Sugar: The declining trend in sugar's wholesale price seems to have taken a back seat last week. Prices were reported well above Rs4,900 per 100 kg on September 27 in the wholesale markets of Karachi and Lahore, compared to the previous week when the wholesale prices managed to stay above Rs4,800 per 100 kg. Only range-bound price movements are expected in coming weeks, as enough sugar stocks are said to be available till November when sugar mills will start crushing cane.
What happens to the prices in the next season starting November greatly depends on two major factors: yield of the new sugarcane crop and sugar exports. Reportedly, there are anticipations that the current, standing sugarcane crops will yield better sucrose content than last year, which may catapult sugar production in the crop marketing year 2012-13 above last year's production figure of 4.75 million tons.
Without exporting the surplus sugar, whatever quantity that works out to be in the future, domestic sugar prices will likely remain under pressure next season, too. The sugar industry is currently lobbying the government for two actions: allow sugar exports of 0.5 million tons forthwith, and beef up the strategic reserves of TCP via purchasing sugar from local mills.
Seemingly, both actions - exports and procurement - will limit the supply of sugar in open market to the extent of quantities consumed in the two actions, hence pushing prices higher. Yet these actions will also ensure that mills will not only get rid of excess sugar stocks to improve their liquidity position and pay back to their lenders, but, importantly, mills will be in a better position to purchase sugarcane starting a month from now.
The government had already allowed up to 0.3 million tons of sugar exports since February this year. It is widely expected that official permit for another round of sugar exports is in the offing, though the quantum of exports may not be as much as the industry is demanding. In any case, the price differential between local and international sugar spots will most likely figure heavily in sugar exporters' calculations.
Meanwhile, sugar futures in the international commodity exchanges firmed up over the week. The March contract for no. 11 raw sugar on the Inter-Continental Exchange surged to 20.4 cents per pound on September 27, compared to 19.38 cents per pound on September 21. The no. 11 white sugar's March contract on LIFFE also improved to 563 dollars per ton on September 27, as against 560.9 dollars per ton on September 21.
Wheat
The situation in wheat market is not so forthcoming, as the wholesale prices continued to inch up last week towards the price mark of Rs3,000 per 100 kg. The trend in wheat's domestic wholesale price is directly dependent on the quantity of wheat available in the open market for trading.
In the meantime, the international wheat futures showed a visible declining trend during last week, owing to selling pressure in the wake of the United State's Department of Agriculture's monthly grains report that was scheduled to be released on Friday.
The US hard red wheat for Gulf delivery had dropped to 369 dollars per ton on September 27, from 382 dollars per ton on September 20. Expectations of the impact of favourable weather crop on US's winter wheat plantation, reportedly, also contributed to the price fall. In the European wheat futures, the EU wheat (France Grade-1), too, decreased to 340 dollars per ton from 347 dollars per ton, during the period.
Meanwhile, an unequivocal official position on whether Russia will go ahead with the planned curb on wheat export is still not available. The latest position is that Russia will not impose any restrictions on wheat exports, but may announce the same in 2013 if large scale wheat exports continue. And in all there is a high likelihood the exports will continue, since Russian traders are still bidding for major wheat contracts.
Falling global trade amid supply concerns will keep wheat's prices vulnerable to upward pressure. While this presents an opportunity to wheat exporters, it poses the question of food security to the governments that are net importers of wheat.
Cotton
As arrivals picked up their pace once again, prices eased down in the local market, with buyers making use of lower rates to make purchases of the high quality crop that is once again flooding the market. The week began with a hefty slide in prices; however buyer interest reigned in the spot rate, which only sank by Rs50 over last week.
While mills had previously been reluctant to purchase the rain-soaked cotton, fresh phutti arrivals gathered momentum at the beginning of the week and the abundant supply began to immediately soften the prices. Most of the crop that changed hands this week was traded between Rs4900-5300 per 40 kg.
However, on the whole, abundant local supply and carryovers globally will continue to depress cotton prices in the coming weeks. Moreover, with the monsoons finally giving way to drier weather, traders expect a higher than ever arrival rate of good quality crop, which will mean that the market will most likely depict a bearish trend in the following days.
On the global front, prices have been pretty much lacklust, having managed to bounce back slightly, strengthening on the back of the recovery in the Euro. The NYCE benchmark cotton contract for delivery in December went up 0.51 percent on Friday, going for 71.53 cents/lb. The volumes were slightly healthier than recent averages as well. However, they remained below the 250-day moving average, with a majority of investors staying on the sidelines, waiting to see if a further slide in prices is in the works.
Rice
The first round of the new crop finally hit the Pakistani market this week, with intermittent arrivals reaching Karachi beginning Monday. As a result, the prices for the white long grain variety- which had climbed significantly last week- went down to normal levels, going for 450 dollars per ton as of Friday.
The monsoon rains- which finally petered out giving way to a hotter climate- has aided in the drying of the new crop and logistic hurdles were minimised as well which meant that the new arrivals from Punjab are likely to continue hitting the southern markets in the coming weeks.
However, traders predict that the bulk of the crop is not expected to be harvested until October after the recent rains delayed both harvesting and drying of the crop, but hopes are high for a good output.
Likewise, demand is predicted to remain high, especially from traditional buyers and exporters are expected to start shipping out orders in earnest from November onwards. Reports of increased interest from China is also circulating in the market, with the world's largest producer predicted to make purchases of up to 400,000 tons in coming months.