber and cocoa.



The run-up in domestic pepper prices started in 2009 when the white and black pepper were hovering around RM11,300 and RM6,500 per tonne level respectively.

PEPPER ďƒ’

According to the exporter, most foreign end-users prefer Sarawak Pepper (brand name) due to its superb quality. Sarawak Pepper fetched a premium of around US$1,000 per tonne against Vietnamese pepper of similar standard about two years ago when the supply was tight. The premium, however, has since narrowed due to weakened prices.

ďƒ’

Farmers were reluctant to sell their stocks at current prices as they got used to high prices in the past several years.

ďƒ’

Is estimated around 3,000 tonnes of pepper are still in the hands of farmers while active local exporters have several hundred tonnes of the spice each in their inventories. Only a handful of the 20 registered pepper exporters in Sarawak are active.Currently, there is no shortage of the pepper supply in the local market. Dealers and exporters are in no hurry to buy in anticipation of further price decline. The situation was different in the past few years when the supply was very tight.

CARDAMOM 

Green cardamom prices gained last week on shrinkage in supply at auctions. The squeeze in arrivals is attributed to he New Year holidays. Harvesting in 85-90 per cent of the estates is over and whatever is left in 10-15 per cent of the area would be completed. If the harvesting trend is any indication, the total output during the current season might come to around 40 per cent of the previous crop.



The market has improved last week following a decline in arrivals. Thus, there has emerged a mismatch in demand and supply pushing the prices up.

FENNEL 

Fennel market remained stable to a tad weak in average quality produce with the expectation of better new crop compared to the last year. There have been arrivals of 100/200 bags of new material at the centres. There have been daily sale of 1500 bags of Fennel at Unjha market. The new arrivals are expected to increase by the month end. The quality is expected to be good this year.

CORIANDER 

The market remained stable to downward with moderate demand. The new arrivals have just started at the centres. However, the arriving produce is high on moisture. The arrivals are expected to pick up by the end of this month. The stockiest have started easing their old stocks with the commencement of new arrivals at the markets. With a sizable quantity imported into India, there is a pile up of available stock. This may weigh on prices in time to come.



The outlook for India’s 2017 coriander seed crop remains uncertain at this stage, with declines predicted in some areas and gains in others. Initial information was indicating a possible decline in output of around 20%, mainly as a result of delayed and reduced plantings in Rajasthan. Meanwhile, there are reports of a record high level of sowing in Gujarat of 121,000 hectares as of mid-January compared with 79,300 ha to the same point in 2016.



Prices of Russian coriander seed oil have continued to slide lower due to stocks held by EU importers and pressure from producers to distil fresh essential oil from seed stocks that remain available at a low price.

MILK 

Looking ahead for 2017, the most often heard view in Western Europe is that modest increases in milk production may occur through the year. Milk volumes early in 2017 are expected to be below early 2016 levels. However, expectations are for milk volumes to increase over 2016 on a year on year basis starting in the middle of 2017. Cold weather in many milk producing regions of Western Europe during the first weeks of 2017 is expected to dampen milk production volumes. Reports from Germany are that milk prices paid to dairy producers have firmed slightly. If prices continue to firm, and that pattern develops in other countries in Western Europe, that is expected to help draw higher milk production as the year advances.



Many industry participants expect an increase in cheese production with declining volumes of butter and skim milk powder. Thursday, January 19, Eucolait reported provisional information subject to final confirmation that no volumes of SMP were sold in the third tender of intervention stocks which took place on Tuesday, 17 January.



EASTERN OVERVIEW: 



The continuing Russian embargo continues to impact Eastern European dairy producers and manufacturers. Sales to Russia before the embargo were significant for a number of countries.

The embargo has required new efforts to establish new markets and address sales challenges. Some smaller players have been squeezed out, while some of the larger players have expanded.

MILK 

Poland is often mentioned as a country that has led many others in the region, in maintaining good performance in the dairy sector.



Whole milk powder prices in Europe are steady. Demand has slightly slowed, with buyers generally stocked for immediate needs. This has allowed buyers to more deliberately evaluate conditions before finalizing new transactions. On the other hand, sellers are comfortable with inventories and are not presently motivated to make concessions to complete sales. EU WMP exports for 2016 through November compared with the same period of 2015 increased 0.9% according to Eucolait.



The main destinations and percentage of total were Oman, 13.1%; Algeria, 8.8%; and Lebanon, 4.9%.Western European butter prices are lower to steady.

Butteroil prices strengthened at each end of the price range. Packaged butter sales have not yet increased to normal expectations for this time of year. Block butter interest is somewhat stronger than packaged butter. Cream prices in Western Europe have weakened. Current butter prices have moved down from the high point near the end of 2016.



However, prices remain above levels prevailing for most of 2016. This has some buyers tempering purchases to evaluate future price trends. EU butter exports for 2016 through November compared with the same period of 2015 increased 27.5% according to Eucolait.

MILK 

The main destinations and percentage of total were:   



Saudi Arabia, 11.9%; USA, 11.4%; Egypt, 8.0%.

EU butter imports for the period decreased 16.3%. Main origins and percentage of the total were: 

 

New Zealand,74.1%; Iceland, 6.1%; Ukraine, 5.7%.



Export volumes were over twenty three times that of import volumes. Skim milk powder prices in Europe increased very slightly at each end of the price range.

This is a more of a balancing adjustment than any reflection of new buyer interest. Most potential buyers are in no rush, but a few buyers were motivated to seal deals now for new production.



Manufacturer stocks are deemed comfortable. There remains interest in future developments as to intervention stocks that may be offered to markets. EU SMP exports for 2016 through November decreased 17.3% compared with the same period of 2015 according to Eucolait.

MILK 

The main destinations and percentage of total were:   

Algeria, 16.0%; China, 8.5%; Indonesia, 8.1%.



Western European whey prices increased at each end of the price range.

Demand for food grade whey from Western European customers has recently increased. EU whey exports for 2016 through November increased 4.3% compared with the same period of 2015 according to Eucolait.



The main destinations and percentage of total were:   



EU whey imports for the period decreased 9.6%. Main origins and percentage of the total were:  





China, 28.5%; Indonesia, 15.6%; Malaysia, 10.4%.

Switzerland, 88.3%; Norway, 7.2%; United States, 3.0%.

Export volumes were over six times that of import volumes

PALM OIL 

Malaysian palm oil futures fell as output is seen rising next month and as traders booked profit ahead of long weekend. As per second advance estimates for 2016/17, production of Jeera in Gujarat will be 2.21 lakh tonnes, down almost 11% compared to last year production of 2.38 lt. The competitiveness of palm oil implies that it will remain as a source for sustainable and renewable raw material profitable for producers and attractive to users.



The opportunity to leverage on biodiesel demand means that palm oil prices need no longer be subject to very low prices. Demand dynamics (shortages) suggest upside trends on palm oil prices. The future direction of the Malaysian palm oil industry is very much dependent on the trade relations it shares with buyers around the world. Malaysia relies on market expansion as most of its production is for export. The world is experiencing a chronic shortage of oils and fats in view of growing population, economic growth and demand for bio-fuels.



This shared future entails that Malaysia must continue to promote trade with a winwin formula that allows for more usage of palm oil in formulations of new and established food and non-food applications. JAKARTA: Malaysian palm oil futures on Tuesday hit their lowest in five weeks, and were headed for a fourth session of declines, as they tracked a subdued soybean market after the Lunar New Year holidays.



Benchmark palm oil futures for April delivery on the Bursa Malaysia Derivatives Exchange closed 1.3% lower at 3,033 ringgit (US$684.96) a tonne.

PALM OIL 

Earlier in the session, they touched 3,015 ringgit, their lowest since Dec 23, 2016.

The benchmark lost 2.6% in January. The market, which was closed since mid-day Friday for Lunar New Year celebrations, resumed trading on Tuesday. Traded volumes stood at 44,006 lots of 25 tonnes each at Tuesday's close."Soy harvest in the Americas look like it will surpass target. As substitutes, soy immediately impacted CPO prices," Gregorious Gary, an analyst with Bahana Securities in Jakarta.



The Chicago Board of Trade most-active soybean contract traded near its lowest in two weeks on Tuesday, after dropping 2.5% in the previous session. In Indonesia, the world's top palm oil producer, the Indonesian Palm Oil Association (GAPKI) said it expects 35.5 million tonnes of palm oil output, up from 31.5 million last year.



There is no trading in China, with the Dalian Commodity Exchange closed for the Lunar New Year celebration until Feb 2 SINGAPORE : UOB Kay Hian is maintaining its “overweight” call on the planation sector within Singapore and the region, noting that crude palm oil (CPO) prices are likely to stay firm throughout 1H17 as supply is still relatively tight.“We see weaker CPO prices in 2H17 vs 1H17, but maintain our price expectation of RM2,600 (S$834) for 2017. Investors should sell on strength when share prices trend higher as companies are expected to report good 4Q16 and 1Q17 earnings,” says UOB’s regional research team in a recent report.



It is also expecting CPO demand to improve marginally this year, driven by stable demand on Indonesia’s biodiesel mandate; the rolling out of the B10 biodiesel programme in Malaysia; as well as stable demand from India and China.

PALM OIL 

“If the production recovery comes in weaker than expectations due to weaker yield recovery, this will be positive for CPO prices,” state the team. “Meanwhile, rising crude oil prices could make biodiesel blend more financially feasible as fewer subsidies are needed especially when CPO prices weaken in 2H17. This will increase demand for biodiesel and act as a support to CPO prices.



Moreover, higher crude oil prices are positive for palm oil prices,” it adds. According to UOB, the price differential between palm oil and crude oil is wide, with prices for the former coming in about US$330/tonne above the latter. The team’s top “buy” picks for the season therefore focus on companies with younger tree age profiles and efficient management, as it believes this translates to strong production recovery and hence higher production growth and earnings. These include Bumitama Agri and First Resources in Singapore which have both been given “buy” ratings at target prices of S$78.5 and S$1.98 respectively.“We like Bumitama Agri for its stronger earnings growth, driven by positive production growth and a high leverage to CPO prices. Share price has lagged behind peers and provides the highest upside to our target price,” elaborates the team.



On the other hand, UOB analysts speculate that First Resources’ share price could rally above their target price to reflect the current high CPO prices and expected strong 4Q16 earnings which are to be reported on Feb 17.The group’s fresh fruit bunches (FFB) production rate is also expected to grow y-o-y by 17.9% and 16.3% in 2017 and 2018 respectively. As at 11.20am, shares of Bumitama Agri and First Resources are trading at 80 Singapore cents and S$1.94 respectively.