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News Flash: July 10, 2014

INDUSTRY

A.D.M. to Buy a Swiss Food-Flavoring Company

Archer Daniels Midland announced on Monday that it had agreed to acquire Swiss flavoring company, Wild Flavors for 2.3 billion euros, or about $3.1 billion, in cash and debt. A.D.M., says it plans to combine Wild Flavors with its specialty ingredients business, creating an operation with about $2.5 billion in annual revenue. The acquisition coincides with consumer demand for foods and beverages with more natural flavors and ingredients. Additionally, this is an important step to expanding A.D.M’s product portfolio. The deal, which is subject to regulatory approval, is expected to close by the end of the year. New York Times

SOYBEAN

Soybeans Hurt by Weak Rain to Spur Cooking Oil Imports

India’s soybean crop may tumble to a five-year low as a weak monsoon season delays planting, potentially boosting cooking oil imports to record highs. Production could decline 7.9 percent to 11 million metric tons in the year beginning Oct. 1, said Dinesh Shahra, managing director of Ruchi Soya Industries Ltd. Vegetable oil purchases, including for industrial use, may climb 12 percent to 12 million tons in the year to October and rise further in 2014-2015, Shahra said. A smaller oilseed harvest will cut domestic supply of cooking oils and increase dependence on imports, potentially stemming a decline in global palm and soybean oil prices. Soybean plantings fell to 445,000 hectares (1.1 million acres) by July 4 from 4.3 million hectares a year earlier, the Agriculture Ministry reported this week. Rainfall over the soybean producing state of Madhya Pradesh state was as much as 78 percent less than the 50-year average since June 1, according to Indian Meteorologists. The chances of a drought in India have increased to 60 percent from about 25 percent in April amid forecasts for El Nino, forecasters said last week. An El Nino will reduce monsoon rain and may hurt all crops. Palm imports in 2013-2014 are set to drop for the first time in four years to 8 million tons from 8.3 million tons a year earlier because of the narrowing discount to soybean oil. The gap with soybean oil averaged about $94 a ton this year from an average of $244 in 2013, Bloomberg data found. India imports more than 50 percent of its cooking oil demand, shipping palm from Indonesia and Malaysia and soybean oil from the U.S., Brazil and Argentina. Purchases of soybean and sunflower oils are forecast at 3.3 million tons to 3.5 million tons this year, Shahra said. Imports were about 2.1 million tons in 2012-2013, according to the Solvent Extractors’ Association of India. Palm oil for September delivery fell 1.2 percent to 2,384 ringgit ($751) on the Bursa Malaysia Derivatives. Prices have dropped 9.5 percent this year on concerns that output will increase in Indonesia and Malaysia, the world’s biggest growers, boosting inventories. Palm may rally less than earlier forecast as demand misses estimates and an El Nino starts later than expected, according to Dorab Mistry, director at Godrej International Ltd. Futures may climb to 2,800 ringgit by December if the weather event occurs from mid-August, Mistry said on June 26, cutting his March 5 forecast for a run-up to as high as 3,500 ringgit. Bloomberg

CORN

Corn, Wheat Futures Hit Nearly 4-Year Low

Corn futures fell this week to the lowest prices in four years as favorable weather upgraded prospects for US crops. Soybeans tumbled, as well, closing at their lowest level in more than four months.In the past week, up to six times the normal amount of precipitation fell in parts of Iowa and Illinois, the biggest U.S. growers of corn and soybeans, further improving growing conditions. About three-fourths of the nation’s corn and soybean crops were in good or excellent condition as of Sunday, according to the USDA. Extended balmy, rainy weather will help lift corn and soybean yields that the USDA has estimated will reach record levels this year, analysts said. The USDA has estimated this autumn’s corn harvest will total 13.935 billion bushels, surpassing last year’s record crop, while soybean output also will set a record. The government is scheduled to update its forecasts for supply and demand of major U.S. crops Friday in a closely watched monthly report. Corn for July delivery, the front-month contract, fell 7.75 cents, or 1.9%, to $4.0925 a bushel, the lowest closing price for a front-month contract since Aug. 25, 2010. The $27 billion corn-futures market has plunged about 21% since April 29, exceeding the 20% threshold that officially makes it a bear market. December corn futures, the most actively traded contract, dropped 9 cents, or 2.2%, to $4.0625 a bushel.Corn prices plummeted 40% last year as U.S. farmers collected the biggest crop in history. Futures climbed for much of the early part of this year, as the drop in prices helped stimulate demand from ethanol producers and foreign buyers. But futures have fallen sharply in the past two months as rains improved soil conditions across the Midwest. Soybean futures declined for a sixth consecutive session Monday, weighed down by the USDA’s forecast last week for U.S. growers to plant a record 84.8 million acres this year, more than 2 million above average analyst estimates. Soybean futures for July delivery fell 24.75 cents, or 1.8%, to $13.63 a bushel on the CBOT, the lowest closing price for a front-month contract since Feb. 20. November soybean futures, the most actively traded contract, dropped 8 cents, or 0.7%, to $11.255 a bushel. Wall Street Journal

PALM

Palm Oil Hits Hurdles in Southeast Asia

Indonesia and Malaysia are falling behind the ambitious targets set by their governments to use more palm-based biodiesel at home, helping send prices of palm oil tumbling 18% since March. The two Southeast Asian countries account for about 85% of world palm oil output, used by the food and cosmetic industries. Both are pressing ahead though to use more palm oil in biodiesel and reduce the burden of maintaining subsidies on transport fuels gasoline and diesel. But Indonesia has been reporting hurdles in meeting the biodiesel targets since early this year due to a lack of blending facilities, as well as challenges in distributing the fuel to thousands of islands that make up the country. Malaysia too has fallen short of its plan to implement a target of using 5% in biodiesel blend by July 1 because of delays to blending facilities in the east of the country. Malaysia says it plans to implement a 7% blend nationwide remain are on track for Jan. 1 next year. Overly-pessimistic forecasts about a spell of dry weather early this year would cut the crop in Indonesia and Malaysia have also not happened, driving the price lower as more supply has come on board. With Indonesia, there have also been producer and blender disagreements over pricing, and the absence of strong political will to remove or cut fuel subsidies, the USDA reported this month. Meanwhile, East Malaysia is also facing distribution challenges, it said. Analysts including Dorab Mistry of Godrej International Ltd. say this calls into question the two governments’ commitment to biodiesel. Mr. Mistry says Indonesia’s consumption of palm-based biodiesel for the first five months of this year is similar to that in the same period last year, pointing to overall flat consumption volumes in this marketing year. Despite earlier proclaiming Indonesia and Malaysia’s biodiesel mandates an industry “game changer” for palm oil, Mr. Mistry is now more cautious on his earlier bullishness on biofuel demand. “Palm has become far too dependent on biodiesel demand and that is an unreliable, opportunistic and sporadic market. Palm must fight for market share of edible food demand,” Mr. Mistry said. Wall Street Journal

CANOLA

Canada Flooding Kills Canola Crop as Cash Prices Set to Rise

Widespread flooding due to record rainfall is reversing expectations for a larger canola crop in Canada, after the government said last month that planting would increase 1.5 percent to 20.2 million acres. Sowings could miss that forecast by as much as 11 percent and output may tumble as much as 10 percent from last year’s all-time high of 18 million metric tons. The outlook for record soybean acres in the U.S. may limit price gains, as some oilseed consumers substitute for canola. About 84.8 million soybean acres will be sown in the U.S. this year, the most ever and up 11 percent from a year earlier, according to the U.S. Department of Agriculture.Canada’s canola production outside the flooded regions can also help make up for the flooded acres. The majority of crops outside the impacted areas are in fair to excellent condition, according to Saskatchewan’s agriculture ministry. 81 percent of the canola in Alberta, in good to excellent condition as of June 30, according to a July 4 report. Bloomberg

SUNFLOWER

USDA Acreage Report pegs sunflower acres higher

The USDA released its Planted Acreage report last week which estimated 2014 total sunflower acres at 1.71 million acres, which is an increase of 8 percent from 2013. The

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report also indicated harvested area will increase 11 percent from last year to 1.63 million acres. “Trading was volatile after USDA surprised the industry with almost five million more planted crop acres than they estimated in March,” John Sandbakken of the National Sunflower Association said. North Dakota is reported to have the largest percentage gain in total acreage from last year at 39 percent,” Sandbakken said, adding that planted area of oil-type varieties totaled 1.34 million acres. In Kansas, planted area of oil varieties is the lowest since records began in 1988.Despite rainy conditions, producers made good progress in planting sunflowers in late June. In North Dakota, 97 percent of the sunflower crop was planted as of July 1. That compares to 86 percent last year at this time and the five-year average of 94 percent. In Minnesota, producers there also had 97 percent of the crop planted which is well ahead of last year’s 85 percent at this time and also slightly ahead of the five-year average of 94 percent.Farm & Ranch Guide