The commodity market is back in business after Eid holidays. In the week ending August 24, the wholesale prices of wheat have been quoted below the Rs2,900 per 100 kg threshold - at around Rs2,870 per 100 kg. Sufficient availability of wheat reserves is said to keep the prices stable in the near term.
However, market sources believe that the planned release of pricier wheat (due to procurement at Rs1,050 per maund this year) by the provincial food departments from September onwards may push the wholesale prices higher and eventually impact the flour prices. In addition, another sharp increase in international wheat prices may also impact local market as the wheat buying and exporting spree showed last month.
International wheat prices have strengthened over the week. The US hard red wheat was trading for Gulf delivery at 373 dollars per ton on August 22, up from 352 dollars per ton a week ago. Similarly, the EU wheat (France Grade-1) increased to 336 dollars per ton from 327 dollars per ton during the same period. Contrary to prior fears and apprehensions of the traders, the drought in the US Mid-West is not to blame for the recent price rally.
The recent 'Wheat Outlook' released by the United States Department of Agriculture on August 14 forecasts the wheat production in the US at 2.268 billion bushels for the crop marketing year 2012-13 (MY13) - some 269 million bushels more than MY12. It is the depressed output in other regions that is the reason behind recent round of price increases.
Just last week, the International Grains Council - an association of major grains producing nations and regional blocks - reduced its MY13 global wheat production forecast by three million tons, to 662 million tons. IGC expects the prevailing output concerns in the Black Sea region, and now in the EU, Argentina and Australia, to eventually reduce the MY13 global carryover stocks by 17 million tons, to 180 million tons.
Sugar
The wholesale prices of sugar remained stable last week with no adverse movements in both the Karachi's Jodia Bazaar wholesale market and Lahore's Akbari Mandi market. It remains to be seen whether the market's prior expectations of wholesale prices coming down to pre-Ramazan levels will materialise once full trading activity resumes this week.
Meanwhile, the incentive for domestic sugar exporters is diminishing as the price gap between international and local sugar constricts. Global sugar supply situation seems good - with bullish estimates for the world's largest sugarcane producer, Brazil. With stable demand and no significant supply concerns from other major producers, the international sugar prices continued their downward journey last week.
The October contract for London LIFFE No 5 white sugar came down significantly to 547.1 dollars per ton on August 23, from 559.5 dollars per ton a week ago. Similarly, December's contract declined to 545.6 dollars per ton on August 23, from 554.6 dollars per ton a week ago. The October futures for raw sugar on the Inter-Continental Exchange (ICE) reportedly closed at 19.59 cents per lb the same day - an 11-week low.
Cotton
Cotton prices have finally been picking momentum locally, with steadily slowing phutti arrivals prompting increased buying by spinners and mills alike. The market dynamic post Eid holidays has been slightly bullish, with fears of future supply shortages driving up demand for the crop on the local front - demand which had previously remained depressed on account of the market being flooded with unexpected early arrivals.
Sources maintain that an eight to 12-day supply lag in arrivals is expected which will support local prices in the coming week. However, with the official spot rate slowly yet steadily climbing up to Rs 5,850, up by Rs 150 in the last two weeks, prices are only expected to increase marginally, and there are no expectations of any sharp fluctuations.
Moreover, the supply disruption on account of the showers in Punjab has pushed seedcotton prices in the local markets up, which have been ranging between Rs 2,600 and Rs 2,700, up from the pre-Eid prices of Rs 2,575. However, the prices in rain-strapped Sindh remained largely unchanged, ranging between Rs 2,600 and Rs 2,650 per 40kg.
Meanwhile, on the international front, New York cotton prices have slumped once again. With Reuters reporting of a possibility that Beijing plans to sell 15 percent of its state stockpile, prices- which were already shaky on their feet on account of the excessive global cotton reserves- plunged down further still.
The news, which brought the benchmark December contract on ICE Futures down by two percentage points -with prices settling at around 75 cents per lb at the close of Friday, was still unable to garner mill interest. Consequently, Friday saw the volume traded on the NYCE going down to nearly 12,000 lots, a significant 50 percent below the last 30 day average, as most buyers will now wait to see how much the prices are likely to go down next week as a consequence of China's reserve flooding an already saturated market.
Rice
The local rice market had been slow leading up to Eid and continues to remain subdued following the end of Ramazan and Eid holidays. Prices on the local and export front however still show a predominantly firm trend, with depleting reserves ahead of new arrivals lending support to prices for both the Basmati and Long Grain varieties - the latter being quoted at prices ranging from $450 per ton as of Friday.
However, sources maintain that enquiries have begun to arrive from the Middle Eastern markets and demand from the East African front is likely to return as soon as the new crop hits the market in October. The fears of prolonged delays in arrivals have been somewhat assuaged as crop arrivals from the Punjab region are likely to be delayed for 10-15 days only with heavy rainfall easing concerns about the crop size and quality. Sindh however remains dry, with local farmers hanging on to the hopes of receiving the rainfall forecast for later this week.
Overall, exporters remain confident that the 2012/13 season is going to be a positive one, with export figures likely to increase year-on-year on account of an output led expansion. The Grain Report released by the International Grains Council backs this assumption, forecasting a record output of 466 million tons, with production and use likely to remain largely in balance during the coming season.