2019 - IEG Vu · IEG Vu | Half Year Outlook 2019 / 5. Weather and politics are key influences Fruit juices, canned and frozen foods, tomatoes and other key products, this is a complicated

Half Year Outlook 2019

Agricultural commodity markets review for H1

IEG Vu

Hiba, simply translated – frog, is the spiritual express of the indigenous people of Colombia from the Sesquilé region for the cycle of life and the ever-returning energy of nature. The more than 2,000-year-old cave paintings Sesquilés, replicated by children of the schools located there today, can be found in the background of our packaging.

Our Purafruta fruit bars are made of 100% fresh fruit, peeled by hand, slowly dried on slices in the drying oven, gently chopped and cut from the skin. The fresh fruits come from micro-farmers from the Valle del Cauca regions. They are paid fairly and above average. However, they are too small to be certified organic.

natural and handmade glutenfree free from additivespure, columbian fruitvegan

100 %Hiba, simply translated – frog, is the spiritual express of the indigenous people of Colombia from the Sesquilé region for the cycle of life and the ever-returning energy of nature. The more than 2,000-year-old cave paintings Sesquilés, replicated by children of the schools located there today, can be found in the background of our packaging.

Our Purafruta fruit bars are made of 100% fresh fruit, peeled by hand, slowly dried on slices in the drying oven, gently chopped and cut from the skin. The fresh fruits come from micro-farmers from the Valle del Cauca regions. They are paid fairly and above average. However, they are too small to be certified organic.



100 %

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Contents

IEG Vu

Agribusiness Intelligence | IHS Markit | 4th floor Ropemaker Place | 25 Ropemaker Street | London EC2Y 9LY | UK Telephone: +44 207 260 2000IEG Vu

Senior Analyst: Dried Fruit & Nuts/Spices & Exotics Julian Gale Tel: +44 20 7017 7539 Email: [email protected]

News Analyst: Tomato Products/Frozen Foods Cristina Nanni Tel: +44 20 7017 5174 Email: [email protected]

News Analyst: Canned Products Estela Cuesta Tel: +44 20 7017 4549 Email: [email protected]

Principal Analyst: Beverages Neil Murray Tel: +44 20 7017 7553 Email: [email protected]

Head of Advertising Sales Ben Watkins Tel: +44 20 3377 3911 Email: [email protected]

Subscription & Marketing Enquiries Email: [email protected]

Agribusiness Intelligence Client Services Team EMEA: +44 20 7017 6242 (9am-5pm BST) APAC: +61 287 056 966 (9am-5pm AEST) NORTH AMERICA and LATAM: +1 21 26 52 53 22 (9am-5pm EDT) Email: [email protected]

www.ieg-vu.com

© IHS Markit 2019

Senior Analyst: Meat & Livestock Max Green Tel: +44 20 7017 7550 Email: [email protected]

Publishing Director IEG Vu & IEG Policy Adam Sharpe Tel: +44 20 7017 7587 Email: [email protected]

Senior Analyst: Grains Gary Howard Tel: +44 20 7017 4089 Email: [email protected]

Senior Analyst: Cocoa/Coffee/Sugar Sandra Boga Tel: +44 20 7551 9130 Email: [email protected]

News Analyst: Dairy Jana Sutenko Tel: +44 20 7017 4990 Email: [email protected]

News Analyst: Dried Fruit & Nuts/Spices & Exotics Jose Gutierrez Tel: +44 20 3377 3704 Email: [email protected]

05 Weather and politics are key influences

06 Cheaper orange juice looks certain

10 A volatile apple market

14 Tropical and other juices

16 Successful records despite trade conflicts

18 Has the vanilla market returned to a calmer state?

20 Demand reshapes berry’s market balance

24 Tomato looks ripe for recovery

28 Dried grape and plum shortage

32 Disastrous summer crop suffocates Thai canned pineapple industry

34 Political treaties restructuring canned tuna markets

36 Massive 2018/19 surplus knocks down coffee prices

40 World sugar output to drop further in 2019/20

43 Is cocoa’s 2019/20 production set for a decline?

46 SMP prices fly high, following EU’s successful clearance of intervention stocks

49 Butter price comedown continues

52 African Swine Fever takes centre stage as global meat prices rise

56 Corn market led by US quality concerns

58 Trade tensions inject uncertainty into grains and oilseeds markets

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ISRAEL, ITALY, KENYA, MEXICO, PAKISTAN, PHILIPPINES, SOUTH AFRICA, SPAIN, THAILAND, TURKEY…

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2013Our 40th anniversary

In France fruit juice means Levy Group InternationalMember of Unijus

Levy Group International - 31 bis, rue des longs prés, 92100 Boulogne - FRANCETel: +33. (0)1.46.03.82.44Fax: +33. (0)1.46.03.84.00Email : [email protected]

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are key to the success of Levy Group International

The “Juice People” since 1973.

Celebrating over 40 years of excellence

In France fruit juice means LEVY GROUP INTERNATIONALMember of Unijus

QUALITY - RELIABILITY - PARTNERSHIP


“The Juice Architects” since 1973


Levy Group International - 83 avenue André Morizet, 92100 Boulogne Billancourt - FRANCETel: +33. (0)1.46.03.82.44Fax: +33. (0)1.46.03.84.00

Email: [email protected]

We sell only top quality raw materials to the European fruit juice industry, from friendly and reliable producers to friendly and reliable customers

We have audited and chosen the most reliable suppliers of fruit juices and purees

from ARGENTINA, BRAZIL, CANADA, CHINA, COSTA RICA, ECUADOR, FLORIDA, GERMANY, GREECE, INDIA,

INDONESIA, ISRAEL, ITALY, KENYA, MEXICO, PHILIPPINES, SOUTH AFRICA, SPAIN, THAILAND, TURKEY, VIETNAM...


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IEG Vu | Half Year Outlook 2019 / 5

Weather and politics are key influencesFruit juices, canned and frozen foods, tomatoes and other key products, this is a complicated year.

Climate change is becoming a more serious issue.

As ever, it is not so much the warming of the planet that is upsetting the global agro-industry, but the fluctuations and extremes that are occurring in weather patterns.

Take Poland. Another late season frost in Poland has wrought considerable damage to the country’s apples and some other fruits. This was swiftly followed by a heatwave, which hammered the soft fruit, and a long-running drought is compounding farmers’ woes. The Polish apple harvest will be down by at least 40%, and the blackcurrant crop seems to be similarly damaged (although something was needed to lift blackcurrant prices from the low levels caused by earlier over-production).

In California, hailstorms have struck the key tomato crop. This followed a late planting that was caused by wet spring weather. The state may not meet its forecast target of 12.1 million short tons: estimates now are for a 10% shortfall. Adverse weather (yet more hailstorms, rain and low temperatures) in northern Italy is responsible for a similar percentage downgrade of the total harvest there, and yields are now being put at 70 tonnes per hectare instead of 75 tonnes/ha.

For all that, though, the global tomato production estimate has only been cut by 300,000 tonnes as the damage listed above has been mostly compensated for by increases in other producing regions, notably Turkey and Tunisia.

The inclement weather in California has also reduced expectations for the country’s almond crop. IEG Vu would also expect a smaller lemon crop, which could divert supplies of fresh fruit from Argentina, impacting processing volumes there.

Frozen raspberry prices are rising because of the late spring frost in central Europe – Serbia seems to be the only undamaged region. Chinese prices are rising in response. Cooler weather in Michigan has cut the sour cherry crop forecast.

Add to this the chaos caused by Brexit, the trade war between China and the US and the long-running Russian embargo on imports of fresh fruit and vegetables from Europe and elsewhere, and you have a perfect recipe for volatility. About the only good news is the Mercosur-EU free trade agreement. In this supplement, we try to make sense of it and assess what the effects will be on trade in all the aforementioned commodities, and others, until the end of this year.

And watch out for our Global Outlook in late December, when we make our predictions for 2020.

Neil MurrayHead of Processed Commodities Agribusiness Intelligence

www.ieg-vu.com

IEG VuWe sell only top quality raw materialsto the European fruit juice industry, from friendly and reliable producers tofriendly and reliable customers



from ARGENTINA, BRAZIL, CANADA, CHINA, COSTA RICA,ECUADOR, FLORIDA, GERMANY, GREECE, INDIA, INDONESIA,

ISRAEL, ITALY, KENYA, MEXICO, PAKISTAN, PHILIPPINES,SOUTH AFRICA, SPAIN, THAILAND, TURKEY…


2013Our 40th anniversary

In France fruit juice means Levy Group InternationalMember of Unijus

Levy Group International - 31 bis, rue des longs prés, 92100 Boulogne - FRANCETel: +33. (0)1.46.03.82.44Fax: +33. (0)1.46.03.84.00Email : [email protected]

COMPETITIVES PRICES - QUALITY SERVICE – RESPONSIBILITY


The “Juice People” since 1973.

Celebrating over 40 years of excellence

In France fruit juice means LEVY GROUP INTERNATIONALMember of Unijus

QUALITY - RELIABILITY- PARTNERSHIP


“The Juice Architects” since 1973


Levy Group International - 83 avenue André Morizet, 92100 Boulogne Billancourt - FRANCETel: +33. (0)1.46.03.82.44Fax: +33. (0)1.46.03.84.00

Email: [email protected]

We sell only top quality raw materialsto the European fruit juice industry,from friendly and reliable producers tofriendly and reliable customers


from ARGENTINA, BRAZIL, CANADA, CHINA, COSTA RICA, ECUADOR, FLORIDA, GERMANY, GREECE, INDIA,

INDONESIA, ISRAEL, ITALY, KENYA, MEXICO, PHILIPPINES, SOUTH AFRICA, SPAIN, THAILAND, TURKEY, VIETNAM...


Levy-FP-Ad-2019.indd 1 25/07/2019 09:53:50

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6 www.ieg-vu.com/ Half Year Outlook 2019 | IEG Vu


Brazil has slowly but steadily reduced its FCOJ price over the last year or so, but recent developments in the global orange juice market make it likely that more cuts will be implemented before the end of this year.

The larger Brazilian harvest means greater orange juice production this year. Brazil’s Fund for Citrus Protection (Fundecitrus) is forecasting a harvest of 389 million boxes from its key citrus belt, the state of São Paulo and the west/south-west Minais Gerais belt, compared with 286 mln boxes for the previous harvest. Another 27.2 mln boxes will come from the Triângulo and Sudoeste Mineiro region in 2019/20.

The most recent news from Brazil is of the vastly improved yields per hectare in the latter region. According to Fundecitrus, each hectare should yield a record 1,051 boxes of oranges in the 2019/20 season, an increase

of 39% from the 756 boxes per hectare harvested in the previous season.

However, in some regions of the agricultural belt, the increase in productivity should be even higher than in the previous season. The Northwest region will see an increase of 128% and the North, 78%. Protected nurseries, soil preparation and cultivation, diseases controls such as citrus variegated chlorosis (CVC) and greening, plus favourable weather conditions, are all factors involved in this increase.

While markets other than the European are increasing their orange juice consumption, they are starting from a very low base and the actual volumes concerned are nowhere near as large as they are in Europe and the US. China and other Far Eastern countries used to be considered the major new growth markets,

How much more Brazil will decide to cut from the FCOJ price, and when, is unknown.

By Neil Murray

Cheaper orange juice looks certain

The larger Brazilian harvest means greater orange juice production this year

but the fact is they have not performed anywhere near as well as expected.

China, for example, imported about 18,500 tonnes of FCOJ in the first half of this year. To put this into perspective, it is only 500 tonnes more than Japan and only 2,000 tonnes more than China imported in H1 2018, while Japan’s imports have halved. African and other Asian countries simply do not show up on the radar: 1,800 tonnes for Indonesia, for example, and under 50 tonnes for South Korea.

This is partly because, despite everything, orange is not a popular flavour in many Asian countries: certainly not in China. Snow pear and the new breed of vinegar-based drinks sell strongly.

The Brazilian industry, through CitrusBR (which represents the Big Three processors), wants to increase its chances by exporting its orange juice to China in tanker ships, as it does to Europe. At the moment, it is only authorised to export juice to China in drums because China’s tariff system is based on the temperatures of imported frozen juice, and drums are shipped at higher temperatures than juice in tankers and thus incur a tariff of 30% rather than 7.5%.

IEG Vu, though, suspects that China may sidestep imported orange juice altogether, at least as far as ‘drinking’ juice is concerned. The template for growing a juice market in a new country is often as follows: start with juice drinks that have a relatively low juice content, move up to nectars as consumers’ spending power increases and they decide they like pre-packed juices, then

on to pure juices made from concentrate, thence to NFC juice, and then on to HPP products and freshly squeezed juices.

China seems to have gone straight from juice drinks to NFC, HPP and freshly squeezed with no intervening time spent on nectars and reconstituted juices, such is the pace of market development and the growth of consumers’ disposable income. It is quite possible that China, instead of importing juice, may vastly increase its fresh orange imports and make its premium juices from these. Time will tell.

Brazil’s NFC exports are entirely dependent on the US and European markets, Europe being the larger. In the 18 months to the end of May 2019, while there was an increase in Brazilian exports of about 200,000 tonnes, this was all to the US. European imports were about 1.35 mln tonnes, virtually unchanged from 1.33 mln tonnes in the previous year and a half. The US market will see more NFC juice production coming from Florida, as its citrus groves recover to a certain extent (some 71 mln boxes this season), so there will be more NFC juice to be diverted to Europe.

Higher output can also be expected from the other orange and orange juice

producing countries. European orange juice production (FCOJ equivalent) rose to over 106,000 tonnes in the 2018/19 season from some 97,200 tonnes in the previous season, and the quantity of oranges worldwide (excluding Brazil and the US) earmarked for processing is forecast to rise to about 5.1 mln tonnes next season from some 4.7 mln tonnes.

For the rest of this year, the maths are simple. There will be a lot more orange juice on world markets and consumption in Europe is stagnating. In the US, the long, long decline in retail orange juice sales is (finally) showing signs of bottoming out, but it hasn’t hit rock bottom yet. Sales of reconstituted juice are actually rising here and there, though NFC sales remain very weak.

Sales to Asia-Pacific and Africa may lift off, but if they do, it won’t be this year. That is something for the future. The FCOJ futures market has been dropping month by month, so the speculators are coming to the conclusion that price cuts are inevitable.

Whether a lower price will raise sales in the US is doubtful – consumers there have switched to alternative beverages (including bottled water, which is now the country’s top-selling ‘soft’ drink). However, the sales decline is less severe in Europe, so price cuts there (assuming that they are passed on by the supermarkets, which is always an issue) might increase consumption later this year.

IEG Vu sources reckon that a cut in the FCOJ price of some USD150 per tonne towards the end of the year (perhaps announced at Anuga) is feasible and might go some way to stimulating demand in Europe. NFC is more complicated, as Brazil prices its juice to maintain pressure on Spain, the main European NFC orange juice producer. Brazilian NFC juice is presently around USD650/tonne and could perhaps withstand a cut of USD50/tonne, but it really depends on what Spain can produce and what price it charges.

IEG Vu thinks that if Brazil really wants to make a price-led recovery in sales, a cut of more than USD150/tonne is needed. The alternative for Brazil is to put more juice into inventory, restricting the outflow for export, and keep prices relatively buoyant that way, which would probably help the processors’ bottom lines. But orange juice stocks are already building in the US.


US Q1 FCOJ Stocks (million pounds)US Q1 FCOJ stocks (million pounds)1000

900

800

700

600

500

400

300

200

100

02015 2016 2017 2018 2019

832.3

702.0

517.1563.1

704.4

Source: USDA

Sales to Asia-Pacific and Africa may lift off, but if they do, it won’t be this year. That is something for the future

IEG Vu | Half Year Outlook 2019 / 9www.ieg-vu.com 9www.ieg-vu.com

GLOBAL ORANGE PRODUCTION ('000 TONNES)

Production 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19E

Brazil 17,870 16,714 14,414 20,890 15,708 17,750

China 7,600 6,600 6,900 7,000 7,300 7,200

EU 6,550 5,954 6,038 6,739 6,269 6,512

US 6,140 5,763 5,523 4,616 3,555 5,022

Mexico 4,533 4,515 4,603 4,630 4,530 4,630

Egypt 2,570 2,635 2,930 3,000 3,120 3,420

Turkey 1,700 1,650 1,800 1,850 1,905 1,885

South Africa 1,723 1,645 1,275 1,363 1,550 1,620

Morocco 1,001 868 925 1,037 1,021 1,200

Vietnam 590 566 637 768 770 770

Argentina 800 800 800 700 600 500

Australia 430 430 455 480 515 500

Costa Rica 315 220 335 322 315 310

Guatemala 154 161 177 179 180 180

Israel 69 86 86 81 76 90

Others 209 166 179 183 182 183

Total 52,254 48,773 47,077 53,838 47,596 51,772

Fresh domestic consumption

China 6,865 6,043 6,446 6,717 7,058 6,950

EU 5,549 5,333 5,407 5,950 5,735 5,874

Brazil 6,036 5,196 4,940 4,761 4,933 4,976

Mexico 3,312 2,947 2,929 2,473 2,573 2,470

Egypt 1,385 1,350 1,380 1,380 1,480 1,690

Turkey 1,284 1,310 1,366 1,402 1,386 1,400

US 1,357 1,263 1,346 1,184 1,253 1,277

Morocco 820 688 811 822 826 950

Vietnam 661 602 695 811 832 835

Russia 467 438 470 425 458 475

Saudi Arabia 274 384 371 357 362 370

Iraq 305 247 262 258 335 345

Australia 206 175 235 250 245 245

Bangladesh 113 118 176 169 221 241

Argentina 524 450 469 350 280 230

Others 1,708 1,650 1,757 1,643 1,634 1,674

Total 30,866 28,194 29,060 28,952 29,611 30,002

For Processing

Brazil 11,832 11,506 9,466 16,116 10,771 12,770

US 4,420 4,133 3,684 3,001 2,014 3,350

Mexico 1,200 1,550 1,650 2,100 1,900 2,100

EU 1,474 1,251 1,286 1,491 1,253 1,363

China 715 650 600 580 570 590

Costa Rica 208 125 230 238 232 227

Argentina 200 278 270 273 257 223

South Africa 471 403 142 123 201 220

Egypt 85 85 100 100 100 130

Turkey 100 80 100 100 98 95

Others 200 200 129 141 141 160

Total 20,905 20,261 17,657 24,263 17,537 21,228Source: USDA E: Figures for 2018/19 estimated


With only a month or so before Poland starts harvesting its apples, one would think that it would be fairly easy to determine the size of Poland’s 2019/20 apple harvest and from that deduce the likely AJC price, but there are many conflicting reports about the damage done by the April frosts and therefore the probable harvest size.

Various Polish sources, generally from the raw material side, are claiming that the damage has been serious. One such is Robert Binkiewicz of agricultural supplies company Agrosimex, who told Polish media that the harvests in the regions of Grójec, Warka and Biała Rawska will come in at around 30% of normal levels.

It has been reported to IEG Vu that processors have now pulled their AJC offers, but not too much should be read

into this. At about this time of the year, processors are bound to be surveying the likely harvests and markets and working out their pricing.

Other IEG Vu sources concur that there has been some damage in the regions mentioned, but that other areas have survived unscathed or with relatively minor damage. “The Grójec region was affected by the frost while Sandomierz is doing fine,” said one. Now, though, there seems to be a general consensus that the harvest will be smaller than last year’s.

To a degree, this was expected. After last year’s colossal harvest (for which no reliable figure has yet been officially announced, but not less than 5.0 million tonnes), the trees would be expected to need some rest with a concomitant smaller harvest this year. Even a 25%

Everything seemed set for a relatively quiet transition to a larger apple harvest in China and a slightly smaller one in Poland. But it hasn’t worked out that way.

By Neil Murray

A volatile apple market

Processors are bound to be surveying the likely harvests and markets and working out their pricing


reduction would still mean a harvest of 4.0 mln tonnes, which would have been considered huge for Poland a decade ago.

However, the most recent estimate for Poland, from an on-the-spot source, is for 2.5-3.0 mln tonnes, the shortfall being caused by unexpectedly small fruit and an equally unexpected heavy fruit drop.

This figure represents a potential shortfall of 3.0 mln tonnes from last year’s harvest. Admittedly, the 2018 harvest was colossal and a smaller harvest should have been expected, but that sort of volume would normally have a big effect on Polish AJC production and general AJC pricing. IEG Vu expects a change in the latter half of this year, but does not think it will be severe, for reasons that will be cited below.

Prices offered for apples on Polish wholesale markets in May 2019 were, on average, lower by 66% than they were in May 2018, according to Poland’s Institute of Agricultural and Food Economics (IAFE). Apples for juicing were about one-third cheaper, at PLN0.38 per kilo, equivalent to USD100 per tonne.

Prices of other fruits have also weakened dramatically. On the wholesale market, lemon prices were 31% down, mandarins were -20%, pears -17% grapes -9% and oranges -1%. Banana prices rose by 16%. This followed decreases in retail prices for most fresh fruits in April, compared with April last year.

IAFE says that, in medium and large enterprises in March 2019, apple juice

production increased by 30% compared with March 2019, although production of industrial vegetable, fruit and fruit/vegetable juices were down by 2%. Output of RTD juice and vegetable juices was unchanged.

There are a couple of factors to be considered here. The first is that there are still plenty of apples in Polish coldstores. The very latest data shows that as of June 1, Poland still held almost a quarter of a million tonnes of fresh apple inventory. And this isn’t the largest volume held by a country in Europe: Italy’s stocks were put at over 305,000 tonnes. But Poland’s stocks are almost all apples that are simply unsuitable for fresh sale, because they were slightly too ripe when they went into store and have suffered since. They can really be used only for juice or animal feed.

To put this Polish inventory in context, one should look at June inventories in previous years. These were 56,000 tonnes (2013), 112,000 tonnes (2014), 104,000 tonnes (2015), 152,000 tonnes (2016), 144,000 tonnes (2017) and 92,000 tonnes (2018).

The second factor is that 2.5-3.0 mln tonnes would actually have counted as a substantial Polish harvest only a decade ago and would have created concerns about a possible over-supply. The world

has got accustomed remarkably quickly to the idea of Poland being a global supplier, now that there have been two seasons when Poland was able to snatch international business from China. To be fair, China has been able to put Poland in the shade as well when weather conditions favoured the Chinese crop and severely damaged the Polish, but the point remains: with its new huge harvests, Poland is much more of a global player than it was previously.

Poland made over 400,000 tonnes of AJC last season (IEG Vu is still awaiting an official figure, but this seems reasonable) but is unlikely to make that much this season. When it last had a bumper harvest of over 4.0 mln tonnes, it made some 325,000 tonnes of AJC. When an average harvest was considered to be about 2.2 mln tonnes, a good one 2.5 mln tonnes and a very good one 3.0 mln tonnes, it used to make 250,000-275,000 tonnes in a ‘very good’ year, so one should expect this sort of figure, but this is really something for our Global Outlook 2020.

The apples still in store will have to be removed from store immediately, to make way for new season fruit. IEG Vu expects them to be sent for processing. This will result in slightly higher-priced AJC because the apples are soft and with reduced juice content, so more fruit will be needed to make a tonne of AJC, but this can (and probably will) be circumvented by blending AJC made from the last of the 2018 harvest with concentrate made from this year’s fruit.

ChinaThere have been conflicting indications of the size of China’s apple harvest. IEG Vu has received one report from a Chinese

Polish Fresh Apple Inventory (tonnes)Polish fresh apple inventory (tonnes)

-0.2M

0

0.2M

0.4M

0.6M

0.8M

1M

1.2M

1.4M

1.6M

1.8M

2M

2.2M

June

-19

Apr-1

9Fe

b-19

Dec-

18Ju

ly-1

8M

ay-1

8M

ar-1

8Ja

n-18

Nov

-17

Jun-

17Ap

r-17

Feb-

17De

c-16

Jul-1

6M

ay-1

6M

ar-1

6Ja

n-16

Nov

-15

Jun-

15Ap

r-15

Feb-

15De

c-14

Jul-1

4M

ay-1

4M

ar-1

4Ja

n-14

Nov

-13

Jun-

13Ap

r-13

Feb-

13

Source: WAPA

With its new huge harvests, Poland is much more of a global player than it was previously


source, saying that it was expected to be larger than the 2017 harvest, which was 44.5 mln tonnes, and then a second report from the same source reckoning that it was too early to say that it would exceed the 2017 harvest, but would be “close”. IEG Vu reckoned on 40 mln tonnes, plus or minus a couple of mln tonnes, and the latest estimates from the Chinese Chamber of Commerce indicate a harvest of 39 mln tonnes, which counts as a normal/reasonable harvest by Chinese standards.

On this basis, China would be able to price its AJC around USD1,050-1,150 per tonne. However, the new US duty rate of 25% would still be a hindrance to sales into the US, where it would be priced at around USD7.00-7.65 per gallon ex-dock New York.

This may not prove to be too expensive. From previous indications, IEG Vu reckons that Polish AJC will start at between EUR1.10-1.20 per kilo ex-works. If one adds about six cents for transport to main ports, then in dollar terms, it should be priced around USD7.00-7.60/gallon ex-dock New York: very close to Polish levels. Tactical pricing by either country could be enough to change buyers’ minds.

If Poland’s harvest does come out at 3.0 mln tonnes or more, though, Poland has a better chance in the US and other extra-European markets.

China’s AJC production last season was just 330,000 tonnes. This season, IEG Vu expects a return to previous form. There is

still some Chinese AJC being offered. Product that was shipped before the 25% tariff was imposed is around USD7.00-7.25/gallon, as China clears stocks. What juice there is that attracted the tariff is around USD8.50/gallon, according to the USA’s National Apple Processing Report.

Ukraine and TurkeyUkraine has had an excellent season. Its exports for the season look like coming in at around 100,000 tonnes. For the September 2018-April 2019 period (the most recent data available), Poland exported over 29,000 tonnes to the US, nearly 16,000 tonnes to Canada and nearly 15,000 tonnes to Poland (where it would have been blended or re-exported).

Ukraine’s export price to major markets has been between USD900-1,000 per tonne fob. If it can maintain this price when the new season opens, it will probably be a successful exporter to global markets again. This year’s Ukrainian harvest is looking good.

Turkey used to have a habit of pricing its early AJC production high and then, when it got the message that nobody was interested, dropping it to more reasonable levels. Last season, it went storming into the US early and with keenly priced low

acid juice, and the US and Canada have taken fully half of the 83,300 tonnes that Turkey has exported between September 2018 and May 2019. Again, assuming a normal harvest this year, Turkey should lose some export trade now that China is back in the market, but still ought to do well, especially with the weak Turkish lira.

Latin AmericaIt is midwinter in Chile and Argentina now, and so their prospects will only really become clear in another six months. Thus far in the 2018/18 season, Chilean AJC has been slightly more expensive than European into the US, but then it is low acid juice, which the US prefers (though it will cheerfully take higher acid product if the price is right).

ConclusionThe drastic reduction in Chinese apple juice production in the season just finished did not dramatically affect global prices because Poland and (to a lesser degree) Ukraine and Turkey were able to make up for much of the shortfall. This coming season, IEG Vu does not expect a massive increase in price either, because China is returning to form and Poland will still have (objectively) a decent harvest – plus it still has fruit from last season to process.

We expect a general increase in AJC prices, but this really represents a bounce back to earlier prices from the very low levels of the past season, rather than a general increase in prices. The major factor affecting global trade will be the US tariffs on Chinese apple juice.

The new US duty rate of 25% would still be a hindrance to sales into the US


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http://www.passionfruitconcentrate.com

http://www.passionfruitjuice.com


The unexpected shorter production of Indian Totapuri mango concentrate (TMC) is probably going to have an effect on prices later this year.

Briefly, the Indian warnings, before the harvest started, that there had been too much heat and too little rain were generally disregarded as part of the usual scare stories designed to bolster the fruit price. For years, there have been pre-harvest claims that the conditions have been too wet, too cold, too hot, too dry, etc and the industry has learned to ignore them.

“The Indians have cried ‘wolf’ too often, but this year it is real,” vouchsafed one IEG Vu source.

The result is that processing of Totapuri was curtailed early, partly because some processors did not believe that the market would stand high finished product prices,

and so volumes were way down. This has had an immediate effect on prices. These were confidently expected to be around USD1,150-1,200 per tonne fob, but now people are talking of USD1,300/tonne.

Oddly, the market has seemed quiet. “Buyers think it is quiet because the sellers are not pushing them to take contracts,” IEG Vu was told, “But actually the buyers are quiet because they are sitting and waiting for the price to go up.”

And go up it almost certainly will. There is likely to be very little carry-over stock for next season and, depending on demand, the TMC price could firm between now and the end of the year. There are believed to be some major customers in Europe and the Middle East who are looking for large volumes. It is not inconceivable that TMC will be USD1,350/tonne by the end of the year.

Something of a shock for mango, while pineapple still bumps along the bottom and lemon juice prices fall.

By Neil Murray

Tropical and other juices


Colombia has been unable to take advantage of India’s misfortune so far this year because, although there was a good harvest of its Magdalena mango (and other varieties), the harvest is over and processed and the finished product contracted. Colombia is probably sold out, or close to it, though there always seems to be a few containerloads tucked away for customers who need a quick spot purchase late in the season.

Colombia’s ‘interim’ harvest is in October. Given that Colombian mango purée is duty-free into the EU, a good harvest there could mean that, for the first time in a few years, the country would have a price advantage over India. Cheaper Indian product may be offered but is not necessarily to be trusted.

Pineapple juiceThis is also going to get more expensive as the year progresses. The fruit prices went over THB9.0 per kilo, equivalent to around USD300 per tonne, and Thai processors have been forced to raise their prices in a market that seems to be ignoring pineapple altogether. The fruit price has slipped now, but is still well above last year’s level, and volumes coming into the processing plants are down.

Prices for Thai pineapple juice concentrate are moving up already. Prices are now around USD1,300-1,350/tonne fob, according to some IEG Vu sources, and according to another, USD1,385/tonne cfr Europe, which would be about the price on an fob basis. The problem is that European demand is still completely flat. Nobody is interested in pineapple juice.

Pricing seems to have nothing to do with it. Pineapple juice is now way cheaper than orange juice and roughly equivalent to the apple juice concentrate (AJC) price. You could probably drop the PJC price to USD1,000/tonne and not see a significant increase in demand and consumption. On the other hand, increasing its price is not going to stimulate demand.

Pineapple juice is just not on the radar. European consumers are not interested in it, either on its own or in a multifruit tropical blend.

Thailand’s next harvest peak is in late October (the winter crop). There is no sign that production then will be any better than it has been in June/July, nor any

indication that European demand will suddenly revive.

Costa Rican pricing is strange. Its processors were engaged in a price war with each other, and the country’s PJC is now priced around USD1,400/tonne fob. NFC juice is around USD650-700/tonne for premium frozen product, though juice packed in aseptic bins is cheaper than this. Either way, on a brix basis, the PJC price seems far too low, especially as some of this product will be 65 brix whereas Thailand’s is all 60 brix.

Costa Rican PJC also seems too cheap when one considers that the country’s juice is supposed to be a premium product, coming as it does from the MD2 variety of pineapple rather than the Cayenne that Thailand grows. In fact, when (not if) Thailand increases its prices again, Costa Rican pineapple juice could even be cheaper than Thai.

IEG Vu does not think that the Costa Rican processors are likely to be that reckless and therefore expects them to raise their prices before the end of the year.

However, there is another variable that could affect Costa Rican pricing and that is the entry of the Mexican fruit processor,

Mexifrutas, into Costa Rica. Mexifrutas is building a new plant to produce PJC, NFC juice and banana purée. IEG Vu expects this to be completed for next year, and our sources are divided about the effect it might have.

One scenario is that it will mean more competition between processors for raw material, driving the fruit price up and thus the juice price as well. Another is that it will mean intensified competition between processors for market share, which would have the opposite effect on prices. We will have to wait and see.

Lemon juicePrices are continuing to fall for 400gpl concentrate. Argentina had a smaller harvest and Spain had a much larger one. Argentine exports also benefit from the weak peso, although its duty into the EU still forms an effective barrier to sales into Europe.

Argentina’s 400gpl price is now around USD2,400-2,500/tonne fob Buenos Aires for large orders, or some USD600-700/tonne lower than it was at this point last year. Both fresh fruit and concentrate export are expected to be down, and buyers seem to be waiting for the latest Spanish prices before committing. It is unlikely that prices will rise before the end of the year.

Argentina’s lemon season has been delayed by cold wet weather in Tucuman, and the country is exporting fresh lemons to the US now, the long-running ban on its lemons having finally been lifted.

Thai processors have been forced to raise their prices in a market that seems to be ignoring pineapple altogether

California is the main global grower and supplier of almonds, walnuts and pistachios, leading international prices, and organisations such as the California Almond Board (ABC) or California Walnut Board (CWB) are developing ambitious and successful marketing policies in the main consumption markets.

However, the trade conflicts between the US, China, India and Turkey are impacting exports of nuts. The US secretary of agriculture, Sonny Perdue, announced that almonds, walnuts, pistachios, pecans, hazelnuts and peanuts will be included in the administration’s new trade mitigation package this May.

However, the best possible business is selling without disruption. “While we appreciate almonds’ inclusion in the second package, almonds continue to be impacted by the increase in tariffs and we’ve seen significant decline in shipments to China,

our third-largest export market. Getting back to normal trade is critical,” the vice president of global, technical and regulatory affairs at the Almond Board of California, Julie Adams, explained.

IEG Vu is going to review latest data and updates on almonds, walnuts and pistachios to have a clear outlook.

AlmondsThe California almond crop reached 1,034,000 tonnes in 2018, 60,000 tonnes more than in the previous year, and a record. The value was USD5.46 billion, USD130 million down from 2017 due to lower prices, according to the USDA. California has experienced a gradual acreage increase, having reached 1.17 min acres in 2019.

However, the 2019 crop is expected to fall to 2.2 bln pounds (998,000 tonnes) according to the objective estimate

released by the USDA’s national Agricultural Statistics Service (NASS) on July 3, down from 2.5 bln lbs at the previous subjective estimate. NASS reported that the average nut set per tree may drop to 4,667, 17.8% less than in the 2018 crop. The Nonpareil average nut set per tree is 4,429, 10.1% less. Finally, the average kernel weight for all varieties sampled was 1.54 grams, unchanged from the 2018 average weight.

This estimate surprised all international players. US company Primex International Trading Corporation explained on July 9 that prices were set to grow between 10-30 US cents. “Perhaps we can draw from the experience of 2018. In 2018, growers and packers didn’t accept the 2.45 bln lbs objective, arguing that the objective sampling somehow wasn’t representative of the frost damage areas. They thought that the crop was 2.3-2.35 bln lbs. This divergence in points of view caused the hand-to-mouth covering by the buyers and sellers also didn’t want to offer volume and forward. So, we mostly did business for prompt shipment practically throughout the year,” Primex noted.

Meanwhile, Blue Diamond Almonds and Primex explained that this downgraded estimate will make all international players analyse June shipment data to corroborate the NASS objective estimate. The 2017-18 season (August-July) closed with exports totalling 1.516 bln lbs, 6.4% more year-on-year. On the other hand, shipments between September 2018 and May 2019 closed at 1.94 bln lbs, slightly down from 1.95 bln lbs in the same period the previous season.

Turkish and Chinese tariffs have had a clear impact on US exports. Turkey imported 34.1


California almond, walnut and pistachio industries are the main global suppliers, leading international prices and they are set to maintain their leadership in the mid-term despite the trade war between the US, China, India and Turkey. How long will they continue to resist this obstacle without losing global market share?

By Jose Gutierrez

Successful records despite trade conflicts


mln lbs between September 2018 and May 2019, 30.4% less year-on-year. China and Hong Kong bought 112.6 mln lbs, 29.8% less.

India is a large importer of in-shell product, having bought 198 mln in-shell lbs between September 2018 and May 2019, 13.6% less y-o-y. However, on June 15, India imposed a tariff of INR41 (USD0,6) per kilo on US in-shell almonds, which compares with the INR35/kg it set for the other origins.

On the other hand, Turkey halved its additional tariffs to 10% for almonds, walnuts, pistachios, pecans and macadamias, after the US reduced its tariffs on Turkish steel on May 17.

WalnutsUS walnut production totalled 672,723 (short) tons, 7% more y-o-y, and the average yield 1.93 tons/acre, up 0.05 tons from 2017. The crop was worth USD879 mln, 44% less. The USDA noted that late spring rains provided cool conditions, increasing kernel size and average quality.

The in-shell exports totalled 321.1 mln lbs between September 2018 and June 2019, 15.19% more y-o-y, and 225,886 tons, 2.58% more.

Again, China, India and Turkey experienced sharp falls in imports. In-shell purchases by China and Hong Kong fell by 68.2% and by 53.95%, respectively, to 2.8 mln lbs and to 4.8 mln lbs and Indian by 38.44% to 13.9 mln lbs. Turkish and Chinese shelled imports declined by 29.2% and by 77.6%, respectively, to 2.4 mln lbs and to 251,022 lbs.

The poor Iranian crop and the California Walnut Board’s (CWB) promotion policy has meant it is is seeking promising new markets in the Far East and Middle East, such as Israel, the UAE, Saudi Arabia, Pakistan and Singapore. However, data revealed poor monthly June sales, as the Chilean industry is starting to ship its crop.

Turkey halved its tariffs to 10% on US walnuts, in-shell exports rocketing by 69.5% to 448,452 lbs in May 2019, compared with the same month the previous year. The remaining large customers in the Middle and Far East experienced very poor sales.

India decided to apply for a 120% duty

import on US in-shell walnuts from June 16 onwards, against a 100% tariff on the other origins.

Meanwhile, China is the largest global grower and its retaliatory tariffs on the US product are encouraging an increase in its planted area and the consumption of domestic production. China produced around 750,000-800,000 tonnes of walnuts in 2018, down from 830,000 tonnes in 2017, due to frosts in April 2018. As a result, China may combine its crop with nuts from alternative origins to the US to avoid a supply shortage.

PistachiosCalifornian pistachios are enjoying a combination of a record crop and a sharp production fall in Iran, its main global competitor.

The 2018 US utilised production totalled 987 million lbs, 64% more y-o-y, and a record high, according to the USDA. This output relied on an average yield of 3,740 lbs per acre, up from 1,340 lbs in 2017 as 2018 was ‘on’ year. The USDA

estimated that the value of the crop totalled USD2.62 bln, two and a half times more year-on-year.

Californian shipments increased by 29.3% to 453.1 mln lbs between August 2018 and May 2019 compared with the same period the previous year.

China and Hong Kong are still the main global purchasers and retaliatory Chinese tariffs are not discouraging imports. China and Hong Kong imported 195,5 mln lbs, 69.4% more. Both accounted for 43.1% of the total volume.

IEG Vu forecast firm prices in 2019 for Californian pistachios in its 2018 Global Outlook report. However, updated price data reflects that the Californian industry is fuelling its exports through stable prices, having experienced falls in in-shell product between December 2018 and January 2019 and for kernels between last March and April. Average weekly price for US21/25 extra no. 1, was USD4.6/lb fob in the first week of July and USD7.7/lb for kernels, according to IEG Vu.

CALIFORNIA NUT PRODUCTION

Almond

Year Bearing Acres Tonnes Production Value (1,000 USD)

2014 930,000 848,000 7,388,000

2015 950,000 862,000 5,868,750

2016 970,000 971,000 5,052,460

2017 1,030,000 1,030,000 5,603,950

2018 1,090,000 1,034,000 5,468,040

2019 (1) 1,170,000 998,000 NDA

WalnutYear Bearing Acres Trees per Acre Total Production

(short tons)Value (1,000

USD)2014 290,000 71.6 571,000 1,907,140

2015 300,000 72 606,000 1,012,020

2016 315,000 73.3 689,000 1,274,000

2017 335,000 74.1 630,000 1,593,000

2018 350,000 75.5 690,000 NDA

PistachioYear Total Production

(1,000 lbs)Open in-shell Shelling Stock Yield (lbs/acre)

2014 513,626 407,691 17,435 2,329

2015 270,096 203,538 12,950 1,161

2016 896,486 666,568 60,338 3,745

2017 600,277 460,584 40,959 2,397

2018 986,656 741,650 47,990 3,736

Source: USDA Note: 1 = Estimate, NDA = No Data Available


International vanilla prices could still be viewed as strong in historical terms, but there has certainly been a cooling off from the sharp gains seen over the last four years or so (2015-2018).

In particular, last year saw peak prices reached.

IEG Vu’s own prices data indicates that the Madagascan extract type hit a high of around USD625 per kilo fob Vohemar around mid-January 2018.

This is quite staggering when one recalls that in January 2015, the same grade was being offered at USD70/kg fob. By October 2015, the price on this grade had climbed to USD175/kg fob.

Regular upward momentum saw this price reach USD450/kg by late August 2016 and by May 2017 it was at USD550/kg.

After the January 2018 record of USD625/

kg, the price eventually eased moderately last year to settle around USD500/kg by the year end. As of July 2, 2019 the price (for any remaining 2018 crop Madagascar vanilla) was indicated as USD450/kg.

As the biggest origin in terms of production volume, Madagascar tends to set the price trend that is followed by rival origins. So it is no surprise that recent price indications from Indonesia and Papua New Guinea were also down from earlier highs.

IEG Vu sources listed Indonesian black vanilla beans at USD340/kg fob Jakarta on July 2 2019, compared with USD480/kg back in October 2017, when IEG Vu started listing regular quotes from this origin. Papua New Guinea’s most recent quotes were USD350/kg fob Wewak, against USD480/kg fob in September 2017.

Supply expectationsThe consensus is that this year’s vanilla

Global vanilla prices appear to be in a more stable pattern after the recent spate of extreme volatility.

By Julian Gale

Has the vanilla market returned to a calmer state?

Madagascar tends to set the price trend that is followed by rival origins


bean crop in Madagascar will be significantly lower than that of 2018.

The 2018 crop was estimated to amount to around 1,600-1,800 tonnes of cured beans, including about 100-150 tonnes of 2017 crop carry-over which was blended into the 2018 crop.

Douglas Daugherty, president of the Vanilla Corporation of America, told IEG Vu: “The 2018 Madagascar vanilla bean crop is now sold out with the exception of some gourmet and European type vanilla beans with moisture contents over 30%.”

This year’s 2019 Madagascar vanilla bean crop is not expected to produce more than 1,200-1,400 tonnes cured due to the weak and late vanilla vine flowering last year.

David van der Walde of Aust & Hachmann (Canada) cautioned that any estimates made at this time of year can be “extremely imprecise” and suggested that it might be more realistic to widen the potential range to 1,000-1,400 tonnes.

He added: “The yield of crop is directly related to the maturity of vanilla. Last year the crop was quite mature, which means that the curing ratio from green to cured was quite good at about six to one. This year, the crop is expected to be slightly immature because there was late flowering and it does not appear they had any success in delaying the harvest. That does not bode well for quality and curing ratios.”

Similarly, Touton stated it would not be surprised to hear about large curing of immature beans, again.

Touton Madagascar researchers ‘in the field’ estimated that only 50% of the crop could be mature by July 15 on the littoral side of the Sava, while the Madagascar government had recently announced it would be opening the campaign on this same date.

“Some even dare to say that today most of the littoral area green beans have been cropped already,” Touton added.

Touton noted that the official opening dates for other important areas were August 15 for the intermediate area and August 30 for the mountains area. However, it was debatable whether these later collection dates would be respected

when the go-ahead had already been given to the Sava littoral area to collect by July 15.

“It looks like this campaign could give quite a large percentage of cuts, potentially shipped as early as they have been cropped with a nice ‘crop 2018’ badge stuck on the carton,” Touton warned.

Other originsUganda is forecast to produce around 100 tonnes in total this season from the combination of its November/December 2018 crop and June/July 2019 crop.

Contrasting with Madagascar, the quality from Uganda is expected to be very good this year as its new crop vanilla beans are proving to be very mature. Van der Walde noted that Uganda’s pricing on green vanilla was a “little on the high side” at around USD60/kg fob.

Comoros is projected to produce around 100 tonnes, as is Indonesia, and Papua New Guinea 150-200 tonnes. Van der Walde noted that Indonesia and Papua New Guinea were discounting their prices from those of 2018.

“I’m not sure that Madagascar will follow in terms of discounting to that extent. What is happening is that anyone who has inventory right now, ahead of Madagascar coming to the market, would probably like to reduce that a little bit, given attractive pricing, because the market is soft,” he added.

Demand impactsVan der Walde observed that, at this stage, industrial buyers were taking short term coverage only on the belief that prices will decline in the long run.

This demand pattern could shift over the coming months in view of the fact that these industrial buyers currently have limited volumes of material.

Touton recalled that most buyers in the first four to five months of this year were waiting for prices to decline, but the market decided not to panic. As a result, a number of buyers were uncovered, and some sales were triggered, “slowly but surely diminishing the supply”.

Another possibility for pricing ahead arises from the fact that global vanilla quality and

volumes are expected to rise sharply next year, the anticipated upturn in output being driven by major expansion in plantings in the key origins recently.

Industrial buyers are obviously well aware of this and this might mean that they limit their 2019 coverage to only a few months ahead at a time, van der Walde suggested.

“If the flowering (in Madagascar) is profuse and abundant this autumn, that is going to really impact how buyers treat the market. If they think there is better quality coming next year than what is currently available on the market they are going to do everything they can to avoid buying on the current market,” he noted.

Based on this latter potential, there could be a slight softening in prices into the fourth quarter of this year, van der Walde added, with Madagascar 2019 crop first grade vanilla beans possibly being offered in a range of USD375-400/kg fob.

Madagascar’s first exports of cured vanilla beans from its 2019 crop are officially set to start from October 15. The grade three beans (cuts), will be exported immediately, and the first-grade extraction and gourmet beans will follow over November and December.

Touton envisaged definite possibilities for rising prices on Madagascan vanilla over the coming months, as well as that from Uganda and Comoros.

In the case of Madagascar, this would be underpinned by the shortage of good quality vanilla from the 2019 crop, the firm noted. Sellers might be unable to resist commanding a premium price for this limited good quality material.

Recent (July 4 2019) price indications of MGA190,00-200,00/kg (USD51.62-54.34/kg) for new crop green vanilla beans from the northeast area (Ananlanjirofo/Mananara) were another sign of potential upward pressure. “If it keeps going on the same direction for sure prices will stay high and the curing yields won’t help,” Touton warned.

Emmanuel Nee of Touton added that he expects declining prices for Papua New Guinea, which is taking a large part of the market share, particularly for the gourmet business.


Strawberry After two years of sky-high prices, Polish frozen strawberries prices have drifted toward pre-2017 level, opening the 2019 processing season at EUR1.60-1.75 (USD1.82-1.99) per kilo, depending on class and fruit calibre. Prices buckled under the strain of higher volumes available on the market and lower fruit quality due to high temperatures, which caused processing losses to rise from 1.5% to 6%. However, the equation: ‘high volume plus low quality equals low prices”, failed to convince most.

Some analysts in the country suggested that high stocks from the previous season might have depressed prices, but this is mostly true for juice and jam industry which retained its stocks as buyers were reluctant to spend the asking price (EUR6.5/kg), while IQF stocks are not significant. There is no famine for strawberry but given the high prices of the past two years the industry has bought just enough to cover the needed volumes.

Processors believe that prices will eventually recover, but IEG Vu has collected signals indicating a major market

Poland might lose the crown of Europe’s largest exporter of frozen strawberry as buyers show an increasing interest toward new and cheaper origins. Overall, 2019 should see the renaissance of raspberry and sour cherry, whose prices are expected to increase after years of stagnation, while blackcurrant struggles to climb back on top despite a sharp decline in harvested volumes.

By Cristina Nanni

Demand reshapes berry’s market balance

Overall, 2019 should see the renaissance of raspberry and sour cherry, whose prices are expected to increase after years of stagnation


re-orientation in sourcing frozen strawberries. More than one large European buyer contacted by IEG Vu during the processing season has admitted having drastically reduced their volume intake from Poland or to have closed no contracts at all there. Buyers have shifted their focus toward Morocco and Egypt.

Despite being more costly than last season, both origins are still below the Polish level. Morocco strawberry reached a peak of EUR1.40/kg cfr after starting from EUR1.20/kg in March. The increase started in April under the pressure of a frozen strawberry shortage in the US due to a small crop in Mexico, its largest supplier.

Egypt is becoming an increasingly popular origin for frozen strawberries. In 2018, the country exported 107,740 tonnes, 65% more compared with 2017 gaining market share among European buyers which were traditionally sourcing from Poland. After a first increase between five and 10 cents over the prices paid last season, as more raw material was earmarked for fresh to fill the gaps left by a slow coming Spanish crop, the Egyptian market settled in the range of EUR950-1,250 per tonne cfr, depending on the quality.

“It was a good season, and new markets from Asia and South America have also started procuring from Egypt,” a source said. There are still some stocks left in the country, but it is a mix of products manufactured in different processing plants considered at high risk for food safety and traceability.

In the first quarter of 2019, Egypt’s IQF strawberry exports rose by 68% year-on-year, making it the largest global exporter of frozen strawberry and ahead of Poland whose volumes grew by only 1.58% to 44,120 tonnes.

China’s production of American 13 and Honey varieties, mostly used for processing, is expected to be down by 20-30% due to adverse weather conditions. As a result, prices are fluctuating between USD1,600-1,950/tonne cfr depending on the calibre and fruit quality, which is still USD100-150/tonne cheaper compared with the beginning of the season.

“The main reasons for high prices are also planting and high processing costs, to be

Exports of Frozen Strawberries, Jan-Mar 2019 (tonnes)300K

250K

200K

150K

100K

50K

0

Repo

rter

's To

tal

Egyp

t

Pola

nd

Mor

occo

Chile

Net

herla

nds

Spai

n

Chin

a

Belg

ium

Turk

ey

Ger

man

y

Unite

d St

ates

Peru

Fran

ce

Serb

ia

228,

108

234,

897 25

6,83

9

15,9

25 37,5

58

63,1

18

47,8

26

43,4

32

44,1

20

22,9

18

24,3

35

30,2

71

17,7

76

18,1

37

26,3

90

18,5

04

19,2

34

21,2

32

16,1

74

13,3

16

17,1

82

16,0

15

11,9

73

10,5

35

12,0

37

9,94

6

8,95

9

4,52

9

8,04

1

8,27

3

3,50

9

3,89

1

6,28

5

5,66

4

4,26

3

3,82

0

2,08

7

2,99

1

3,27

3

2,32

2

1,68

1

3,00

9

1,74

0

1,40

3

1,60

7

2017 2018 2019

Source: GTT/IEG Vu

Frozen Raspberries – Main Exporting Countries, Jan–Apr (tonnes)Frozen Raspberries - Main Exporting Countries, Jan-Apr (tonnes)45K

40K

35K

30K

25K

20K

15K

10K

5K

0

Serb

ia

Pola

nd

Chile

Bosn

ia a

ndH

erze

govi

na

Ger

man

y

Net

herla

nds

Ukra

ine

Slov

enia

Belg

ium

Aust

ria

Bulg

aria

Fran

ce

Spai

n

Lith

uani

a

Czec

h Re

publ

ic

30,0

1537

,107 39

,481

20,7

1817

,081

13,0

688,

566

10,2

307,

908

4,27

8 6,77

17,

316

3,94

03,

457

4,71

53,

922

3,91

63,

265

1,58

23,

009

3,14

53,

308

5,01

53,

042

3,92

14,

347

2,72

61,

687

1,86

12,

276

1,31

41,

382

1,33

741

840

382

057

0 1,29

850

067 14

244

482 29

038

2

2017 2018 2019

Source: GTT/IEG Vu

Exports of Frozen Strawberries, Jan–Mar 2019 (tonnes)


added to the fact that the Chinese labour cost is becoming more and more expensive,” a source in the country reported.

At the time of writing, the market is reported to be quiet and orders are mainly coming from freeze-drying processors which should cause prices to remain in the above-mentioned range.

Outlook: Given this market situation, market prices for Polish frozen strawberries are unlikely to increase to their past glory this season as demand is redirected toward cheaper origins. IEG Vu believes that this year demand trends will have the stronger influence in driving prices up or down than levels of stock or production.

RaspberryWithin the frozen raspberry market, Poland risks to succumbing to the Ukrainian production. Prices in the latter have started from UAH15-25 (USD0.57-0.97) per kilo, but growers are noting a renewed interest toward this berry which could inflate prices toward the season peak. Raw material prices in Poland are significantly more expensive than in Ukraine and start from USD0.80/kg, while class A raspberries are sold for USD0.90-1.35/kg.

Poland and Ukraine have entered the new season with their coldstores empty. “They are practically sold out. Prices will rise but not much because buyers are not in a rush to purchase,” a processor told IEG Vu.

Large volumes have been purchased in the last couple of years when high stocks from 2016 and 2017 were keeping prices down, but any further decline in profitability for growers would result in less raw material on the market. In 2018, about half of Poland’s raspberry crop was left on the canes while sales of Ukrainian product surged.

Between January and April 2019, exports of Polish frozen raspberries declined by 23.49%, while they increased for Ukraine (6.21%) and Bosnia Herzegovina. The latter became the fourth-largest exporter for this product with over 7,000 tonnes sold on the global market.

The Polish debacle is linked to an oversupply of crumbles due to the poor fruit quality the country had in 2018. This product is at a standstill at the moment and buyers are struggling to find anything premium or close to it before the start of the season.

Unlikely for frozen strawberries, Serbia could retain its leadership as there is not yet a competitor which is big enough to undermine its position. The country remains the world’s largest exporter with 39,481 tonnes sold between January and April 2019, against 13,068 tonnes for Poland, and 7,908 tonnes for Chile.

Polish Frozen Blackcurrant Prices (ex-works EUR/kg)Polish Frozen Blackcurrant Prices (ex-works EUR/kg)

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

11/0

7/20

1918

/04/

2019

30/0

1/20

1909

/11/

2018

22/0

8/20

1805

/06/

2018

16/0

3/20

1828

/12/

2017

11/1

0/20

1725

/07/

2017

08/0

5/20

1715

/02/

2017

29/1

1/20

1612

/09/

2016

17/0

6/20

1629

/03/

2016

07/0

1/20

1619

/10/

2015

30/0

7/20

1505

/05/

2015

11/0

2/20

1520

/11/

2014

03/0

9/20

1416

/06/

2014

24/0

3/20

1403

/01/

2014

14/1

0/20

1325

/07/

2013

07/0

5/20

1318

/02/

2013

30/1

1/20

1213

/09/

2012

21/0

3/20

1203

/01/

2012

Source: IEG Vu

Serbian Frozen Sour Cherry Prices (ex-works EUR/kg)Serbian Frozen Sour Cherry Prices (ex-works EUR/kg)

1

1.05

1.10

1.15

1.20

1.25

1.30

08/0

7/20

19

24/0

6/20

19

10/0

6/20

19

27/0

5/20

19

13/0

5/20

19

29/0

4/20

19

15/0

4/20

19

01/0

4/20

19

18/0

3/20

19

04/0

3/20

19

18/0

2/20

19

04/0

2/20

19

21/0

1/20

19

07/0

1/20

19

24/1

2/20

18

10/1

2/20

18

26/1

1/20

18

12/1

1/20

18

29/1

0/20

18

15/1

0/20

18

01/1

0/20

18

17/0

9/20

18

03/0

9/20

18

20/0

8/20

18

06/0

8/20

18

23/0

7/20

18

09/0

7/20

18

25/0

6/20

18

Source: GTT/IEG Vu

Buyers are struggling to find anything premium or close to it before the start of the season


In Serbia, raw material prices for 2019 are not very different from those in Poland despite the heavy losses lamented by growers following the storm and hail that battered the country in spring. Here, growers have so far been paid about USD0.70-1.30/kg by freezing plants, with prices in the first week of July getting closer to the higher end of this range, and USD2.10-2.40/kg for material earmarked for the fresh market.

The raspberry market was at its peak in 2015 but given a combination of higher processed volume and buyers reluctancy to pay such a high price for this berry, prices have collapsed refraining further investment in countries where labour and production costs were not competitive enough.

Outlook: given the current market situation, a price increase is expected for both IQF whole and crumble raspberry across the market, due to smaller crops in some of Europe’s main raspberry producing and processing countries.

Sour cherriesAt the time of writing (July 9), sour cherry prices in Europe are higher than in 2018. Serbian processors are selling their products at EUR1.30 (USD1.46) per kilo ex-works, about 4% above the price offered at the beginning of the season (EUR1.25/kg) and three cents more than the previous week. “Prices are climbing

every day. I guess it is because of the huge demand we are seeing this week,” a trusted source told IEG Vu.

The Serbian sour cherry crop is promising and prices for this origin are inflated by forecasts of a smaller crop in Poland. Here, orchards were weakened by the bumper crop of 2018 and the night frosts between mid-March and mid-May hampered further fruit development.

The Polish crop should not exceed 100,000 tonnes, resulting in a 50% contraction compared with one year ago. Starting prices are projected in the range of EUR1.20-1.60/kg ex-works, depending on the fruit quality.

The Hungarian crop could be down by up to 40% from last year’s 90,000 tonnes. The drought caused substantial fruit losses in April which were only partially offset by higher yields following the blooming of recently-planted trees.

Hungarian prices are starting from EUR1.60/kg ex-works, about 39% above last season prices in the range of EUR1.15/kg. Hungarian frozen cherry production is much smaller compared with the canning industry which supplies up to three-quarters of German demand for this product. Nevertheless, production of frozen cherry in the country is tied to Polish crop trends as more raw material is earmarked for freezing when the Polish crop falls below expectations.

Outlook: The price increase recorded for the sour cherry market comes with little surprise given the bumper crop of 2018 in Poland. In this case the producing geography hasn’t been affected much, but Serbia is likely to gain from a smaller crop in Europe.

Blackcurrant Within all this price movements, blackcurrant is an unfortunate constant. In Poland, the world’s largest producer, processor and exporter of this berry, blackcurrant yields should drop by 50% compared with one year ago due to plants’ bad wintering and the frost in May. Blackcurrants for freezing are currently sold at PLN0.90-1.20 (USD0.23-0.31) per kilogram, while raw material for concentrate is at PLN0.60-0.90/kg. Prices are so low that some growers have decided not to start the harvest, while in the country, organisations’ representatives suggested an intervention of the state to rebalance the market. Prices are expected to be rock-bottom, despite the announced decline of harvested tonnes.

Outlook: Starting prices for frozen blackcurrants are at the same level of 2017 and in the range of EUR0.65-0.70/kg ex-works, a bit above the latest prices recorded for the 2018 crop (EUR0.50/kg ex-works). A demand increase might keep prices afloat, but at this point it seems unlikely that this berry could get back to pre-2014 prices.


Latest estimates from the World Processing Tomato Council (WPTC) have pegged tomato global production at 37.5 million tonnes, which is 7.8% higher than in 2018 when volumes shrank due to smaller crops in some main processing countries such as Iran, China, Turkey and California.

For 2019, Iran expects a five-years record-high volume of 1.5 mln tonnes, while Turkey should come back to a more average output, hitting 1.9 mln tonnes. Production should be also higher in Spain and Portugal as both struggled with drought in 2018. Tunisia should do better this season processing 850,00 tonnes of fresh tomatoes into tomato paste and 30,000 tonnes into canned.

California’s tomato crop is one of the most uncertain for this year. Unseasonal heavy rain in spring has postponed the start of the harvest in the north. Growers

in the area expect a 10% reduction of their yields compared with last season and the actual planted area should be down by 15,000 acres from the initially estimated 235,000 acres.

A storm has recently hit also the south in the Southern Fresno and Kings County area, impacting 16,000 acres and some of those fields were removed. IEG Vu sources pointed out that given the potential losses and the increasing disease pressure, final production will be below the 12.1 million (short) tons (10.97 mln tonnes) initially projected.

At the time of writing California harvesting has started with 27,192 tons picked in the week ending July 6, about 5% less than in 2017 but way above 2018’s first harvested batch of 8,716 tonnes. For the following week, the Processing Tomato Advisory Board (PTAB) expects volume to ramp up

Expected smaller crops in China, California and Italy has lifted tomato paste prices this spring paving the way to the long-awaited market recovery.

By Cristina Nanni

Tomato looks ripe for recovery

California’s potential shortage will weigh heavily this season, as global stocks are low and smaller crops are expected in other main processing countries, namely in Italy and China


quickly to 247,000 tons and then 583,000 tons, which are slightly below 2018 and 2017’s levels. Those figures suggest that the season will unfold at a slower pace compared with previous years.

Prices negotiations are still on at the time of writing and only one processor, Stanislaus Food Products, has reached an agreement with the Californian tomato growers association (CTGA) for USD75.50 per ton anchoring growers’ expectations around this figure, as already happened in 2018.

The real question is how low California will go. Any hypothetical decline of the output in the country is certainly likely to affect tomato products global prices as California output represents by itself one-third of the total global production. California’s potential shortage will weigh heavily this season, as global stocks are low and smaller crops are expected in other main processing countries, namely in Italy and China.

The north of Italy was battered by unusual abundant rain, hail and a decline in temperatures this spring. The latest updates from the North of Italy are of a potential 10% contraction of the yields. “Plants have been moved to open field with a substantial delay and operation have been concluded by June 20 rather than in the first week of June, as usually happens,” a well-trusted source told IEG Vu.

The start of the harvest has been postponed by one week and final volume is likely to be reduced to 2.45-2.40 mln tonnes. The situation is not much better in the south, where the heavy rain has disrupted transplanting, postponing the harvesting. Despite all, the forecast for the region is confirmed at 2.4 mln tonnes.

Prices this year diverged again between the two main producing districts: north and south. Northern growers get paid EUR86 (USD96.26) per tonne for their tomatoes (about 8% more than a year ago), while

prices in the south are again higher and in the range of EUR95/tonne for the round variety and EUR105/tonne for the long. Some industry representatives have complained about the price difference which is justifiable for the long/plum variety which has to be harvested by hand, but not for the round one, as there is no significant difference in production costs between the north and the south.

Agreed prices are at the same level of 2018’ in Spain and Portugal (EUR70/tonne ex-field and EUR70-80/tonne ex-field, respectively) where contracts for raw material supply were closed well ahead of the start of the season in January. The

harvesting in Extremadura, the region accounting for 70% of the tonnage in Spain, has started ahead compared with last year’s due to both expected extremely high temperatures in July, but also due to the early start of transplanting in the region. This will realign Extremadura to average harvest timing after the delay recorded in 2018.

The harvest in the approximately 25,000 hectares of tomato cultivars should not present any disruption, so production is expected to be average or higher, as long as there are no storms during the coming weeks. Extremadura is expected to have yields of 90 tonnes/hectare.

Tomato Paste Ex-works Prices 28/30% brix (EUR/tonne)

550

600

650

700

750

800

850

900

950

1,000

01/0

6/20

1401

/09/

2014

01/1

2/20

1401

/03/

2015

01/0

6/20

1501

/09/

2015

01/1

2/20

1501

/03/

2016

01/0

6/20

1601

/09/

2016

01/1

2/20

1601

/03/

2017

01/0

6/20

1701

/09/

2017

01/1

2/20

1701

/03/

2018

01/0

6/20

1801

/09/

2018

01/1

2/20

1801

/03/

2019

07/0

6/20

1912

/06/

2019

17/0

6/20

1920

/06/

2019

25/0

6/20

1928

/06/

2019

03/0

7/20

1908

/07/

2019

11/0

7/20

1916

/07/

2019

Spain Italy

Source: IEG Vu

Tomato Output Trend 1994-2019 (tonnes)Tomato Output Trend 1994-2019 (tonnes)

0

2K

4K

6K

8K

10K

12K

14K

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Italy Portugal Spain California China

Source: GTT/IEG Vu

The crop in Spain is developing well and I see the Spanish production around 3.0 mln tonnes. We believe it will be a normal season with regard to the crop’s schedule

Tomato Paste Ex-works Prices 28/30% brix (EUR/tonne)


“The crop in Spain is developing well and I see the Spanish production around 3.0 mln tonnes. We believe it will be a normal season with regard to the crop’s schedule,” a source told IEG Vu.

This year could represents the golden one for the Spanish tomato industry as the country can gain from the uncertainty surrounding tomato crops in China, California and Italy, countries that together account for 53% of the global production of processing tomato.

In China, processing potential has been hampered by the government’s strict control on industrial emissions and a smaller production from the country’s tomato giants, Cofco and Chalkis.

Chalkis has rented four of its factories to private companies: three to Xinjiang Yan Yangtian Tomato Products, in northern Xinjiang, and one to a processor in southern Xinjiang. This was a temporary solution as the company should have been acquired by ZhongTai group which will have to put the rest of Chalkis’s processing facilities back on the market. The acquisition failed and sources in the country explained to IEG Vu that given the

extremely high amount of its debt finding new buyers will not be easy.

Despite the failed financial operation, the number of factories running this season will be similar to 2018, having a minimal impact on the final production. The WPTC estimated that China should process 4.5 mln tonnes (lowered to 4.3 mln tonnes in June), but IEG vu sources believe that this figure is still too high. The Chinese tomato season had a slow start due to a sharp drop in temperatures and rain falls recorded in north Xinjiang in spring. In early July the situation has certainly improved, but local sources believe that tomato production should not exceed 4.2 mln tonnes.

The north Xinjiang should process 350,000-360,000 tonnes of tomato paste, the south between 130,000-150,000 tonnes and about 15,000 tonnes in Inner Mongolia, for a total of 600,000-650,000 tonnes of tomato paste processed in the country.

Perspectives of lower productions in China, California and Italy coupled with low stocks have driven up tomato paste prices across the market. Italian double concentrate prices have reached EUR760-820/tonne ex-works, about 8% more than in March, the Chinese is offered at USD770-800/tonne against USD750-800/tonne of three months ago. Spanish prices for 28/30 have risen slightly to EUR700-730/tonne from EUR700-720/tonne, while triple concentrate showed a wider price difference especially for the higher quality product going from EUR820-850/tonne to EUR830-880/tonne. At the same time, average price of the US tomato paste 28/30 rose from USD780/tonne to USD800/tonne.

There could be several reasons behind the limited price movement compared with other origins, considering that the Californian could be the tomato crop mostly affected by adverse weather conditions. Some sources suggested that prices went up in winter and couldn’t go too high. “Given the strength of the dollar, they have to keep prices level if they want to sell outside their borders,” one source said.

Latest prices updates collated by IEG Vu point clearly upward. “There is general consensus that the global tomato paste supply will be a bit tighter and pricing a bit firmer, but no real shortage of product. Ex-works pricing has held up pretty well at a solid USD22/tonne higher (and more) than same time last year for new crop of California’s tomato paste,” a source said.

Those words were echoed by a processor in Spain: “When we started selling, the market was a little more adjusted to EUR700/tonne but today, when more than 90% of 2019 season has been already contracted, prices are climbing up.” The same source explained that their firm stopped selling to see how the season will go and that prices are still in the range of EUR700-720/tonne for 28/30, but more produce is sold at EUR720/tonne.

Outlook The tomato market is characterised by a five-years cycle at the end of which supply and demand is usually in balance, lifting prices. Expectations are for prices to remain higher compared with last season, helped by smaller crops in some countries which should keep supply below consumption, projected at 39 mln tonnes.

Tomato Paste Ex-works Prices 28/30% brix in bins (USD/tonne)Tomato Paste Ex-works Prices 28/30% brix in bins (USD/tonne)

650

700

750

800

850

900

950

1,000

1,050

01/0

2/20

0901

/07/

2009

01/1

2/20

0901

/05/

2010

01/1

0/20

1001

/03/

2011

01/0

8/20

1101

/01/

2012

01/0

6/20

1201

/11/

2012

01/0

4/20

1301

/09/

2013

01/0

2/20

1401

/08/

2014

01/0

1/20

1501

/06/

2015

01/1

1/20

1501

/04/

2016

01/0

9/20

1601

/02/

2017

01/0

7/20

1701

/12/

2017

01/0

5/20

1801

/10/

2018

01/0

3/20

1911

/06/

2019

18/0

6/20

1925

/06/

2019

02/0

7/20

1909

/07/

2019

16/0

7/20

19

Source IEG Vu

There is general consensus that the global tomato paste supply will be a bit tighter and pricing a bit firmer, but no real shortage of product

Citromax-FP.indd 1 01/07/2019 16:50:46

http://www.citromax.com

http://www.citromax.com


The 2019 H1 data has confirmed the forecast released at the International Seedless Dried Grape Producing Countries conference held in Windsor (the UK) on October 26 2019. This revealed that the global supply shortage will continue, especially for Thompson raisins, due to smaller crops in California and Turkey, both main global exporters.

Growing countries such as Iran, India and China are expected to reach 284,000 tonnes, although Asia and China are set to consume most domestic production and Iran has to face US sanctions. As a result, Argentina, Chile and South Africa, the largest southern hemisphere producers, have been taking advantage of the situation, enjoying the best of both worlds: high crops and rising prices.

Turkish dried grape exports totalled around 203,800 tonnes between January and May 2019 according to customs data, after having a 261,000 tonnes output in 2018. As a result, there were still over 50,000 tonnes available until the next harvest.

Meanwhile, California raisin shipments totalled 185,434 (short) tons (168,222 tonnes) between August 2018 and May 2019, a quarter less year-on-year. The 2018 crop reached around 210,000 tonnes, having available around 100,000 tonnes. California prices for Thompson seedless ranged between USD3,350-3,400 per tonne c&f UK in January, a record, starting a slight fall from February onwards, when Chilean, South African and Argentine industries started to ship

Dried grapes and prunes share a common element to explain their global shortages: poor output in California. Turkey has experienced a low 2018 dried grape production, leading to a scenario where southern hemisphere growers, especially Chile and South Africa, are enjoying the best of both worlds: strong crops and firm prices in H1 2019.

By Jose Gutierrez

Dried grape and plum shortage


their harvests, according to IEG Vu. This fall steepened to USD2,800-2,850/tonne in the first week of July, mirroring South African prices

The 2019 South African crop totalled 74,300 tonnes, up from around 65,000 tonnes in 2018, due to extremely favourable weather, the general manager of Raisins South Africa, Ferdie Botha, told IEG Vu. Chilean output reached around 60,0000 tonnes, slightly more than in the previous season. Chile’s industry experienced a transitory period to switch into more profitable varieties such as Flame.

South African prices for 2018 Thompson seedless raisins closed at around USD3,100-3,200/tonne in February. The 2019 crop prices started at USD2,900-3,000/tonne in March, falling to USD2,800-2,900/tonne in June and USD2,600/tonne in the second fortnight of July. Botha explained that Goldens are almost sold out and have reached a peak price of USD3,250/tonne. Flames and currants are also close to being sold out.

“We have experienced an excellent 2018-19 drying season with the result of excellent and high-quality dried fruit delivered to processors for exporting purposes,” Botha explained.

“The decrease in the Thompson price came a bit as a surprise due to remaining (relative) low stock levels globally. South African Thompson price did decrease in line with the decrease in the Californian price on medium Thompsons.”

Meanwhile, Chilean Jumbo Flame 2018 crop raisins closed around USD2,350-2,550/tonne in February and the 2019 crop was stable around USD2,500-2,600/tonne between March and the first week of July.

Australia and Argentina are important growers, but they are not competing with South Africa and Chile for the same

markets and with the same products. The 2019 Australian crop reached around 15,000 tonnes, sultanas and sun muscats accounting for around 65% of its total volume. Australia has the highest labour costs in the southern hemisphere, and produces colour varieties different from the Chileans and South Africans. The Australian Lexia raisin has a premium price, reaching around GBP3,100-3,200/tonne (USD3,896-4,022/tonne) in the first week of July.

Meanwhile, Argentina is focused on exporting to South American emerging markets such as Brazil, Colombia or Peru.

US and Turkish exporters are set to sell out their 2018 crop stocks in July, offering

competitive prices. The 2019 US crop is expected to be similar to the 2018 output (around 218,000 tonnes). On the other hand, the Turkish crop is expected to recover to its 2017 level.

OutlookIt is hard to forecast prices because Turkish exports are very dependent on British imports and the UK market is likely to be unstable due to the Brexit deadline on October 31. The British pound’s value fall is caused by fears of a no-deal Brexit, this instability increasing when October 31 is close. The UK only accounts for 4% of the total exports of a large exporter like South Africa, but its appetite for Turkish product may affect the global market. On the other hand, the US price trend will be

Main Dried Grape Importers, 2018 (802,539 tonnes)Main Dried Grape Importers, 2018 (802,539 tonnes)

UK 12.37%

Germany 9.64%

Netherlands 7.00%

US 6.02%

China 4.70%Japan 4.42%

Kazakhstan 3.62%France 3.45%Brazil 3.29%

Canada 3.11%Russian Federation 3.03%

Australia 2.70%Belgium 2.70%

India 2.68%

Italy 2.66%

Others 28.61%

Source: GTT

Main Dried Grape Exporters, 2017–18 (tonnes)Main Global Dried Grape Exports, 2017-18 (tonnes)

Turk

ey US Iran

Chile

Sout

h Af

rica

Arge

ntin

a

Chin

a

Gre

ece

Indi

a

Aust

ralia

268,

771

278,

950

126,

832

85,2

95 117,

940

97,0

64

51,7

88

62,9

40

48,8

08

61,1

81

27,4

55

42,1

27

13,7

92

23,7

39

20,3

32

17,4

97

24,0

58

22,9

66

3,70

6

5,59

2

2017 2018

Source: GTT

We have experienced an excellent 2018-19 drying season with the result of excellent and high- quality dried fruit delivered to processors for exporting purposes

Main Dried Grape Importers, 2018 (802,539 tonnes)

UK 12.37%

Germany 9.64%

Netherlands 7.00%

US 6.02%

China 4.70%Japan 4.42%

Kazakhstan 3.62%France 3.45%Brazil 3.29%

Canada 3.11%Russian Federation 3.03%

Australia 2.70%Belgium 2.70%

India 2.68%

Italy 2.66%

Others 28.61%

Source: GTT


dependent on Far Eastern and European imports, having to face the trade war between the US and China.

PrunesThe US and Chile are co-leading global prune exports, followed by France and Argentina.

The 2018 US prune crop reached 80,000 (short) tons, 23.8% less than in the previous year. All international players expected that the Chilean industry was going to enjoy an exceptional 2019 season, after Argentina suffered severe frosts,

dropping the 2019 crop to around 50,000 tonnes, one third of the 2018 crop.

However, the availability of marketable Chilean prunes (size count 100 or larger)

reached around 68,632 tonnes in 2019, 13% less than in the previous season, mainly due to higher plum exports and lower ending stocks.

Although the 2019 Chilean plum crop was estimated at 93,000 tonnes, 4% more than in the previous season, fresh plum exports from January-February were much higher than in the same period in the previous season, reaching 17,416 tonnes (dry equivalent), according to the Chilean prune processors and exporters trade association, Chile Prunes. Not counting these exports, Chile estimated a marketable crop of 59,507 tonnes in 2019, 12% less than in 2018, in March 2019. In addition, the carry-over stock estimate was 9,125 tonnes on February 28, 16% less.

As a result, the Chilean prune industry is sharing a similar problem with the apple processors: competing with the fresh export market to secure its supply.

France is experiencing a record carry-over stock, after enjoying strong crops in 2016 and 2017, and is set to take advantage of this shortage despite being one of the most expensive origins, as IEG Vu reported on October 12 2018.

The 2019 California harvest is taking place between July and August. The 2019 California crop is expected to reach 105,000 tonnes, 31.2% more y-o-y, due to a higher yield, according to the USDA.

2018 Chilean prices were stable at around USD2.2/kg. Chile’s industry is not trying to speculate due to the production fall in California. Chile started with stable prices in 2019 until March, despite lower availability of fresh product. Prices rose from April onwards following its industry-moderated marketing policy.

IEG Vu expects stable prices in the following months in the event that the US production fulfils the last forecast. The international price trend will rely on the 2019 Chilean and Argentine harvests.

Californian and South African Raisin Prices (USD/tonne CIF UK)Californian and South African Raisin Prices (USD/tonne CIF UK)

2.8K

2.9K

3K

3.1K

3.2K

3.3K

3.4K

04/0

1/20

19

11/0

1/20

19

17/0

1/20

19

25/0

1/20

19

01/0

2/20

19

07/0

2/20

19

14/0

2/20

19

22/0

2/20

19

01/0

3/20

19

14/0

3/20

19

22/0

3/20

19

29/0

3/20

19

04/0

4/20

19

11/0

4/20

19

18/0

4/20

19

26/0

4/20

19

03/0

5/20

19

09/0

5/20

19

17/0

5/20

19

24/0

5/30

29

06/0

6/20

19

12/0

6/20

19

21/0

6/20

19

28/0

6/20

19

05/0

7/20

19

3,350 3,350

3,200 3,2003,150

3,125 3,125

2,850

3,000 3,000 3,000

3,100

2,900 2,900 2,900 2,900

2,800 2,800

California Thompson Seedless, 2018 Crop South African Choice TSR, 2018 Crop

South African Choice TSR, 2019 Crop

Source: IEG Vu

The Chilean prune industry is sharing a similar problem with the apple processors: competing with the fresh export market to secure its supply

France is experiencing a record carry-over stock, after enjoying strong crops in 2016 and 2017

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Back in October 2018, sources contacted at SIAL Paris noted canned pineapple carry-over stocks at the time were so significant that growers were giving away fresh fruit for free. Canneries reduced processing activity to 50-60% capacity in December and Thai pineapple raw material prices entered 2019 at THB3.0 kilo (USD0.09).

“Prices customers are willing to pay are so low that Thai pineapple canners prefer not to sell, so they don’t pack,” an industry source told IEG Vu in January 2019. Customs data shows average prices for Thai canned pineapple in 2018 ended 22% lower than that of the previous year and the lowest in a 10-year period, to USD838 per tonne.

In the beginning of the year, first estimates of a lower pineapple crop in Thailand suggested 1.5 million tonnes for processing. Canneries predicted that raw material prices would progressively increase along the summer season to top out at around THB5.5/kg. Contracted shipments were closed with customers signing at that level.

However, those estimates were proved wrong once canneries resumed operations after the Lunar New Year in early February as what will be remembered as an historical pineapple shortage drove raw material prices up to nearly THB10/kg.

“Pineapple raw material prices, hence canned pineapple prices, are not going up in line with supply shortages because buyers don’t want to pay that much. We need to keep old and current stock prices in balance, which means we are currently processing below production costs,” industry sources said at London trade show IFE in mid-March.

In mid-April, raw material tonnage estimates in Q1 were down 25% compared with the same period of 2018, from 512,100 tonnes to around 380,000 tonnes.

Offers for finished product in May remained unchanged for a while despite lower production and higher costs, a US importer told IEG Vu, suggesting that stock clearance was happening at a slow pace. Raw material prices were between THB7.0-7.3/kg at that time. Just before Thaifex in late May, sources from the buying side highlighted that no one was quoting canned pineapple because of the sharp increase in production costs.

In early July, pineapple raw material price fluctuations were no longer a matter of concern for canneries, with some closing operations due to raw material shortages. “The Thai pineapple raw material situation looks quite serious this time. I have never seen such conditions during my past experience of almost three decades,” a source recently noted.

The Thai raw material supply situation is expected to worsen throughout the second half of the year, with volumes falling to historical lows. Meanwhile, the local canning industry is in the red as production costs increase.

By Estela Cuesta

Disastrous summer crop suffocates Thai canned pineapple industry


Raw material Fresh pineapple processed by Thai canneries between January to April (Q1) totalled 500,100 tonnes, down 22.3% compared with the same period of the previous year. Output for processing between May and August (Q2) is expected down 40% compared with the same period of the previous year to 319,220 tonnes, according to the Thai Food Processors Association (TFPA) estimates. Industry sources are doubtful that there will be a recovery in Q3.

Echoing this sentiment, IEG Vu believes total 2019 pineapple raw material tonnage destined to canneries is likely to be 30% lower than that of the previous year, barely reaching 1.2 million tonnes. These volumes will impact trade from H2 2019 onwards.

Demand forecastGlobal canned pineapple exports in 2018 (looking at four top exporters; Thailand, Indonesia, Philippines and Kenya) dropped to 0.93 mln tonnes, down 11.5% compared with the same period of the previous year. Accumulated carry-over remained in canneries to date.

Exports from these countries between January to April in current year 2019 was 247,166 tonnes, just 3.7% down compared with the same period in the previous year.

Figures related to trading volumes in May were recently released for Thailand: 41,740 tonnes (41,220 tonnes in May 2018). A US buyer attending Thailand’s food trade show

Thaifex in late May said: “Quality is mostly all standard, but canneries are not offering as they are now behind on commitments.”

Meantime, average canned pineapple prices fob Bangkok reached a record low within the January-May period at USD768 per tonne. Although still modest, customs data shows signs of a price uptrend, from USD752/tonne recorded in March to USD788/tonne in May.

At the time of writing (July 17), most canneries in Thailand remain closed, with

only eight operating with a daily tonnage of less than 1,300 tonnes. Industry sources recently noted that supply before the end of the year will be limited, as the winter crop operations are expected to resume in October.

With buyers being aware of the worsening raw material shortage situation as the rainy season comes to an end, canned pineapple demand – especially that for food service – should stimulate soon in H2 2019 before a likely rise on final products takes place.

HY 2910 Global Canned Pineapple Trade Y-O-Y (tonnes)HY 2910 Global Canned Pineapple Trade Y-O-Y (tonnes)Demand analysis: Long-term exports, 10-year and 5-year rolling export average.

0.3M

0.4M

0.5M

0.6M

0.7M

0.8M

0.9M

1M

1.1M

1.2M

1.3M

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Total traded volume per year Top 4: volumes traded on the year Top 4: 5-year average

Top 4: 19-year average Top 4: 10-year average

Top 4 producing countries: Thailand, Indonesia, Philippines and Kenya

THAI RAW MATERIAL PINEAPPLE FOR CANNING (TONNES)

Q1 Q2 Q3

Jan. Feb. Mar. Apr. May. Jun. Jul. Aug. Sep. Oct. Nov. Dec. Grand Total

2019 500,100 319,220* 1,200,000*

2018 176,300 153,600 182,200 135,250 203,020 236,410 87,270 4,850 44,360 125,140 193,080 149,630 1,691,110

2017 192,420 170,090 194,200 148,600 179,550 192,350 134,100 13,250 73,930 151,800 189,200 191,100 1,830,590

2016 165,580 160,000 185,450 134,000 112,500 125,000 85,610 14,540 30,750 85,600 184,300 205,560 1,488,890

2015 120,800 115,750 145,000 143,950 144,450 157,500 72,820 17,870 60,150 114,500 174,800 178,500 1,446,090

2014 152,975 112,076 112,040 122,820 191,220 237,900 86,350 6,920 21,380 55,900 104,400 131,600 1,335,581

2013 237,050 170,480 198,000 112,850 152,900 218,300 114,600 28,000 68,115 133,150 173,150 188,300 1,794,895

2012 181,230 183,160 200,650 183,160 194,880 137,130 60,725 12,710 50,037 192,650 250,900 243,500 1,890,732

2011 206,100 170,900 218,500 223,100 237,400 208,190 91,135 77,780 150,400 239,900 300,300 234,580 2,358,285

2010 162,080 165,200 203,710 156,300 114,130 76,280 46,050 40,900 87,220 123,280 179,340 180,950 1,535,440

2009 143,413 165,959 154,468 122,315 207,833 209,366 46,660 38,013 116,911 211,546 230,910 232,691 1,880,085

Average 173,516 157,068 179,113 149,677 170,540 173,557 82,006 27,776 73,210 145,370 198,589 198,531 1,728,954

Source: TFPA (*IEG Vu sources estimates)


In a context of retaliatory tariff measures for food goods between China and the US from April 2018 to date, China’s breakthrough in the EU offset losses in the US in terms of tuna supplies.

EU Q1 imports from China of frozen skipjack loins went up 51% compared with the same period in the previous year, rated 13% down at EUR4,029 per tonne cfr (USD4,600/tonne); Canned tuna imports by Spain in Q1 totalled 55,200 tonnes, of which 20,700 tonnes were of Chinese origin, exceeding those from Ecuador (15,000 tonnes) within the period.

Meantime, the EU28 has been successfully fighting on other fronts in order to secure a competitive raw material supply.

ThailandOn January 8 2019, Thailand’s fishery was released from the ‘yellow card’ status imposed by the European Commission in 2015, reversing a process that could have led to a complete import ban of marine fisheries products into the EU.

Between 2013 to 2018, Thai canned tuna exports to EU28 reduced by a factor of three, from 83,500 tonnes to 28,270 tonnes. “Thailand’s share in EU’s canned tuna market is not significant compared to other countries that benefit from tariff advantages,” highlighted a Thai tuna industry source, referring to EU import duty advantages with ACP countries, PNG, Ecuador and the Philippines against the remaining 24% from Thailand.

Europe’s efforts to guarantee tuna supply at the most competitive prices crystallised in several trade deals during the last six months, which have not gone unnoticed to Ecuador, the traditional top tuna supplier to the EU and now willing to increase tuna market share in the US, against Thailand.

By Estela Cuesta

Political treaties restructuring canned tuna markets

Between 2013 to 2018, Thai canned tuna exports to EU28 reduced by a factor of three, from 83,500 tonnes to 28,270 tonnes


However, there is a sentiment of hope from the Thai tuna industry that it will reconquer its traditional top market in the EU, the UK, after Brexit.

Cape VerdeWorth mentioning is the renewal of the EU-Cape Verde Republic fishing agreement signed in May, by which 69 EU-flagged tuna vessels are allowed to operate in the area.

The deal mostly benefits the Spanish Cape Verde-based tuna canning industry, consisting of two canneries owned by the company Frescomar, one cannery and one coldstore run by Atunlo, and the Cape-Verde flagged freezing vessel Egalabur owned by the Spanish Atunsa.

TaiwanIn June, Taiwan was also released from the ‘yellow card’ status, giving the green light to EU’s imports of Taiwanese fishery products, which is likely to benefit one of the country’s top frozen tuna raw material suppliers, Fong Chung Formosa (FCF), when exporting to Europe.

The Chinese fish industry is also believed to benefit from the granted access, with canneries sourcing Taiwanese raw materials for processing and targeting the EU safely – and offsetting a lack of demand from the US.

VietnamIn July, the EU-Vietnam Free Trade Agreement (FTA) was signed. In a likely ratification of the deal, the EU will benefit from zero duties when importing, with no quotas, Vietnamese cooked and frozen loins of skipjack tuna for processing (HS 16041416) and loins of the genus Euthynnus (HS 1604 19 31), currently set at a customs duty of 24%.

Overall EU imports of prepared tuna (canned) from Vietnam will be granted duty-free access within an aggregated annual quantity of 11,500 tonnes.

Ecuador Either the EU’s green light to Taiwanese fishery products or the EU-Vietnam FTA are the two issues of most concern to the Ecuadorian tuna industry. “It is not only the volume, but also the value of the bulk exported from Ecuador that will be dramatically impacted, as the production costs of Vietnam or Taiwan are much more

competitive than ours,” one Manta-based industry source stated.

Ecuadorian tuna exports to the EU28 (including canned tuna and precooked tuna loins) share around 63% of the market, those to the US share around 12% and the 20% left is shipped to Latin American countries.

Seeking to ease its dependency on the EU, a trade agreement between Ecuador and the US to eliminate, or reduce further, import duties on canned tuna among other commodities is expected to be reached by 2020, the country’s fishing chamber representative Bruno Leone announced, who believes exports will double in the short term.

Ecuadorian canned tuna in water currently carry a 12.5% duty and a 35% if in oil when exported to the US, the same duties as those products from Thailand, the US’s main supplier. “As long as the duties are the same and everyone is on a level playing field, Thailand will conquer. This is why the Thai government needs to ensure that the playing field is as balanced as possible by having progressive and proactive foreign trade policies,” noted a Thai tuna industry source.

Meantime, Ecuadorian tuna shipments, until now departing from Guayaquil’s port, will be shipped directly from Manta’s port thanks to a container load service available since July this year. The cost for delivering the bulk to Guayaquil’s port by road, estimated at USD1,000-1,500 per container from Manta – where 70% of the

Ecuadorian tuna industry is located – is now expected to halve. Around 180 containers are estimated to be shipped every week, mostly tuna.

Demand situation and forecastFrom January to May 2019, canned tuna exports (HS 160414) by the top five producing countries Thailand, Ecuador, China, Spain and the Philippines totalled 429,828 tonnes, an average figure compared with the same period of the last five years.

Imported volumes by top markets the US, the EU 28 and Japan totalled 421,713 tonnes, up 2.2% compared with the same period of the previous year, but also on the average of the last five years.

Skipjack catches from January 1 to June 2 this year in the Eastern Pacific Ocean totalled 153,156 tonnes (133,581 tonnes in 2018), the Inter American Tropical Tuna Commission (IATTC) reported. There is no data confirmed for the Western and Central Pacific Ocean (WCPO), although sources in Bangkok and Manta insisted that the catch level remained adequate – with some talking about raw material over-supply based on limited cold storage in June.

In March, skipjack raw material prices started a five-month price downtrend, reaching record lows of USD1,000 per tonne in Bangkok and USD1,100/tonne in Manta. Prices seem to have bottomed out in July.

A trend upwards is expected in due time as the EPO fishing closure takes place, although industry sources preferred not to give an estimate at the time of writing (July 18): “Raw material supply is handled by traders whose decisions directly influence the market, which explains why skipjack raw material prices do not always reflect actual demand and supply,” one highlighted.

Canned tuna demand as of May remained stable and IEG Vu forecasts a peak from June to October, reflecting a wave of contracted shipments made in late H1 2019, with canneries and buyers taking advantage of raw material low prices and good catching levels. Indeed, IEG Vu learned on July 15 that some canneries in Manta had sold up to 80% of their capacity through December, mainly to Europe.

As long as the duties are the same and everyone is on a level playing field, Thailand will conquer



While the latter makes life easier for Brazilian producers (as it increases returns in local currency from dollar-denominated coffee sales), it has contributed to the drop of “C” arabica futures to 13½-year lows and robusta futures to 9-year lows. This means that prices are now below the cost of production for almost all of the world’s producers, which is likely to have an impact on farmers’ ability to buy crop inputs and apply good crop care for the 2019/20 crops.

However, it already seems to be a given that Brazil will produce its biggest-ever “off-year” crop in 2019/20, which could partly offset the reductions elsewhere, if they occur. Also, there is already market chatter that good weather could lead to a 70 million plus crop in Brazil in the next on-year, 2020/21.

Even though it seems reasonable to assume

that global consumption continues to rise it is therefore difficult to construe a bullish picture. Only a weather-related crop disaster in Brazil currently seems capable of putting the market on a better footing. But that is something you would not wish on your worst enemy, nor does it seem imminent!

PricesBenchmark July arabica coffee futures hit a 13½-year low of 87.35¢/lb in April amid concerns over global oversupply.

As is usual in at least nine out of 10 years, prices then receive support in the month of May as the approaching Brazilian winter traditionally fosters speculation over the potential of frost damage.

As a result, prices are currently trading around the USD1/lb level even though the chances of significant damage to the

The coffee market still faces the double whammy of ongoing heavy production in the world’s top producer and exporter Brazil coupled with a Brazilian currency that is trading close to historical lows.

By Sandra Boga

Massive 2018/19 surplus knocks down coffee prices

Good weather could lead to a 70 million plus crop in Brazil in 2020/21


Brazilian crop from frost are rather slim. July robusta coffee futures are currently being quoted at about USD1,400 a tonne, after falling as low as USD1,267 in early May, the lowest since March 2010.

A recovery in Brazilian arabica and robusta production, prospects for ongoing high supply from the recently-started off-year harvest 2019/20 as well as a very weak Brazilian currency are key factors for pressure on prices. The Brazilian real is still trading within reach of BRL4 per US dollar which raises returns in local currency for dollar-denominated coffee sales and therefore pressures international prices.

Coffee productionAgainst this background, sister title FO Licht has outlined its final estimate for the world coffee balance in 2018/19, with numbers indicating that coffe production rose to a record 174.6 million 60-kilo bags in the current season- up from 161.2 mln last year.

“Unsurprisingly, the market is in surplus in the on-year of Brazil’s biennial arabica production cycle, but it is the third surplus in a row as the ongoing rise in world coffee consumption was not large enough to pull the world market back into deficit in 2017/18,” indicated Licht.

The 2017/18 surplus of 0.5 mln bags will likely be followed by a massive surplus of 11.0 mln bags in the current season - enough to pull prices back down to multi-year lows, it added.

Arabica output is estimated to rise to a record 106.9 mln bags from 97.1 mln last year, while robusta production is seen expanding to a record 67.7 mln bags from 64.1 mln the year before.

AmericasBrazil’s coffee production is estimated by Licht to have risen to a record 64.5 mln 60-kg bags in 2018/19, up from 50.5 mln the previous year with both larger arabica output as well as conilon/robusta contributing to the increase.

World coffee production (mnl 60kg bags)World Coffee Production (mln 60kg bags)180K

160K

140K

120K

100K

80K

60K

40K

20K

0

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

82,7

8542

,695

65,0

2543

,037

76,0

6441

,655

70,3

2745

,897

83,4

6551

,729

74,7

4447

,276

84,3

1752

,035

76,3

0351

,984

88,9

8652

,788

83,8

4559

,094

92,5

8561

,856

90,8

6264

,291

85,8

0664

,283

89,2

2065

,027

103,

184

59,4

57

97,0

7564

,129

106,

902

67,6

60

Arabica Robusta

Source: FO LichtWorld arabica production (mnl 60kg bags)World arabica production (mln 60kg bags)

0

10K

20K

30K

40K

50K

60K

70K

80K

90K

100K

110K

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

Africa N & C America S America Asia & Oceania

Source: FO LichtWorld robusta production (mnl 60kg bags)World Robusta Production (mln 60kg bags)

0

10K

20K

30K

40K

50K

60K

70K

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

Africa America Asia & Oceania

Source: FO Licht

We estimate Brazilian output in the harvest that has recently gotten underway at 59.0 mln bags


“The country is set to harvest another massive crop this year as weather conditions have generally been favourable in recent months. We provisionally estimate output in the harvest that has recently gotten underway at 59.0 mln bags - the highest ever for an off-year,” added Licht.

“However, coffee quality is likely to be lower than last year due to an uneven flowering at different times, which will lead to the harvest of both ripe and unripe coffee cherries at the same time,” Licht explained.

Even though arabica trees are in the off-year in the biennial cycle, the downturn in production is seen lower than usual due to expectations for a further rise in robusta production to 18.3 mln bags from 16.0 mln, while arabica output is projected to plunge to 40.7 mln bags from 48.5 mln.

Meanwhile, Colombia’s coffee production in 2018/19 is projected to drop a little further to 13.7 mln bags after disappointing output in the main crop and Peru’s rose by about 0.1 mln bags to an estimated 4.6 mln, continuing the recovery from leaf rust already seen since 2015/16.

“Output in 2019/20 is seen rising a little further to nearly 4.7 mln bags. If realised, this would be an eight-year high,” outlined Licht.

Asia & AfricaVietnam’s coffee production in 2018/19 rose to a record 31.4 mln 60-kg bags from 30.3 mln the year before and Indonesia’s coffee production in 2018/19 fell to 9.7 mln bags from 10.8 mln a year ago, which is below Licht’s previous forecast for 10.3 mln bags.

Meanwhile, Africa’s top coffee producer, Ethiopia, produced a bumper crop of about 7.5 mln bags in 2018/19 - about the same as the year before. That is far below the target of 14.5 mln bags under the government’s goal of reaching 18.4 mln bags by 2019/20.

“Of course, that is completely unrealistic. While coffee production has increased over the last decade, constraints such outdated farm technology and a lack of research in improved varieties are holding the sector back from reaching its full potential,” explained Licht.

Uganda only produced 4.3 mln bags of coffee in 2018/19, down from 4.5 mln the year before. That was significantly below initial expectations for 5.0 mln bags as drought curtailed output in arabica areas, while robusta production is hardly changed on the year.

The state-run Uganda Coffee Development Authority (UCDA) has said the crop may reach 5.8 mln bags in 2020 and the country is targeting 20 mln bags in 2025 – with both targets deemed “being impossible to reach,” according to Licht.

World coffee consumptionGlobal coffee consumption is forecast by Licht to rise by 1.8% in 2018/19 to 163.6 mln 60-kg bags from 160.7 mln the year before. Domestic consumption in producing countries is seen rising by 4.0% to 50.0 mln bags, while consumption in importing countries may be up 0.9% on the year at 113.6 mln bags.

“Global offtake is a function of several variables including population growth, income, availability of coffee and substitute drinks and prices both for coffee and its alternatives,” outlined Licht.

Coffee consumption in importing countries is seen rising by just 0.9% to 113.6 mln 60-kg bags in 2018/19 from 112.6 mln a year ago.

However, coffee consumption in producing countries has been on the rise for many years, added Licht. Brazilian consumption in 2018/19 is seen rising to an all-time high of 21.4 mln bags from 20.8 mln last season.

Weak Brazilian real to blame for collapsing “C” marketThe Brazilian real had strengthened about 7% to BRL3.84 against the US dollar recently, after falling to a 13-month low at 4.12 in May. Yet, the Brazilian currency is still super weak in historical terms, which has shielded Brazilian coffee growers to a certain degree from low “C” arabica futures. In fact, the weak Brazilian currency is a key reason for the extent of the drop in the “C” market as prices in Brazilian currency need to fall below production costs in order to trigger a supply response that could bring the coffee market back into balance.

“It goes without saying that all other arabica producers are already in the red once Brazil starts to feel the pain. That said, the lower use of essential crop inputs such as fertilizer could be felt in several origins in 2019/20, but it remains to be seen whether this is sufficient to bring the world coffee balance back into equilibrium in the on-year of the Brazilian crop cycle,” said Licht.

“Although, there have been some (weather) strikes against next year’s Brazilian crop, the crop could still be massive and have a 7 as its first digit for the first time in history,” it added.

Also, Brazilian currency weakness could soon return as there is concern that President Jair Bosonaro’s government may fail to implement its economic agenda.

“A series of government blunders - political infighting inside the administration, a clumsy attempt at state intervention in Brazil’s fuel policy and the lack of leadership in Congress – hampered growth expectations. Most analysts have halved their growth expectations for Brazil and now believe significant growth will not start until 2020,” outlined Licht.

All in all, ongoing weakness of the Brazilian currency seems to be the most likely option at least in the near-term. Given the fact that Brazil exports about two thirds of its coffee production the effects of a weak real are considerable.

Colombian output in 2019/20 is seen rising to nearly 4.7 mln bags …an eight-year high


Global sugar production in 2019/20 may fall to 183 mln from this season’s 184.4 mln, with a potential deficit of 4.2 mln tonnes.

This would be the lowest production level since 2016/17 and compares with a record crop of 201.7 mln tonnes just two years ago, according to sister title FO Licht.

“The drop in global output in 2019/20 will be due to an assumed strong decrease in production in India and Thailand amid very modest increases in Brazil and the EU”, Licht outlined.

Apparent consumption is projected to rise by 1.2% year-on-year to 186.9 mln tonnes which would lead to a substantial deficit of 4.2 mln tonnes in 2019/20, Licht added.

Sugar beet World beet sugar production in 2019/20 is seen rising slightly to 41.5 mln tonnes from 40.9 mln a year ago.

“Most key producers including the EU and the US are seen producing slightly more sugar than last year whereas this will be partly offset by a sharp reduction in Ukraine due to a loss in area under beet cultivation,” said Licht.

Sugar production in the European Union is projected to rise to 18.5 mln tonnes in the coming season from 17.9 mln a year ago. This comes despite expectations for a drop in beet area by 5.6% in 2019, mainly as a result of poor beet prices. France’s sugar output in 2019/20 is seen at just above 5.1 mln tonnes, while in Germany Licht expects nearly 4.3 mln tonnes of sugar production to be reached - an increase of 0.1 mln from last year.

In Russia, beet sugar production in 2019/20 is currently pencilled in to fall marginally to 6.4 mln tonnes, while in Ukraine sugar production could come in at only 1.3 mln tonnes, down from nearly 2.0 mln a year ago, said Licht.

Deficit set to rise.

By Sandra Boga

World sugar output to drop further in 2019/20

Sugar production in the EU is projected to rise to 18.5 mln tonnes in the coming season


Sugar cane With India and Thailand expected to produce less sugar in the new season and Brazil only slightly more, world cane sugar production is seen falling by 4.2 mln tonnes on the year to 142.2 mln. This compares with a record 155.2 mln tonnes produced in 2017/18 after which output already fell by 8.8 mln tonnes in the following year.

Asian cane sugar production is seen falling to 69.6 mln tonnes in 2019/20 due to lower output in the heavyweights, namely India and Thailand.

For India, Licht currently pencils in sugar production to drop by 3.9 mln tonnes to 32.0 mln (29.4 mln white value) in 2019/20. For Thailand, in 2019/20, Licht assumes a 1.9 mln tonne dip to 13.0 mln as poor cane prices at a time of rising prices for cassava - a key competitor for cane cultivation - are estimated to have driven farmers to switch between crops.

Sugar production in Brazil in 2019/20 is estimated to rise only 1.0 mln tonnes to 31.4 mln, which reflects a downward revision of both the cane quality as well as the sugar mix compared to Licht’s previous guidance. The cane crush is seen rising slightly at 580 mln tonnes, from 573.1 mln a year ago. In the Centre/South, sugar production is pegged at 27.4 mln tonnes by Licht this season, while the North/Northeast region is expected to remain stable at around 2.5 mln tonnes.

Meanwhile for Mexico’s 2019/20 season, Licht currently assumes a slight reduction in sugar output to 6.4 mln tonnes and Guatemala’s is currently seen rising modestly to 3.2 mln tonnes as the use of an improved cane variety is seen aiding the extraction rate. Cuba’s sugar output is also believed to recover somewhat further to 1.7 mln tonnes in 2019/20 from only 1.5 mln this year.

The 2019 cane crush in Australia is also getting underway with sugar output projected to drop 3% to 4.7 mln tonnes, Licht added.

Demand Global sugar consumption is estimated to show only sluggish growth of around 1.2% in 2019/20, which would be hardly changed from 1.0% in the current season, said Licht.

“All in all, we currently expect global

World Sugar Beet ProductionWorld Sugar Beet Production

0

5K

10K

15K

20K

25K

30K

35K

40K

45K

50K

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

2019

/20

(mln

tonn

es, r

aw v

alue

)

Europe Americas Asia Africa

Source: FO Licht

World Sugar Beet and Cane Production 1952/53–2019/20World Sugar Beet and Cane Production 1952/53-2019/20

0

20K

40K

60K

80K

100K

120K

140K

160K

2019

2016

2010

2001

1992

1986

1980

1970

1959

1953

(mln

tonn

es, r

aw v

alue

)

Sugar Beet Sugar Cane

Source: FO Licht

World Sugar Cane ProductionWorld Sugar Cane Production

0

20K

40K

60K

80K

100K

120K

140K

160K

2002

/03

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/11

2011

/12

2012

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/16

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/17

2017

/18

2018

/19

2019

/20

(mln

tonn

es, r

aw v

alue

)

Africa N & C America S America Asia Oceania

Source: FO Licht


sugar consumption to reach 186.9 mln tonnes in 2019/20 - 0.8 mln less than in the previous projection but 2.2 mln more than in 2018/19. If such slack growth continues, global consumption may cross 200 mln tonnes no earlier than 2025/26,”indicated Licht.

Consumption in the world’s largest sugar consumer, India, is seen rising by half a million tonnes to 28.8 mln in 2019/20. Chinese sugar consumption in 2018/19 has been cut back by another 0.3 mln tonnes since the previous forecast to 16.5 mln tonnes (15.2 mln).

“Slow Chinese import demand implies sluggish domestic consumption amid competition from corn sweeteners,” said Licht “Our assumption for 2019/20 is that total offtake may see no growth and remains at 16.5 mln tonnes.”

Overall, Asian sugar consumption in 2019/20 is expected to rise to a record 90.0 mln tonnes, up from 88.7 mln the year before. European sugar consumption is seen flat at 31.0 mln tonnes in 2019/20, while sugar consumption in North and Central America is also expected to rise fractionally to 21.3 mln tonnes.

Sugar consumption in South America meanwhile is also seen rising modestly to 19.5 mln tonnes from 19.3 mln this season, with Brazil being by far the largest user (11.6 mln tonnes), said Licht. Sugar consumption in Africa is being driven by

high population growth rates and may reach a record 23.4 mln tonnes in 2019/20, up by 2.2% from 22.9 mln a year ago, it added.

Exportable production to fall to four-year low in 2019/20The sharp drop in production in Brazil, the European Union and Pakistan has pushed down world exportable production (production minus consumption) to 54.9 mln tonnes in 2018/19 from an all-time high of 64.2 mln tonnes in 2017/18.

Global availability for export from the fresh crops is expected to fall further to 51.6 mln tonnes in 2019/20, but it is crucial to point out that this measure does not include stocks.

Exportable production in the European Union is seen recovering somewhat to 5.6 mln tonnes in 2019/20 from 5.0 mln this season, outlined Licht.

“This is related to the assumption that a yield recovery will more than offset a drop in area under cultivation,” said Licht. The most significant increases in availability are projected for the two top producers, France and Germany, but there may also

be increases in Poland, the Netherlands and Belgium.

Meanwhile, the stocks-to-use ratio is forecast to drop to 38.8% in 2019/20 from 41.6% this season and 42.6% in 2017/18. If realized, this would be the lowest level since 2016/17 and confirms that the global S&D picture is improving.

PricesRaw sugar futures in New York suffered significant losses in the run-up to the expiry of the July contract, which was characterised by plentiful supplies and sluggish demand. The front-month July contract touched a three-week low of 11.98¢/lb on June 26 amid ideas that supplies remain ample despite a poorer production outlook for India and Brazil. Similarly, white sugar futures in London fell to USD318.90 a tonne the same day, also a multi-week low.

Yet, prices are not materially different from the 10-year lows hit in September last year as the heavy stock build in India in recent years still needs to be worked off before a substantial price recovery can be thought of.

“So, while the sugar market’s own fundamentals are seemingly improving slowly, it is still a long and winding road for prices to reach significantly higher levels, not least due to the fact that this would lead to offloading of heavy Indian stocks onto the world market,” Licht concluded.

If such slack growth continues, global consumption may cross 200 mln tonnes no earlier than 2025/26


However, the level of uncertainty for the next season is still very high owed to weather changes as well as local government policies.

Currently, sister title IEG Vantage expects that global cocoa production in 2019/20 may decline to 4.77 million tonnes from an unprecedented rich crop in 2018/19 of 4.87 mln tonnes, as rapidly increasing demand could outpace production.

“Cocoa trees planted in the protected areas of Ivory Coast (and, therefore, not counted) during the time of high cocoa prices have started providing additional beans to the market,” said Vantage. “Accompanied by almost perfect weather conditions during 2018/19, this has led to an ample production.”

However, the weather was not as benign for cocoa in May and June, which may cut the Ivory Coast’s prospective production to

2.120 mln tonnes in 2019/20, down from 2.250 mln expected in 2018/19.

In Ghana an outbreak of the Swollen Shoot disease is expected to reduce the country’s production in 2018/19. However, favourable weather and the Productivity Enhancement Programmes supporting local farmers are anticipated to make a positive impact on production, which may rebound to 870,000 tonnes, up from 850,000 tonnes in 2018/19.

For other key African producers, cocoa output is expected to dip in the 2019/20 crop year, with Nigeria’s seen falling slightly to 250,000 tonnes and Cameroon to 240,000 tonnes.

However, in South America, Brazil and Ecuador are likely to see higher cocoa production figures next season, according to Vantage, with volumes pegged at 200,000 and 308,000 tonnes respectively.

The current cocoa season is close to completion with expectations of an almost balanced market for a second year in a row and the focus shifting towards prospects for the 2019/20 season.

By Sandra Boga

Is cocoa’s 2019/20 production set for a decline?

Global cocoa production in 2019/20 may decline to 4.77 million tonnes


GrindingsMeanwhile, low prices increased demand for cocoa products that transferred into high grind margins. Grinding increased by 4.5% in 2017/18 compared to the previous year and is expected to rise by 3.5% in 2018/19 to 4.759 mln tonnes.

“Processors are enjoying very high grinding margins that incentivize fresh investments into the industry and raise grinding capacities. Therefore, we expect that grinding will still rise, but at a slower pace, by 1.4% in 2019/20,” added Vantage. This would equate to total global grindings of 4.827 mln tonnes in the 2019/20.

Countries expected to see higher processing figures in 2019/20 include Ghana (315,000 tonnes), Indonesia (520,000 tonnes), Malaysia (275,000 tonnes) and the US (407,000 tonnes). European processors are also projected to see increases, though more moderate ones, including France (160,000 tonnes), Germany (460,000 tonnes) and the Netherlands (610,000 tonnes).

As a result of still increasing grindings and falling output, demand is expected to outstrip production by 104,000 tonnes and the stocks-to-grind ratio may fall to 34.9%, the lowest since 2015/16.

“Consequently, we also expect that cocoa prices may correct higher from current levels, trading in a range of USD2,400-2,700 per tonne in 2019/20,” added Vantage.

Weather outlookFor farmers in Western Africa, harvesting of the mid-crop and rains in July-August will determine the first phase of the main crop in the 2019/20 season.

The US National Weather Service’s Climate Prediction Centre said in its latest monthly forecast that the chance of an El Niño pattern is still at 50-55% during the winter of 2019/20. El Niño makes Harmattan winds in Western Africa stronger that may reduce the crop output even further.

With the April-to-September mid-crop tailing off in Ivory Coast farmers are now eyeing the development of the next October-to-March main crop. According to local farmers, unseasonably dry weather across Ivory Coast’s cocoa regions in June could weaken the next main crop.

Farmers said downpours in July will be

World Cocoa Production (‘000 tonnes)World Cocoa Production ('000 tonnes)2.4M

2.2M

2M

1.8M

1.6M

1.4M

1.2M

1M

0.8M

0.6M

0.4M

0.2M

0

Ivor

y Co

ast

Gha

na

Nig

eria

Cam

eroo

n

Indo

nesi

a

Mal

aysi

a

Braz

il

Ecua

dor

Oth

er

2,25

0,00

0

2,12

0,00

0

850,

000

870,

000

245,

000

250,

000

260,

000

240,

000

230,

000

230,

000

3,00

0

3,00

0 195,

000

200,

000

295,

000

308,

000

542,

000

550,

000

2018/19 2019/20

Source: IEG Vantage

World Cocoa Grindings (‘000 tonnes)World Cocoa Grindings ('000 tonnes)1.2M

1.1M

1M

0.9M

0.8M

0.7M

0.6M

0.5M

0.4M

0.3M

0.2M

0.1M

0

Ivor

y Co

ast

Gha

na

Indo

nesi

a

Mal

aysi

a

Fran

ce

Ger

man

y

Net

herla

nds

UK

Braz

il

US

Oth

er

580,

000

580,

000

310,

000

315,

000

510,

000

520,

000

265,

000

275,

000 15

7,00

016

0,00

0

455,

000

460,

000

605,

000

610,

000

65,0

0067

,000

235,

000

235,

000

395,

000

407,

000

1,18

2,00

01,

198,

000

Source: IEG Vantage


crucial in determining the number of flowers that survive and turn into small pods. They added that some trees had started blooming but more rain was needed for flowers to proliferate. A continued lack of rain in July could delay the start of the main crop.

Minimum floor price Meanwhile for key producers Ghana and Ivory Coast, the latest initiatives taken by both countries could also see its production and prices alter over the coming seasons.

Back in June, the governments of Ghana and Ivory Coast proposed a cocoa floor price of USD2,600 to boost farmers income and address the high-income disparity in the cocoa value chain. The two countries account for 65% of global cocoa production.

Ghana and Ivory Coast also indicated they would suspended forward sales of its cocoa beans for the 2020/21 season until a final agreement was reached on the matter. As a result, in the immediate aftermath, this led to an 11-month hike in futures prices to USD2,541 for the New York contract.

Initially CEO of Ghana’s Cocoa Board (COCOBOD), Joseph Boahen Aidoo, said that the traders, manufacturers and processors had agreed to the proposed floor price. However, a technical meeting followed on July 3, to discuss the fine tuning of its implementation. Both countries failed to come to an agreement with the chocolate industry over how to introduce the new floor price for their exports during said meeting.

Company officials said they were not in full agreement on the details of the scheme, which they said placed all the risk on them in the case of a major drop in prices.

“They aren’t obliged to accept, because it’s a free market,” Aidoo said, “If they don’t want to pay the price that we are proposing, they can go elsewhere.”

At the same time, Ghana and Ivory Coast also announced a new cocoa trading pricing mechanism offering a USD400 per tonne living income differential (LID) for cocoa farmers. The LID has been introduced as a form of “guarantee” of the USD2,600 per tonne floor price, in case of its rejection.

In addition, Ghana and Ivory Coast agreed

to further legislate the procedure by stating that cocoa farmers would be entitled to a minimum of 70% of the agreed floor price, in order to safeguard their income. Farmers are expected to receive USD1,820 per tonne of cocoa beans sold granted the floor price is held at USD2,600 dollars.

Aidoo further explained that the two countries have initiated plans to set up a stabilisation fund to cater for extreme drop in prices of cocoa on the international market. For the stabilization fund, an achieved price in excess of USD3,000 for any production year will be channelled for

further distribution in times of price drop on the international market.

Amidst all the confusion, the futures market again reacted by skyrocketing with its biggest daily move in 7 years, led by a rise in speculative buying.

But what will this mean for the cocoa sector in the months to come, considering the current lack of clarity as well as the “will they, won’t they” uncertainty of it all? At the time of writing Ivory Coast and Ghana have now agreed to lift the sales suspension, indicating that an agreement may have been reached.

“To implement the agreement the governments of both countries will have to limit production. Otherwise, the market will be flooded with cocoa beans from fresh plantations in several years,” indicated Vantage’s Sergey Chetvertakov.

While the plight of African cocoa farmers is understood, some market participants believe the minimum floor price is not the right mechanism to raise local incomes.

“Implementation would be the main issue for local cocoa regulators: it is hard to tell a farmer that he cannot grow more than a certain amount. I would rather recommend to local governments to educate farmers on how to raise the quality of beans. Ghana might be a good example: cocoa from this country has higher premium compared to beans from Ivory Coast or Nigeria,” he concluded.

Some believe the minimum floor price is not the right mechanism to raise local incomes


In January, the EU had sold over 80,000 tonnes of intervention SMP at its biggest-ever tender sale. The minimum sale price also happened to be the highest since the EU Commission started the campaign to clear the stocks in 2017, at EUR1,554.90/tonne. It coincided with the rising price trend happening at the time, as the minimum price was virtually at the level of current Dutch and German market prices for feed-grade SMP. With the market strengthening, the EU’s weekly average price for SMP had at the time risen above the EU’s nominal intervention buying-in price of EUR1,698/tonne; not seen since August 2017.

The EU heralded the breakthrough it had achieved and took credit for the regulation

of the global SMP market. EU agriculture commissioner Phil Hogan, said in a statement in January: “The latest tender is a clear vindication of the Commission’s prudential approach to the management of the stock of skimmed milk powder, 99% of which has now been successfully placed back on the market.”

The opening tender of the year marked the first of many declines in EU SMP prices, as traders were not convinced that the market, with the most successful tender sale to date, was staging a recovery. At the second tender in January, the Commission sold off a further 18,500 tonnes of SMP, which indeed was a significantly smaller amount than seen at the beginning of the

This year marked the end of an era, as the EU has finally managed to sell off the last of its “ancient” once 380,000-tonne skimmed milk powder (SMP) stockpile. In the last few years it had contributed to instability in dairy commodity prices across the globe, as the markets grew fully dependent on the movements of SMP from EU stocks at tender sales.

By Jana Sutenko

SMP prices fly high, following EU’s successful clearance of intervention stocks


month. Even though demand was clearly lower and despite the fact that the whole of the remaining stockpile would be bought, the Commission was firm with its pricing policy and set a minimum sale price of EUR1,585/tonne.

Around the same time, the EU average for SMP had hit its highest peak of EUR1,855/tonne, while NZX futures surged to an average of USD2,430/tonne (EUR2,165/tonne).

In February, a surprisingly low volume of just 584 tonnes of powder was sold, and because the wholesale prices observed across the continent represented a kind of price ceiling, the Commission has decided to further increase the minimum sale price to EUR1,622 per tonne – some EUR37/tonne more than at the previous tender. Tenders were reverted from bi-weekly to monthly basis, as the EU had only 3,651 tonnes of the original stockpile still available for sale.

The second February tender – and the last of the bi-weekly ones - saw a further 1,684 tonnes sold from intervention, once again dissolving the EU’s hopes of the complete clearance of the stocks in the near future. Meanwhile, under CAP rules, March 1 marked the start of the intervention purchasing period for SMP - but no purchases were expected to happen this year, given that the Council had agreed to continue a tender-only purchasing regime in 2019, and given that the average European market price is above the EU buying-in level.

And up until the stocks’ complete clearance from this point, which happened to fall on the June tender, it was clear that the small quantities on offer from the Commission did not appear to have been discounted heavily enough to attract the traders’ attention.

EU Commission SMP avg (EUR/100kg)EU Commission SMP avg (EUR/100kg)

170

175

180

185

190

195

200

205

06/0

1/20

19

13/0

1/20

19

20/0

1/20

19

27/0

1/20

19

03/0

2/20

19

10/0

2/20

19

17/0

2/20

19

24/0

2/20

19

03/0

3/20

19

10/0

3/20

19

17/0

3/20

19

24/0

3/20

19

31/0

3/20

19

07/0

4/20

19

14/0

4/20

19

21/0

4/20

19

28/0

4/20

19

05/0

5/20

19

12/0

5/20

19

19/0

5/20

19

26/0

5/20

19

02/0

6/20

19

09/0

6/20

19

16/0

6/20

19

23/0

6/20

19

30/0

6/20

19

Source: EU Commission

Quantities of SMP Sold from Intervention and Minimum Fixed PriceQuantities of SMP Sold from Intervention and Minimum Fixed Price

0

10K

20K

30K

40K

50K

60K

70K

80K

90K

0

20

40

60

80

100

120

140

160

180

16.0

1.20

18

20.0

2.20

18

20.0

3.20

18

17.0

4.20

18

15.0

5.20

18

19.0

6.20

18

17.0

7.20

18

28.0

8.20

18

18.0

9.20

18

02.1

0.20

18

16.1

0.20

18

06.1

1.20

18

20.1

1.20

18

11.1

2.20

18

08.0

1.20

19

22.0

1.20

19

07.0

2.20

19

21.0

2.20

19

21.0

3.20

19

17.0

4.20

19

23.0

5.20

19

20.0

6.20

19

1,86

4

4,33

7

4,12

7

24,0

66

41,9

58

23,5

32

2,40

8

31,4

93 8,98

3

2,49

9

26,0

33

30,0

67

26,0

82

60,5

37

80,4

24

18,5

14

584

1,68

4

244

33 925

162

min price xed (EUR per 100 kg) total accepted quantities (tonnes)

Source: European Commission

The latest tender is a clear vindication of the Commission’s prudential approach to the management of the stock of skimmed milk powder, 99% of which has now been successfully placed back on the market


Meanwhile, the global appetite for SMP kept growing in Q1 (January-March) of this year, when wholesale prices globally had not yet hit EUR2,000/tonne. SMP exports totalled 889,300 tonnes in volume terms and EUR1.62 billion, with the increased demand coming from the top five largest importers.

Mexico topped the list with 88,400 tonnes (up 11%), followed by China with 75,400 tonnes (up 40%), Indonesia with 59,500 tonnes (up 36%), Vietnam with 41,000 tonnes (up 51%) and the Philippines with 53,900 tonnes (up 61%).

One of the main markets for EU SMP Algeria suffered a 38% dip, with volumes totalling 31,500 tonnes.

SMP shipments from the EU to extra- EU countries had a 35% increase to 261,700 tonnes, with value up 38% to EUR478.9 million.

At the same time, EU stocks continued their slow clearance, with 244 tonnes cleared in March, 33 tonnes sold in April, 925 tonnes offloaded in May and the last 162 tonnes gone in June. Throughout the period, the EU Commission stuck to its strategy of increasing minimum sale price at each successive tender, which continued to affect world prices, with the average in the EU reaching its peak of EUR2,040/tonne in May. At the same time futures on the NZX followed suit and rose to the likes of USD2,575/tonne

(EUR2,292/tonne) in May, when Fonterra reported a large milk production decline. The price increases are nowhere near the levels seen in 2014, but still are ones of the most significant since 2015.

OutlookCurrently at the time of writing, SMP is continuing its ascent, benefitting from clear European stocks and high demand from southeast Asia and the Middle East. Experts forecast another record year for EU’s exports of SMP, brought by the benefits of trade deals that either already took effect (EU-Japan FTA) or will come into force in the near future (EU-Vietnam FTA), US’ trade conflicts with Mexico, as well as the fact that the EU is currently more competitive in SMP pricing.

Is the stock crisis likely to happen again? Under the current CAP measures, all the intervention schemes (butter, SMP, wheat) will continue to function as they currently do from 2021 onwards, based on the Commission’s current proposals for reform of the CAP, with the current market support regulation amended rather than replaced and with no proposals to change or repeal current intervention rules.

As of now, the SMP stocks crisis is unlikely, but it all will depend on the future of CAP. It will be in the hands of the member states, which will be required to draw up strategic plans for every prominent CAP sector, including dairy. These offer member states the option of operating ‘Sectoral Types of Interventions’. One of the objectives which member states may prioritise in this context is “crisis prevention and risk management, aimed at avoiding and dealing with crises in the markets”.

Before that happens, EU officials and dairy market players can breathe freely, as the stocks that have been hampering the whole of the global dairy market are now gone.

Main SMP Importers – Jan-March (tonnes)Main SMP Importers - Jan-March (tonnes)

Mexico

The Netherlands

China

Indonesia

Vietnam

Philippines

Algeria

0 20K 40K 60K 80K 100K 120K 140K 160K

79,720 88,432

55,008 81,926

54,036 75,413

43,941 59,536

27,174 41,017

33,522 53,856

50,871 31,523

2018 2019

Meanwhile, the global appetite for SMP kept growing in Q1 (January-March) of this year, when wholesale prices globally had not yet hit EUR2,000/tonne


The beginning of the year saw Fonterra’s triumphant milk production recovery from a three-year low in December, impacting prices across multiple markets. However, the impact this recovery brought was different in main producing regions.

While Europe saw its first of many significant prices plunges around that time, GDT and NZX futures were convinced butter demand overpowered production, resulting in an upward pricing trend. The upward price trend seemed to be in convergence with the fact that New Zealand’s production increased, because at the same time the country has seen strongest demand for its butter. In the first three months, New Zealand exported 154,000 tonnes of butter (up 26.5%), beating the previous record of 155,300 tonnes seen in 2014. The bulk of these

shipments were in February (54,400 tonnes, up 49.7%), boosted by the CPTPP trade agreement that came into effect at the end of December.

At the same time, experts at Dairy Australia reported that there might be a 7-9% decrease in milk collection in Australia due to shortage of feed, high costs of water, increased cow culling and challenging seasonal weather conditions – all at a time when both domestic and international dairy ingredient and product demand was on a roll.

The NZX’s values during the first half of the year (H1) seemed to be in line with price trends unfolding on the GDT, with prices ascending rather than descending as domestic milk supply was plentiful for butter production.

After rising to the likes of EUR6,500 per tonne in 2017 and EUR5,850/tonne in 2018, European butter futures have been easing throughout the first half of 2019, encouraged by higher production in New Zealand. Meanwhile, milk collections in Australia have been raising concerns across Oceania, with prices witnessing a spike just as New Zealand’s market saw a price plunge at the end of 2018/19 season.

By Jana Sutenko

Butter price comedown continues

Latest global futures signal to a possible upside potential for butter, at least on the EEX exchange


In the northern hemisphere, EU’s milk production remained stable in the first quarter of 2019. Favourable rains resulted in improved grass productivity in main producing regions. This was coupled with relatively low feed prices, which allowed farmers to use more compound feed, partially compensating for the lack of forage in winter after a dry 2018. Still, the European Commission expects the current year to witness only a marginal 1% increase in deliveries.

However, prices in the EU seemed to be driven by global production trends, as well as the easing pressure of the bloc’s SMP intervention stocks, that have recently been completely cleared. This way, EU average butter prices saw a spike in February, when New Zealand had not yet announced its seasonal production decline and the EU was amid its lowest seasonal point as well. With the anticipation of the spring flush in March and in the midst of it, butter was seen decreasing. It spiked during peak production and later continued to fall, reaching EUR3,925/tonne, the level last seen in September 2016.

Latest global futures signal to a possible upside potential for butter, at least on the EEX exchange. In mid-July, October contracts averaged EUR3,780/tonne, at the same time as western European wholesale prices were holding their ground at EUR3,600/tonne in Germany and the Netherlands and EUR3,550/tonne Poland.

Q1 2019 exports exceed five-year averageGlobal demand for butter continued climbing in the beginning of 2019, with exports in January-March exceeding 531,000 tonnes for the first time in at least 10 years. The export value reached EUR2.35 billion (USD2.65 bln), up 6% on the same period in 2018.

While 56.5% of the total volume (300,000 tonnes) came from the EU, the 11% year-on-year increase was led by countries outside the EU, namely New Zealand and India.

EU Commision Weekly Average Butter Price (EUR/100kg)EU Commission Weekly Average Butter Price (EUR/100kg)

390

400

410

420

430

440

450

460

30/1

2/20

18

06/0

1/20

19

13/0

1/20

19

20/0

1/20

19

27/0

1/20

19

03/0

2/20

19

10/0

2/20

19

17/0

2/20

19

24/0

2/20

19

03/0

3/20

19

10/0

3/20

19

17/0

3/20

19

24/0

3/20

19

31/0

3/20

19

07/0

4/20

19

14/0

4/20

19

21/0

4/20

19

28/0

4/20

19

05/0

5/20

19

12/0

5/20

19

19/0

5/20

19

26/0

5/20

19

02/0

6/20

19

09/0

6/20

19

16/0

6/20

19

23/0

6/20

19

30/0

6/20

19

07/0

7/20

19

Source: EU Commission

NZX Butter Futures (USD/t)NZX Butter Futures (USD/t)

4,000

4,200

4,400

4,600

4,800

5,000

5,200

5,400

5,600

5,800

12/0

7/20

19

05/0

7/20

19

28/0

6/20

19

21/0

6/20

19

14/0

6/20

19

07/0

6/20

19

30/0

5/20

19

23/0

5/20

19

16/0

5/20

19

09/0

5/20

19

02/0

5/20

19

24/0

4/20

19

15/0

4/20

19

08/0

4/20

19

01/0

4/20

19

25/0

3/20

19

18/0

3/20

19

11/0

3/20

19

04/0

3/20

19

25/0

2/20

19

18/0

2/20

19

11/0

2/20

19

01/0

2/20

19

25/0

1/20

19

18/0

1/20

19

11/0

1/20

19

04/0

1/20

19

Source: NZX

EU butter exports rose 2.3%, which is a low level considering the bloc’s butterfat competitiveness on the global arena


As previously mentioned, New Zealand’s 26.5% volume increase was boosted by the CPTPP that came into force late last year. The country’s butter exports to China, its main market for the commodity, fell 25%, but were marginally offset by an almost 100% increase to Philippines, 1200% surge to the entwined in trade tensions US, 440% growth in Russian deliveries, 51% rise to Vietnam.

India emerged as the second-largest butter exporter in the period, overtaking Russian-tied Belarus, with shipments surging by 300% to 22,000 tonnes. Belarusian exports increased by a comparatively marginal 6.3% to 20,000 tonnes, with around 77% of the total destined exclusively for main market Russia, while the rest travelled to other EAEU countries.

US exports remained flat at around 9,200 tonnes on 2018’s 9,700 tonnes, while Ukrainian deliveries fell back by 35% to 5,900 tonnes on unfavourable weather conditions leading to low milk availability.

EU butter exports rose 2.3%, which is a low level considering the bloc’s butterfat competitiveness on the global arena. By comparison, volumes in Q1 2018 surged by 10%.

Countries that led the increase in the period were the top three exporters the Netherlands (up 6%), Ireland (up 5%) and Belgium (up 9%). The bloc’s other largest exporters suffered volume decreases; among them Germany (-9.3%), France (-2%) and Poland (-28%).

Surprisingly, even despite the uncertainty surrounding Brexit, the UK managed to export its largest volume of butter in the last five years, reaching 21,600 tonnes. Together with Denmark, Finland and Italy, the countries managed to keep EU butter deliveries afloat.

OutlookThe EU has now passed the peak period but is at least three months away from milk collections starting to falter. The butter price trend observed in Europe at the moment is flat to decreasing, as the continent has now entered its seasonal lull. The hot weather that was witnessed in Europe over the past month seems to have passed with no country so far posting any significant milk losses as a result.

IEG Vu forecasts that European butter prices will rise towards Q4, but the extent of the increase will depend on the weather situation in other producing regions.

New Zealand is set to enter peak milk

season in a couple of months and experts suggest that production is to remain stable to slightly increasing in the 2019/20 milk season. Coupled with Fonterra’s ongoing restructuring, New Zealand’s prices will continue to be shaped by demand from main import markets, especially southeast Asia.

Australia has a long way to go, as it was not only weather that hampered its milk collections, but also complicated market conditions, related to high on-farm costs, increased imports of feed and rising cow cull rates. The country’s production will not completely recover overnight, with experts still forecasting declines for the 2019/20 milk season.

Main Butter Importers – Jan-Mar (tonnes)Main Butter Importers - Jan-Mar (tonnes)35K

30K

25K

20K

15K

10K

5K

0

Russ

ia

Chin

a

US

Phili

ppin

es

Aust

ralia

Egyp

t

Japa

n

Mor

occo

Cana

da

Taiw

an

16,2

9329

,450

31,1

8124

,628

9,53

914

,664

6,89

612

,442

11,2

599,

852

11,2

446,

647 2,26

76,

017

6,20

95,

584

4,53

25,

566

5,59

55,

411

2018 2019

Source: GTT/IEG Vu

Main Butter Exporters – Jan-Mar (tonnes)Main Butter Exporters - Jan-Mar (tonnes)300K

250K

200K

150K

100K

50K

0EU-28 New Zealand India Belarus Ukraine

293,

219

299,

964

121,

771

154,

046

5,50

1 22,0

46

18,7

87

19,9

66

9,06

9

5,86

82018 2019

Source: GTT/IEG Vu

The upward price trend seemed to be in convergence with the fact that New Zealand’s production increased, because at the same time the country has seen strongest demand for its butter


Countries in Europe, South America and Australasia have all been seizing the opportunity to fill gaps in Asian meat supplies, above all in China and Vietnam. This in turn has been helping to push up prices in most parts of the world.

For the US however, exports have not reached their full potential because of trade disputes with key trade partners, most notably China.

China key for porkSince arriving in China in August last year, ASF has had a destructive impact on the country’s pigmeat sector – causing more than a million pigs to be culled and millions more to be lost as farmers liquidate herds out of fear that they will become infected.

Breeding pig numbers are down by at least 25% on last year and production should fall by a similar percentage. This means Chinese pork output will be between 10 and 15 million tonnes lower than in 2018.

Until recently, pork prices in China had been holding fairly steady but they are now on the increase – encouraging consumers in the country to switch to other forms of animal protein. This switch means only a part of the shortfall in pork production will be met by imports.

“There are many factors that need to be considered when assuming China will need all of its lost pork production replaced this year. Poultry production already is forecast up 8% in China for this year (likely closer to 12 or 15% when viewed in arrears). As well,

Asia’s problems with African Swine Fever (ASF) helped transform the outlook for global meat markets in the first half of this year – not only for pork but for all types of animal protein.

By Max Green

African Swine Fever takes centre stage as global meat prices rise

Assuming no new EU countries are hit by ASF, pigmeat prices should remain firm in 2020


pork consumption is going to be lower in China this year, possibly as much as 15 to 20%, which ends up being roughly 7% of the world’s hogs that are not necessarily needed,” says IEG Vu’s sister title IEG Vantage.

Even so, the EU, Brazil and Canada have all benefited from a steep rise in sales to China, which has been key to supporting pigmeat prices over the past few months.

The EU is currently exporting about 170,000 tonnes of pigmeat and pig offal to China every month – more than 50% up on this time last year. These shipments are now generating more than EUR300 million per month

This has contributed to a dramatic turnaround in EU markets – with pig carcase prices now more than 20% up on year ago levels, having been seriously depressed just six months ago.

These developments are mirrored in Brazil, the world’s fourth largest pork exporter. Brazilian shipments were up 25% in the first half of this year – with Chinese demand once again a key factor.

This has helped push up pork prices in Brazil itself to historical highs.

A similarly positive trend was apparent in Canada until the country ran into difficulties with Chinese authorities – meaning trade has temporarily been disrupted.

Meanwhile, US exporters have been left frustrated as their competitiveness in China is undermined by elevated import tariffs on US pork.

The US pork industry estimates that trade tensions between the two countries have so far cost them about USD1 billion in lost exports. Traded volumes have recently started to pick up, but for US pork to take full advantage of opportunities in China, the two countries will have to sort out their differences and bring down tariffs.

Prospects for pricesSo looking forwards, how are prices likely to develop over the next twelve to eighteen months?

For the EU, prices are likely to dip slightly in the fourth quarter of 2019 as is usual towards the end of the year. They should still be well above the average level for the past five years however.

Assuming no new EU countries are hit by ASF, prices should remain firm in 2020 – largely thanks to high import demand in China and Vietnam, along with any other

Asian countries that suffer serious outbreaks over the coming months.

Pig production has been falling in several EU member states over the past few months, but some countries are now expanding. Overseas demand should be more than sufficient to absorb this increase.

Prices in Brazil should also remain high – although there is a danger the country is becoming overly reliant on sales to China and Hong Kong, who together now absorb more than half of all Brazilian pork exports.

Brazilian pork production has been rising and this extra meat would not easily be absorbed on the domestic market if sales to China were disrupted for any reason. Canada’s recent problems show that China is not averse to halting trade if it identifies a problem with shipments, and Brazil has faced similar problems in the past with Russia.

For the US, production levels continue to rise rapidly and here too, the industry is becoming more reliant on export markets to absorb the additional supplies.

IEG Vantage now expects total US pork production in 2019 to be as much as 5.4% up on the previous year, with a further 3.3% increase possible in 2020.

To some extent, the industry is doing the same as that in Brazil and Spain by gambling on export growth in China and elsewhere. Assuming this demand materialises, prices for pigs and pork should rise in 2020.

In a recent report, IEG Vantage says the pork cutout will rise only slightly in 2019 but could gain USD4 to surpass USD80 in 2020. However, there are significant

Chinese Pork and Poultry Prices (wholesale CNY/kg)Chinese Pork and Poultry Prices (wholesale CNY/kg)

14

15

16

17

18

19

20

21

22

23

24

Jan-

18

Feb-

18

Mar

-18

Apr-1

8

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Oct

-18

Nov

-18

Dec-

18

Jan-

19

Feb-

19

Mar

-19

Apr-1

9

May

-19

Jun-

19

Jul-1

9

Pork Chicken

Source: Chinese Agriculture Ministry

The world is aware of the need for pork in Asia, and every single world player is hoping for a piece of the pie


risks if export demand does not materialise as hoped.

“ASF is a detriment to the Asian markets, for sure, and one that US players hope to capitalise upon. What many US players do not realise is that the world is aware of the need for pork in Asia, with every single world player hoping for a piece of the pie,” it notes.

China has not stepped into the US market to the degree some hoped with the risk that it does not happen to the price points drawn by the futures market currently. Even so, the report says the futures market is presenting an opportunity for record profit margins for producers, who are likely going to respond and continue the hog expansion.

“This might have a negating effect for those valuations alone by the time 2020 rolls on the calendar,” it concludes.

Impetus for poultryProblems faced by the pigmeat sector will give added impetus to growth in poultry production. Production in China is rising to meet rising demand as ASF encourages consumers to switch away from pork.

Chinese import demand is also rising – with Brazil by far the biggest winner. US poultry is still shut out of the Chinese market because of concerns over avian flu. This could well change over the next few months however – potentially giving a big boost to US poultry exports.

Broiler meat production is rising fairly

slowly in the US – with increases in the 1% range both this year and next. Chicken prices within the US have been under pressure recently. But the combination of supply discipline and potential export growth should give an uplift to prices in 2020.

EU poultry production is expected to rise by 2.5% this year – driven once again by expansion in Poland and Spain. If higher pigmeat prices are passed onto consumers, some will switch to poultry – potentially giving further impetus to production growth in 2020. With consumption also rising, poultry prices in the EU are not expected to fall significantly from current high levels over the months ahead.

The EU will be hoping to expand access to the Chinese market, which is currently limited to a small number of processors in Poland. Russia is also making inroads as a supplier to China and has an advantage due to its geographical proximity.

China is also expected to authorise more Brazilian suppliers before the end of this year – so competition between exporters could heat up over the months ahead.

Meanwhile, EU poultry processors have been voicing concerns over a new free trade agreement that would grant duty-free access for an additional 180,000 tonnes of chicken to be imported from South America’s Mercosur bloc. However, this depends on the deal being ratified – which likely to take several months – and even then would be phased in over a five-year period. As a result, it will have no impact on markets in 2019/20.

In the nearer term, Brazil is pushing the EU to reopen its market to 20 poultry establishments that were delisted in 2018 due to concerns over food safety.

Given the reduced number of authorised plants, Brazilian poultry exports to the EU have been performing surprisingly well in 2019, while sales to the Middle East have also proved resilient.

Overall, prospects for the poultry sector are fairly positive in most parts of the world – but as always this will depend on supply discipline and the avoidance of serious animal disease outbreaks.

BeefChina’s problems with ASF are also pushing up demand for beef in the country. But with the EU and US having limited access to the Chinese market, most of this extra meat is coming from countries in South America and Australasia.

Brazil is again one of the biggest winners – with total beef exports up 25% in the first half of this year. This was driven not only be higher Chinese demand, but also by the reopening of the Russian market.

With demand outstripping supply growth, prices for Brazilian beef cattle (in mid-2019) are currently about 10% up on year-ago levels.

Assessing prospects for 2019, IEG Vu’s

EU Average Pig Carcase Prices (Class E, EUR/100kg)EU Average Pig Carcase Prices (Class E, EUR/100kg)

100

110

120

130

140

150

160

170

180

190

08/0

7/20

19

24/0

6/20

19

10/0

6/20

19

27/0

5/20

19

13/0

5/20

19

29/0

4/20

19

15/0

4/20

19

01/0

4/20

19

18/0

3/20

19

04/0

3/20

19

18/0

2/20

19

04/0

2/20

19

21/0

1/20

19

07/0

1/20

19

24/1

2/20

18

10/1

2/20

18

26/1

1/20

18

12/1

1/20

18

29/1

0/20

18

15/1

0/20

18

01/1

0/20

18

17/0

9/20

18

03/0

9/20

18

20/0

8/20

18

06/0

8/20

18

Belgium Denmark Germany Spain Poland EU28 weighted average

Competition between exporters to China could heat up over the months ahead


Brazilian sister title IEG FNP expects the Brazilian beef sector to benefit from record levels of exports along with a recovery in local demand.

“The opportunity for domestic consumption is based on the elevated prices for competing meats, while abroad there are positive prospects both through the opening of new consumer markets and ASF-related

impacts on Chinese pork production,” IEG FNP says in its latest Anualpec report.

Favourable prices for soy and corn should see more cattle placed in feedlots in Brazil this year. The sector is also hoping to regain access to the US market for fresh beef. IEG FNP says opposition from US lobby groups may limit opportunities in the US but says renewed access would send a positive signal to other countries over the safety of Brazilian beef.

Higher exports have also been helping support prices in Australia despite a rise in slaughter numbers.

Challenges for EU and USThings are less positive in the EU, where prices for beef cattle have been falling in recent months. EU beef production is expected to fall by about 1% both this year and next, but consumption will fall by at least this amount – limiting any possible upside to prices.

To make matters worse, the beef sector will face serious disruption if the UK leaves the EU without a deal at the end of October. Irish beef producers are already struggling and would struggle to adjust to the loss of tariff-free access to their biggest market.

Pressure to reduce the Common Agricultural Policy budget will only add to these problems as it limits scope to support European beef producers – potentially forcing some out of the industry altogether.

The US beef sector is also facing challenges, with exports down on year-ago levels despite the rising global appetite for animal protein. This is partly due to the country’s trade dispute with China, but is also linked to increased competition with other suppliers such as Australia, Canada, the EU and New Zealand, all of which have been granted tariff concessions under new trade deals with Japan.

On the plus side, US exporters should soon benefit from enhanced access to the EU, which has agreed to change the way it manages its hormone-free beef quota so the bulk is ring-fenced for US suppliers.

Trade curbs to ease? For the meat sector as a whole, the next 12 to 18 months could see important developments with regard to the way countries react to animal disease outbreaks elsewhere.

Many countries in Asia currently ban imports from entire countries rather than disease-affected regions. This makes the impact of disease outbreaks far more serious then they need to be when it comes to limiting trade in meat.

The EU, US and Russia have all been pressing others in the international community to embrace regionalisation and there are signs that China may soon be prepared to do this. As their meat import needs rise, other Asian countries may then follow suit – meaning future disease outbreaks may not be quite so damaging to international trade.

Brazilian Beef Exports to Selected Destinations, Jan-Jun (tonnes)Brazilian Beef Exports to Selected Destinations, Jan-Jun (tonnes) 200K

180K

160K

140K

120K

100K

80K

60K

40K

20K

0

Hon

g Ko

ng

China

Egyp

t

Chile

UAE EU

Iran

Russ

ia

Saud

i Ara

bia

Turk

ey

1417

1016

8128

1636

43

9437

712

2865

1465

81

4186

270

250

7858

2

2691

751

172

5073

2

1026

193

5250

762

3962

842

903

4589

1

5158

430

805

4356

4

7352

123

629

673

2881

916

144

2012

8

375

403

1564

2

H1 2017 H1 2018 H1 2019

Source: GTT

The beef sector will face serious disruption if the UK leaves the EU without a deal


With no let-up in consumption, ending stocks are expected to drop to 299.0 mln tonnes, down from 2018/19’s 328.8 mln tonnes. The FAO also forecast a 12.4% reduction in world corn stocks this season, with inventory depletion expected to be focused in the US and China.

Perhaps the largest current uncertainty for the 2019 season is the impact of a disastrous planting period, its impact on US production and exports, and the outward ripple effects on the fortunes of other major corn export origins.

There are plenty of origins ready to fulfil orders and make up for any actual or perceived scarcity in the US, as shown by the minor drop in world production. Fears over the state of US planting helped lift corn futures to five-year highs in June, with export prices rising in South America and the Black Sea.

Record-breaking delays to corn planting this season have left little in the way of reference points for forecasting US corn production.

The first corn progress update from the USDA this season had 8% of the crop at silking compared to 34% at the same point last year and the recent average of 22%. Not a single state reported silking above the average pace, and zero silking was reported in Michigan, Minnesota, North Dakota, Ohio, South Dakota and Wisconsin.

The USDA’s National Agricultural Statistics Service pegged the US corn planted area at 91.7 million acres at the end of June, well above market expectations. The market continues to view the figure as optimistic and there was room for error in the figure – the survey which produced the 91.7 mln acre estimate was carried out when over 15% of the crop was yet to be planted. Several analysts believe that the USDA underestimated prevent plant acres and the extent of abandonment of a crop planted late in suboptimal conditions.

Yields were unchanged in the July WASDE, leaving the USDA projecting 2019/20 corn ending stocks at 2,010 million bushels compared to the average trade estimate of 1,692 mln and sister title IEG Vantage’s 1,850 mln.

World corn production is expected to fall in 2019/20, with the USDA forecasting world production of 1.11 billion tonnes down from 2018/19’s 1.12 bln.

By Gary Howard

Corn market led by US quality concerns


The Federal Reserve Bank of Chicago noted farmers were expecting to make insurance claims to cover missed planting opportunities, and that corn and soybean prices rose as production outlooks fell. The Minneapolis Fed said: “In some areas farmers switched from corn to soybeans or other crops that could start growing later, while in other areas crops did not get planted at all. Contacts in affected areas expressed concerns that the impacts could be severe.”

The market will have to wait until mid-August for any clarity on the US corn area, with data from the next NASS survey due in the USDA crop production report on August 12. Even with the doubts over the USDA’s area estimate, market confidence has been shaken and some of the steam was taken out of bulls as far away as Brazil as previous confidence in Brazil’s export

fortune at the expense of the US was brought into question.

How might the US react?In an analysis of previous seasons where US corn production has fallen by over 5% on-year, sister title IEG Vantage saw that corn exports rarely rationed significant demand in those years. “Absent a corn production problem in Argentina, Brazil and Ukraine, US corn exports can afford to ration away more demand as corn importers switch to other origins in 2019/20,” said IEG Vantage.

Traditional importers of US corn Japan, Mexico and Egypt are all expected to meet more of their demand from South America this season.

The market’s expectation of lower US corn production has brought the idea of wheat

being used as a substitute for corn in feed; in its analysis of previous drops in US corn production, Vantage found no correlation between declining US corn production and higher wheat for feed use and little reason to expect any significant switch to wheat in 2019/20.

Vantage expects nearby corn futures to be around USD4.10 per bushel in 2019/20, albeit with high volatility as the market tries to determine the size of the US crop.

A hot and dry summer across much of Europe in 2018 led European cereal production lower and imports higher, and low global corn prices for much of the marketing year meant corn was top of the EU’s shopping list. Imports of 23.7 mln tonnes of corn into the bloc were up by over a third on 2017/18 and largely fed by Ukraine; Ukraine’s exports of corn to the EU almost doubled to 15.5 mln tonnes or a 65.4% market share while second place Brazil ended the year down 24.0% at 3.9 mln tonnes. The EU was the top global importer of corn for 2018/19.

The European Commission expects a 6% larger corn planted area for 2019/20, but with production rising by just 0.5% on-year to 69 mln tonnes as yields fall.

The commission expects import demand for corn to fall drastically on-year to 15.5 mln tonnes, a 31% reduction as recovering EU cereal production brings lower import demand for feed. With improved production, cereal exports – which were down 2.8% in 2018/9 – are expected to rise by 19% in 2019/20. Corn exports are forecast to fall slightly this season however to 2.9 mln tonnes from 3.0 mln in 2018/19.

While Europe may lean less on its neighbour for corn imports in 2019/20, Ukraine is not expected to suffer much in volume terms. The USDA estimated Ukraine’s corn exports at 29.5 mln tonnes for 2018/19 and in July raised its forecast for Ukraine’s 2019/20 exports to 28.0 mln tonnes. The expected fall in exports is tied to forecast of lower production of 34.0 mln tonnes in 2019/20, easing from 2018/19’s record 35.8 mln tonne harvest.

US Weekly Corn Exports 2018/19 (tonnes)US Weekly Corn Exports 2018/19 (tonnes)

20181.8M

1.6M

1.4M

1.2M

1M

0.8M

0.6M

0.4M

0.2M

0

09/0

6/20

18

09/1

3/20

18

09/2

0/20

18

09/2

7/20

18

10/0

4/20

18

10/1

1/20

18

10/1

8/20

18

10/2

5/20

18

11/0

1/20

18

11/0

8/20

18

11/1

5/20

18

11/2

2/20

18

11/2

9/20

18

12/0

6/20

18

12/1

3/20

18

12/2

0/20

18

12/2

7/20

18

727,

204

1,07

7,71

6

1,35

8,77

3

1,40

8,06

7

1,60

5,21

2

1,10

0,43

5

1,21

3,22

1

755,

036

1,35

5,35

5

1,11

2,97

3

834,

853

1,05

3,23

1

1,16

6,28

5

952,

132

975,

577

899,

618

1,00

5,95

1

20195.5M

5M

4.5M

4M

3.5M

3M

2.5M

2M

1.5M

1M

0.5M

0

01/0

3/20

19

01/1

0/20

19

01/1

7/20

19

01/2

4/20

19

01/3

1/20

19

02/0

7/20

19

02/1

4/20

19

02/2

1/20

19

02/2

8/20

19

03/0

7/20

19

03/1

4/20

19

03/2

1/20

19

03/2

8/20

19

04/0

4/20

19

04/1

1/20

19

04/1

8/20

19

04/2

5/20

19

05/0

2/20

19

05/0

9/20

19

05/1

6/20

19

05/2

3/20

19

05/3

0/20

19

06/0

6/20

19

06/1

3/20

19

664,

975

0 0 0 0 0 5,48

9,59

2

769,

089

744,

006

785,

767

764,

246

959,

545

1,26

2,19

3 982,

982

1,22

4,17

5

1,24

8,71

2

1,36

6,04

7

1,15

4,07

1

983,

867

879,

294

1,72

0,35

8

769,

968

888,

600

640,

918

Source: USDA

Vantage expects nearby corn futures to be around USD4.10 per bushel in 2019/20


While the spat between the world’s two largest economies is of obvious importance, the feud between Washington and Beijing has been joined by multiple other diplomatic and political disagreements which are shaping trade flows in the grains and oilseeds markets.

US – ChinaFor agricultural commodities, the US-China trade war started in earnest in July 2018 when China introduced a 25% tariff on imports of US soybeans. On top of the price disadvantage, US soybeans faced the added hurdle of Chinese importers’ reluctance to go against the obvious political will to shun the US as an import origin.

As of July 11 2019, the US had total soybean export commitments to China of

48.7 million tonnes compared to 57.6 mln tonnes at the same point in 2018, a 15.5% drop. Current year commitments include 9.3 mln tonnes of outstanding sales compared to 6.8 mln tonnes at the same point last year; speculation remains over just what volume of those outstanding sales will be exported this season and accurate forecasting is near-impossible as the answer will be closely tied to the outcome of on-and-off trade negotiations between the two countries.

The significance of US-China friction to the soybean market is evident in severe market reactions to any news surrounding negotiations. CBOT soybean futures have repeatedly reacted positively to news of progress in trade talks between the US and China and fallen when White House

announcements have suggested a resolution is still out of reach. Signals of trade talk progress have often come with goodwill orders of US soybeans by China, but there remains plenty of room to cancel should things turn sour again.

The USDA expects US soybean exports of 51.0 mln tonnes in 2019/20 compared to 46.3 mln in 2018/19. US ending stocks are expected to more than double in 2018/19 to 28.6 mln tonnes; some help in reducing those supplies in 2019/20 may come from a troubled planting season in the US. The USDA’s July figure for US 2019/20 soybean production was 104.6 mln tonnes, down from its forecast the previous month of 112.9 mln and 2018/19’s 123.6 mln.

Brazil gained the most in soybean export terms from tensions between the US and China. Brazil set record exports in the first half of the season and looks set to break records for the full season. The USDA pegged Brazil’s soybean exports at 77.3 mln tonnes for 2018/19, and 76.0 mln tonnes for 2019/20.

Archer Daniels Midland CFO Ray Young recently stated he believed China’s demand for soybeans will be changed forever by the current trade war. Once the trade war is resolved, he expected China to increase its agricultural self-sufficiency and diversify its import origins, while the US will look to reduce its dependence on individual export markets.

China is already working to improve its land

The trade war between the US and China – a tariff escalation tit-for-tat ostensibly over trade imbalances, unfair business practices, trade secret theft and a host of other issues – is the most high-profile case of souring international trade relations in the past year.

By Gary Howard

Trade tensions inject uncertainty into grains and oilseeds markets


use through farm consolidation, and there is room for it to improve its soybean yields – currently half of those in the US. Soybean self-sufficiency is currently well out of reach for China, however. It is expected to produce 17 mln tonnes of soybeans in 2019/20 and import 87.0 mln tonnes.

On top of the difficulty of forecasting export figures when so much rests on volatile diplomatic relations, there is the added complication of China’s ongoing battle with African Swine Fever (ASF). China uses soybeans to feed the world’s largest pig herd, but that herd has been decimated by outbreaks of ASF throughout the country and widespread culls. Pig numbers in China were down almost a fifth in March 2019 compared to the same month in 2018 due to culls and producer cutbacks. Where there are fewer pigs there is lesser demand for soybean for feed, and the true extent of ASF’s impact on China’s pig numbers is muddied by market suspicions of under-reporting of outbreaks and culls.

The knock-on effects of the US-China trade war have also been felt in other oilseed markets. China’s decreased imports and reduced demand for feed due to ASF leads to lower soy crushing and lower soy oil output. From where China makes up for the lack of vegetable oil remains to be seen, but there is potential for the well supplied palm oil market to feel the benefit. One downside is the low price of soy oil, something palm oil will reflect and a factor dampening prices and futures across global oilseeds.

Love thy neighbourThe fragility of international relations was underlined in recent months as the replacement for the North American Free Trade Agreement (NAFTA), the US-Mexico-Canada Agreement (USMCA) suffered a startling setback. In a tweet on May 30, US President Donald Trump threatened a 5% import tariff on all Mexican goods from June 10 unless Mexico tackled illegal immigration across the US border.

On June 7, Trump announced the tariffs were to be “indefinitely suspended” as Mexico had taken steps to address the immigration issue – wording which suggests the tariff threat could return at short notice.

Trump’s tariff threats came as all three nations were working towards the signing of USMCA, an agreement with wide support from the grains and oilseeds sector in the US. The willingness of the US to publicly undermine the spirit of the deal will have shaken its neighbours’ confidence in the trade agreement.

In June the US National Corn Growers’ Association was one of 950 food and agriculture organisations to call for the ratification of USMCA. NCGA claimed 21.4 mln tonnes of corn and corn products were exported from the US to Canada and Mexico in 2018 – the “most reliable markets” – with a value of USD4.56 bln.

USMCA is not without controversy within the US grains market. Wheat growers are

concerned over the details of a new wheat grading system which will stop US wheat from immediately being graded as the lowest quality in Canada; the US growers want to ensure the specifics allow US wheat classes to be compared fairly with their Canadian counterparts.

Despite this, US farmers want USMCA and other trade deals to get over the line. US senators in June grilled the administration over agricultural issues, in particular the negative impact of trade disputes on the welfare of farmers. Farm incomes were at a decade low, commodity prices were subdued and a wet spring had hit farmers hard, senators warned. The administration had little in the way of good news when pressed for updates on trade talks with China and the possibility of a trade deal with Japan.

China-CanadaTrade relations between Canada and its erstwhile key canola export destination China have suffered since the December 2018 arrest of a Chinese tech giant CFO in Canada.

Prior to the diplomatic troubles, China accounted for around 40% of Canada’s canola seed exports; now Chinese importers are unwilling to take any of the Canadian oilseed and China has suspended the licenses of two major Canadian exporters to export to China.

Slowing exports brought forecasts of record Canola ending stocks in Canada; sister title IEG Vantage expects Canada to hold 4.2 mln tonnes at July 31 2019, up from 2.5 mln in the 2018.

Canola futures have tumbled since the tension between China and Canada escalated, not helped by bearish situations in the soy and palm oil markets over the same period. Some recent support has come from falling European production forecasts and increased European imports. Canada’s production looks set to fall next season however, with IEG Vantage forecasting a lower harvested area of 19.8 mln acres down from 22.5 mln in 2018/19. Production is forecast at 18.2 mln tonnes compared to 20.3 in 2018/19.

IEG Vantage sees the lower production and higher opening stocks bringing total Canadian Canola supply to 22.4 mln tonnes in 2019/20, down from 23.0 in 2018/19.

Canada Canola Exports by Month (‘000 tonnes)Canada Canola Exports by Month ('000 tonnes)

0

200

400

600

800

1,000

1,200

Aug-

17

Sept

embe

r

Oct

ober

Nov

embe

r

Dece

mbe

r

Jan-

18

Febr

uary

Mar

ch

April

May

June

July

Augu

st

Sept

embe

r

Oct

ober

Nov

embe

r

Dece

mbe

r

Jan-

19

Febr

uary

Mar

ch

April

May

Canola Exports to China Total Canola Exports

Source: Canada Grains Commission

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2019 - IEG Vu · IEG Vu | Half Year Outlook 2019 / 5. Weather and politics are key influences Fruit juices, canned and frozen foods, tomatoes and other key products, this is a complicated