RICE: According to official sources within the Rice Exporters Association of Pakistan (REAP), about 10 percent of the total rice crop in Pakistan has been damaged due to heavy rains and floods. This is expected to have an adverse impact on supplies and local prices, which are likely to increase by up to 20 percent this year, said the source.
Exports, however, will be the biggest victim of this tragedy. As the prices climb higher Pakistani rice varieties are automatically slated to become increasingly uncompetitive in a market which is already teeming with cheaper alternatives.
An indication of what is to come can be seen from the current price trends. During the last two weeks, Pakistani benchmark five percent broken has been going steady at $415/ton but these quote prices are significantly below average price levels recorded during the same period last year.
Remember that prices historically remain strong during the months of August and September, which coincide with the tail end of the season, before the new crop hits the markets and supplies are low enough to pique buyer interest in a major way. But the current trend of lower quote prices are indicative of dwindling demand for the Pakistani rice which has been fast losing steam to cheaper Vietnamese and Indian varieties.
The recent hikes in fuel prices are also adding to worries. Going forward, rice sorting and milling is going to subsequently become more expensive, especially if generators are being used for the process. Continued rains are also going to run up miller's cost, especially if the harvested paddy is delivered with higher than normal moisture contents (which in all likelihood will happen because of last week's showers).
The next few weeks therefore are going to be crucial in determining the price floors for the new arrivals-which should start hitting the markets any time soon.
Cotton
Much like last week, trading activity on the cotton market began in earnest at the start of the week but cooled down somewhat as the weekend approached and phutti arrivals picked up pace. The official spot rate subsequently moved, shedding Rs50 over the last week to hit Rs 6,650.
During the week, seed cotton prices remained range bound, averaging around Rs 3000 per 40 kilo bag in Sindh and from Rs 2,500 to Rs 3000 per 40 kilograms in Punjab. Similarly, lint prices also remained steady over the week, ranging from Rs6700 to Rs6800 per maund in both Sindh and Punjab.
Meanwhile, traders report that the pace of arrivals has improved once again and better quality phutti especially in Punjab are finding their way to markets after being held back by monsoon showers. Going forward, if the improved weather stays favourable, the supply of cotton will pick up pace and bring down prices.
Talking to BR Research, a trader said that phutti arrivals are expected to come in thick and fast during the next few days, so there is consensus that actual sales might slow down in the medium term as buyers go on the sidelines to await further price cuts. But the uncertainty about the weather is prompting a flurry of mills to buy supplies to cover short term needs, which should sustain the current level of prices, at least until the next seven day, he added.
On the global front this week, things remained under pressure as the market awaited US jobs data. Last week, there were reports that China had cancelled some orders which prompted concerns about demand from the world's biggest textile industry. The ensuing round of liquidation weighed down prices.
This liquidation has already knocked off 12 percent of fiber's value in the last three weeks according to Reuters. But some players maintain that Chinese mills will resume buying once prices fall closer to 80 cents level in the next few days.
In the meantime, things remained tight as the ICE cotton futures hit fresh three-month low during the week. The most-active December cotton contract on ICE Futures consequently settled down 0.45 cents, at 82.75 cents per pound, its weakest position since June 3.
Wheat
During the week came the news that the Punjab government had finally announced release prices for wheat stock for the season. But the development was expected and barely repressed panic since mid-August.
Addressing a press conference in Lahore on Tuesday, provincial law minister Rana Sanaullah informed mediapersons that a 20-kilo flour bag would now be available at Rs 785. He also said that 3.4 million metric tons of wheat would be released during the season and that the government would give a subsidy of Rs 18 billion on it.
But few were satisfied with the number tally the government has presented. According to official sources, the Punjab government currently has a stock of 3.9 million tons of wheat which should likely prove enough for meeting the requirements till the beginning of next year.
However, independent factions remain wary and there is still no clarity about how KPK 's medium-term demand for the staple commodity will be met. PASSCO reportedly is running short of supplies to cover the province's wheat deficit and tapping into the Punjab's supplies will be a difficulty due to low stock levels. PASSCO officials could not be reached for their comments.
Sugar
Prices have remained stable over the last week in both Jodia Bazar and Akbari Mandi and there is some consensus that the prospect of opening up of exports has been holding up the market. Industry sources report that the inventory of sugar is enough to sustain domestic demand till January 2014 and that the millers should be allowed to sell off their towering stocks before the new crushing season commences in November.
Exporting the surplus sugar through Trading Corporation of Pakistan will also help keep the millers from defaulting on their bank borrowings, said an industry source, adding that currently millers are facing liquidity problems.
Currently sugar stocks with mills are reported to be around the 2.1 million tons and there has been immense pressure on the government to procure 0.4 million tons of sugar from the millers through TCP.
But it seems that the stand-off between the MoI&P and lobbyists is going to remain unresolved for the time being, since there are rumors circulating in the market regarding the incoming crop's health. Sources are now reporting that the recent monsoon showers may have damaged some of the standing sugarcane crop and that despite PSMA's pressure, the ministry will not be putting up the case for allowing exports at the ECC until there is some clarity about production estimates.
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