Cotton: Sustained purchasing by mills ensured that the prices remained firm this week on the cotton market, whereas the Spot Rate ended up higher by Rs 100 over last week, at Rs 5,900 at the close of business on Friday.
Spinners continue to reap the biggest reward of the improved sector dynamics as higher sales on account of mammoth demand from China increased their earnings outlook dramatically. Moreover, data from PBS also show a marked improvement in the export statistics for cotton cloth, knitwear, towels and readymade garments during the 1QFY13.
Consequently, market sources believe that local prices are very likely to remain steady in the coming weeks as persistent demand from textile mills should keep up in the foreseeable future.
However, a recent PCGA report has pointed out that some 9.58 million cotton bales have been sourced to local ginners by the start of December, with nearly 1.7 million bales are still lying unsold in warehouses. This has prompted stakeholders to demand that the government should impose a ban on the import of raw cotton by textile mills which have employed this tactic to keep local prices on the lower end of the spectrum.
On the international front, Reuters reports an upward shift in buyer interest as the US data for export sales showed the highest figures in the last five months. Consequently, the market rallied somewhat with the benchmark March contract on ICE Futures settling up 0.51 cent higher, at 73.55 cents per lb on the close of business on Thursday. However, with volumes well below the average, the gain was not sufficient enough to draw up the prices from the current range.
Rice
Prices have again been largely stable for rice of Pakistani origin as sustained foreign demand for a number of varieties of long grain white rice continues. The prices for the benchmark Irri-6 5 percent have remained unchanged over the last week, going for $435 per ton, while prices for the basmati varieties show a slight increase.
Buying continues to come from the same quarters, with exporters fuelling in anticipation of a new aggressive round of buying as the Chinese importers are allocated their next instalment of export licenses beginning in January.
Despite the forecast of a 2 percent increase in production this season, FAO's Rice Market Monitor reports that a steady level of shipments this season is also foreseen to trim Pakistan's inventories by 7 percent to 500,000 tons. Attributing this to the competitive pricing and excellent quality of Pakistani rice, there is a chance that exports might recover by 10 percent, reaching 3.3 million, as against the previous forecast of 3 million tons.
Moreover, world rice trade in 2013 is also forecasted to reach 37.5 million tons, a high enough volume which should be expected to trim down the huge inventories held by other major exporting nations including Pakistan, bringing international prices into a much more attractive range.
Wheat
The wholesale prices of wheat that inched up to Rs 3,050 per 100kg, slightly unshackled this week hovering around Rs 3,015 to 3020 per 100kg, across the country.
Market sources highlighted that the Sindh government's decision to provide Rs 600 million by reducing the price of 100kg wheat to the millers by Rs 50 to Rs 2,800 has taken its toll on the wheat prices, thereby lessening it for a time being.
Wheat sowing process, albeit, has gained some momentum subsequent to the government decision of raising the procurement prices by Rs 150, yet only 12 million acres of land is brought under wheat cultivation as against the total targeted area of 22 million acres, which raises a red flag for the country.
Wheat sowing process which usually ends by November is only accomplished up to 50 percent by December. This speaks of a precarious ride for the country ahead and is likely to invigorate the food security issues in the country.
Had the government settled on lifting up the procurement prices slightly earlier, the sowing situation would not have been this much appalling.
With surplus resting at around 2.5 to 3 million tons, it will take another four months for the next wheat harvest to dawn upon the country.
Apart from meeting the domestic monthly demand of around 0.8 million tons, the government has recently signed a barter agreement with Iran whereby Pakistan would supply 1 million tons of wheat to Iran at an agreed upon price of $300 per ton in exchange for fertiliser and iron ore. Pakistan will instigate the shipping of wheat to Iran in December and reportedly will accomplish the export target of 400,000 tons by March.
Amid surplus drying up every month, any shortfall this season would lead to the country running off with the title of "wheat sufficient country" yet again. Market sources underline great possibility of flour prices outdoing Rs 45 mark and bread crossing Rs 7 mark by the end of CY13.
Delving into the international wheat scenario, the estimate for world wheat production is tapered by 1m tons to 654 million tons, which signifies a year-on-year decline of 6 percent.
Early imports by China and Iran have contributed to an increase of 2 million tons in the world trade forecast, but it is still steeply lower than last season's trade.
On the prices front, US hard red wheat for Gulf delivery settled on $370 per ton, down 3 percent from the price last week. While the EU France grade-1 wheat remains stable at $358 per ton, as on December 7th.
Sugar
With crushing season having entered a peak phase, the wholesale prices of sugar took another dive this week oscillating at Rs 47-48.5 per kg across the country.
A plenteous production of 5 million tons sugar is expected this season with Punjab accounting for nearly 58 percent of the production, while Sindh and KPK will contribute 30 percent and 12 percent, respectively, to the output this season.
From the existing stock of 1.2 million tons, TCP has planned to buy 30,000 tons of white powdered sugar for Tajikistan for which TCP has started inviting bids from the millers in the multiples of 5,000 tons. However, the export rate agreed upon by TCP is $528 per ton which is 4 percent less than the prices prevailing in the International market.
Besides, exporting powdered sugar to Tajikistan, the government has allowed millers to export 400,000 tons of white refined sugar at the rate of $560 per ton on FOB basis. However, the millers are asserting to increase the export limit, so as to improve their liquidity position thereby allowing them to make timely payments to the farmers.
Moreover, industry players highlight while the local demand rests at 4 million tons as against the expected production of 5 million tons, any inundated supply of the commodity in the local market will greatly reduce the prices, thereby accumulating huge losses for the manufactures.
In contrast to the domestic state of affairs, if we look into sugar production scenario of our neighbouring country India, the sugar production is expected to turn down to 23 million tons in 2012-13 due to late monsoon and drought conditions in Maharashtra and Karnataka, which bogged down the sowing of major kharif crops including sugar cane. This creates sufficient room for Pakistani millers to export sugar to India.
Previously, the Indian traders who contracted sugar imports from Pakistan found the FOB price of $545-560 per ton quite attractive whereby they gained $15-$20 a ton after paying a duty of 10 percent. However, the Indian government has now increased the duty on refined sugar from Pakistan to 20 percent to bring the price of Pakistani sugar at par with the price prevailing in India. This will definitely take its toll on the export numbers.
On the international front, ISO has lifted up its forecast for projected global sugar surplus in 2012/13 to 6.18 million tons, and project prices to remain under bearish strain until the end of the current crop cycle.
Glancing at the prices, March 2013, No 11 raw sugar contract at ICE was traded at 19.21 cents/lb while No 5 white sugar contract at LIFFE settled at $515.50/ton as on December 7th.