COTTON: Trading remained modest on the cotton market this week as dwindling stocks of finer varieties allowed ginners to keep a firmer hand on prices. The official spot rate went up to Rs6,250 up from Rs6,100 last week whereas most of the trading that took place on the open market saw bales changing hands between Rs5,900 and Rs6,500 per maund.
As the supply dries up in the last leg of the season, prices may go up even higher in coming weeks buttressed by a break in arrivals from Punjab where a fresh round of showers has helped tighten up things even more. Additionally, expectations of a decrease in global inventories and a downward revision of local cotton production estimates are both likely to affect local fiber prices.
In the meantime, local spinners have been enjoying better rewards than ever as margins continue to strengthen for yarn-intensive mills. The discount of local cotton prices relative to Cotlook A has strengthened by 15.6 percent in February alone, which has strong implications for spinners whose product is selling for much higher in the international market in line with the spiking international cotton prices.
The last week saw cotton futures remaining lackadaisical as buyers were absent from the markets on account of celebrations for the Chinese New Year. But Reuters reports an end-of-week rise that broke the two-week dry spell with the most active May contract on the ICE futures rising up by 0.7 percent, to settle at 82.79 cents/lb.
Coming off the back of stronger US weekly exports sales data that doubled up from the last week, this positive turn is expected to continue on the market amid buying by Chinese mills who are purchasing from international markets on account of the expensive yet low quality reserves being auctioned locally.
RICE
Rice prices for Pakistani varieties remained largely unchanged this week in the international markets as low grade white rice remained the principal attractor, pulling in buyers from China, the Middle East and Africa.
However, this season saw exports of local Basmati witness a nasty drop, going down by nearly 60 percent in the last 7 months as the higher priced Pakistani variety is being crushed to death by cheaper Indian alternatives.
Lower acreage planted for the Basmati varieties is one factor which has been affecting prices as farmers move towards planting high yield hybrid varieties on their fields in favour of the more fragrant varieties.
Other factors including higher milling costs and a decreased milling capacity on account of low availability of electricity have also resulted in a lower stock of export-ready paddy, which has led to a loss of nearly $250 million, according to Chairman REAP.
On the other hand, India has been enjoying domination in the Asian rice domain, where things are slated to get even tighter in coming months. A press release issued by the Indian Ministry of Consumer Affairs, Food and Public Distribution on Friday revealed that government agencies have procured 25.6 million tons of rice during ongoing Kharif Marketing Season. According to the data made available, rice procured during current KMS is 1,79,939 ton more than the rice procured during the same season last year. Consequently, it is expected that a higher level of stocks with the Indian government is going to put added pressure on Pakistani and Vietnamese rice prices in the coming months.
SUGAR
Wholesale prices hovered around Rs49 - 52 per kilogram, this week. On the supply side, sugar exports are at full stream with millers getting 7.5 percent reduction in FED on local sales equivalent to the export volume. Moreover, TCP has procured over 60,000 tons of sugar and is reported to have released outstanding payments of Rs3.3 billion to 11 sugar mills against the purchase of 64,280 tons of sugar, enabling mill owners to clear the dues of sugarcane growers.
While talking to official sources, it was learnt that despite stable domestic prices, timely payments by TCP to the millers and other incentives given to the millers in the form of FED reduction, there is a high suspicion of tax evasion by the millers. Despite a bumper crop last year, tax revenue dropped drastically. To curb this, FBR has tasked 200 Inland Revenue officers to stay at the mills 24 hours to inspect their input, production, sales volume and payment of duties/taxes.
India's sugar production for the 2013-14 is expected to fall below consumption for the first time in four years as water shortage reduced acreage in three key states - Maharashtra, Karnataka and Tamil Nadu.
The drop in India's output might enhance the global sugar prices as India is the world's top sugar consumer will import raw sugar to maintain its strategic reserves. The government then sells this sugar at INR13.50 per kg to 652 million poor families through ration shops; incurring a subsidy of INR 23 - 25 billion a year.
A striking and rare trend observed this year is that Brazilian ethanol is traded at a price above the sweetener. If ethanol prices continue to rise over sugar, millers may prefer to produce ethanol instead of sugar. Thus, the global sugar surplus that pushed prices down over past two years may be eliminated soon depending on the amount of cane that is used in Brazil for ethanol. Sugar may need to climb to 19.75 cents a pound to make it attractive enough for millers to favour the sweetener over ethanol.
On the global prices front, March 2013, No 11 raw sugar contract at ICE fell to 17.94 cents/lb from 18.84 cents/lb last week, while No 5 May 2013 white sugar contract at LIFFE was traded at $490.40/ton on February 16, 2013.
WHEAT
Wholesale prices of wheat lingered at Rs30 - 32 per kilogram across the country. According to market sources, wheat prices have declined for the past two weeks owing to strict measures by the provincial governments to inspect the trading of the commodity on the suspicion of speculation and smuggling. In Sindh only, around 25 people were imprisoned and penalised for selling the commodity at excessive prices.
Last week, Passco was restricted by LHC for selling 400,000 tons of wheat to the millers selected on the basis of favouritism. This week, however, Passco has started releasing wheat to all the provinces on "first come first serve basis".
New crop will be harvested in March - April across the country, prior to that, the Country is being fed on the strategic reserves maintained by the food departments. The food departments are providing wheat to the flour mills at a subsidised price of Rs2850 per 100 kilo. The wheat flour is sold to the wholesalers at Rs36 - 37 per kilo. The retailers get the flour at Rs38 - 40 per kilo which is then sold to consumers at a price as high as Rs42- 45 per kilogram.
Wheat production is expected to miss the targets set for the current fiscal year as the government delayed the announcement of the support price during the sowing season, forcing many farmers to switch to other crops. Moreover, delayed payments from sugar millers to farmers became another hurdle towards sowing wheat due to a lack of financial capacity of farmers to prepare for wheat production.
This year, the government had planned to sow the crop at an area of 23 million acres, where the actual sowing area turned out to be 21.4 million acres. Annual wheat demand in Pakistan is 26 million tons while this year production is estimated to be around 23 million tons. According to Ibrahim Mughal, Chairman Agri-Forum, Sindh will barely produce 3 million tons of crop as against the target of 5 million tons, while Punjab will produce less than 18 million tons against the target of 22 million tons.
Another issue highlighted by the industry insiders was the lack of storage capacity with the public sector departments. Punjab Food Department has the maximum storage capacity of about 2.18 million tons wheat while PASSCO can store only up to 0.8 million tons. Sindh Food Department also has negligible storage capacity. Karachi, despite being the biggest city of the country, has only three godowns and 50 storage units.
Notwithstanding the storage capacity, procurement target of Punjab food department this year is six million tons while Passco has been given the task of buying two million tons of wheat. The procurement target of the Sindh Food Department is 1.2 million tons.
This shows that almost seven million tons or 80 percent of the procured wheat will be stored in open godowns or in private warehouses.
On the international front, wheat futures rose the most in two weeks on the indications that U.S. livestock are feeding on more of the grain. Looking at the global prices, US hard red wheat for Gulf delivery settled on $331 per ton, on February 16, 2013, as against $289, a year ago. While the EU France grade-1 wheat clocks in at $329 per ton, as against $276 per ton, last year.
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