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Goldmans Slashes Grain Price Estimates On USDA Stocks Data
Goldman Sachs downgraded its grain price forecasts, after higher-than-expected U.S. stocks data last week eased fears of a shortfall of corn supplies.
Grain analyst Damien Courvalin slashed his estimates for Chicago corn prices over the next three- to six-months to $6.15 a bushel from $7.35/bu and to $5.50/bu from $7.00/bu over the next year, citing data from the U.S. Department of Agriculture showing inventories "well above our and consensus expectations."
For wheat, he lowered estimates from $7.50/bu, $7.90/bu and $7.50/bu to $6.40/bu, $6.50/bu and $6.00/bu on the back of both lower-than-expected corn prices and consensus-beating wheat stocks.
Grain prices plummeted Friday after the USDA stunned markets by pegging domestic corn inventories at 1.128 billion bushels as of Sept. 1--23% higher than a forecast released a fortnight ago by a different division of the USDA and well above market forecasts of below 1 billion bushels.
Significantly, stocks of wheat, a key corn feed substitute, also came in well above market expectations at 2.15 billion bushels, implying that recent high prices had started to reduce demand more than many had predicted.
"We expect these higher 2011-12 corn beginning stocks to more than offset our forecast for lower new-crop corn production and allow for both stronger demand and higher ending stocks than we had previously expected," said Courvalin in a note. Meanwhile the "the recent record-high wheat-to-corn price correlation will likely decline" as higher supplies encourage less substitution, he said.
The data was also bearish enough for Courvalin to downgrade Goldman's top bullish call, soybeans. He cut his price forecasts from $13.75/bu, $14.00/bu and $14.00/bu over the next three, six and 12 months to $12.60/bu, $13.00/bu and $13.00/bu respectively.
But he said that he expected soybean prices to outperform corn as "the tightening of the soybean balance relative to the corn balance will likely intensify the competition for U.S. acreage next spring," while the La Nina weather pattern this spring could present further world production risks.
US Judge: Pilgrim's Pride Manipulated Chicken Prices, Ordered To Pay $26M
A federal judge ruled Pilgrim's Pride Corp. knowingly tried to manipulate the price of chicken in 2009 and ordered the company to pay $26 million in damages to dozens of contract poultry growers in Arkansas.
U.S. Magistrate Judge Charles Everingham IV ruled the Greeley, Colo.-based company's 2009 decision to shutter a chicken processing plant in El Dorado, Ark. "was motivated by a desire to manipulate the price of chicken." In the ruling, the judge cited as evidence an internal email message from William Snyder, the company's chief restructuring officer, in which he wrote the company planned "to restrict the chicken in the area and allow prices to rise."
The company "expected that the idling of El Dorado would materially affect the national supply of commodity chicken and would result in an upward price adjustment," Everingham wrote.
According to the ruling, the company essentially violated The Packers and Stockyards Act of 1921, which prohibits livestock companies from unfair and deceptive practices. The court ruled Pilgrim's was not guilty of other claims, including fraud and false representation.
Pilgrim's in 2008 filed for bankruptcy protection as it faced rising feed costs and a downturn in the poultry market. The company emerged from bankruptcy as Brazil-based meat company JBS S.A. (JBSAY, JBSS3.BR) took a majority stake in the company.
Friday's ruling focus on the often-complicated relationship between chicken processors and the producers, or so-called growers, who raise the animals on which they depend. Growers often receive financial backing from processors to build and expand operations, and their businesses are often highly dependent on consistent business from a single processor.
The ruling specified a wide variety of financial damages for about 91 chicken growers. While some growers received less than $50,000, the court awarded more than $700,000 to other plaintiffs.
In the ruling, Everingham wrote the growers were adversely affected by the decision by Pilgrim's not to purchase from them and idle the Arkansas plant instead of selling it. He wrote there was some difficulty arriving at actual damages, in part because of some growers' "failure to keep and produce records" relating to their business and income.
"Although the court finds that these plaintiffs suffered damages in fact," the judge wrote, "the court has had more difficulty estimating the amount of their damages with reasonable certainty."
A spokesperson for Pilgrim's Pride did not immediately respond to a request for comment.
Brazil JBS Denies Being In Talks With Banks To Finance Merger
Brazilian food processor JBS SA said it isn't in talks with banks to finance a possible merger with rivals Marfrig Alimentos and Minerva SA.
"JBS informs its shareholders and the general market that it isn't working with local and foreign banks to finance a possible merger with Marfrig Alimentos and Minerva, as some news reports in recent days suggest," JBS, the world's largest beef producer, said in a statement.
"Any actions to this effect will be duly communicated to the market via official channels," the firm added.
In a weekend blog post, local newsmagazine Veja reported that the Brazilian government is worried by JBS's negotiations with banks to finance a "mega-merger with Marfrig and the meatpacker Minerva." The report didn't specify where it obtained the information but said the government doesn't like the idea of the sector becoming so concentrated.
Thailand's Rice Policy Already Causing Ripple Effects
It's not yet in effect, and yet Thailand's controversial new rice policy is already having some unintended consequences. Farmers are reported to be hoarding crops, while some buyers overseas are shifting to consuming more noodles instead of rice, a phenomenon that could have long-term effects on the global rice market if it continues.
In the run-up to national elections earlier this year, Thailand's Puea Thai party promised the government would buy un-milled, or paddy, rice from growers at THB15,000/ton, or about 50% above the market prices then. Now in power, Puea Thai is gearing up to honor its election promise by Oct. 7. The government is likely to do this by arranging for rice to be bought by millers, instead of via direct state purchases. Sensing opportunity, growers and millers are hoarding rice to be delivered to the government program likely at a substantial profit once the program begins. Moreover, with millers likely deputed to buy paddy from growers and store the grain on the government's behalf, a window has opened to pass off some of the old crop as this year's new crop at sharply higher prices, pocketing the government subsidy, Chookiat Ophaswongse, former president of Thai Rice Exporters Association told Southeast Asia Real Time.
Industry calculations show higher procurement prices would mean the export price of 5% broken Thai rice should be around $830/ton. Growers and millers have seen prices of 5% broken rice move from $500/ton to above $600/ton since early July, so it makes sense to hoard.
Ironically, the Thai policy will also push up the country's rice inventories despite a bumper crop. Last week, the London-based International Grains Council revised lower its forecast of Thailand's rice exports in 2012 by 9% to 8.0 million tons, as high government procurement prices slow shipments. The world's largest rice exporter's shipments will likely be 20% lower compared with 2011, the IGC said.
The impact has been felt beyond national borders. Export prices in neighboring Vietnam have also risen by $80-$100/ton. Exporters have washed out trades or renegotiated earlier contracts at higher prices.
Indonesia, the world's largest rice importer this year, is grappling with high inflation and consumers are changing dietary habits to keep a check on the monthly food bill.
In one of those changes, the country is undergoing a shift in consumption towards noodles from rice, and the trend may accelerate as prices of rice rise, a senior research analyst with Standard Chartered Bank, Nirgunan Tiruchelvam told Southeast Asia Real Time.
Noodles are made from wheat, which can be imported at less than $350/ton compared with rice prices above $550/ton.
Those ripple effects are examples of how government policies sometimes unwittingly increase rather than control food prices. Rice is the world's most widely-consumed staple food. Almost half of the world's rice exports are accounted for by Thailand and Vietnam, which have had a string of bumper crops, but to no avail as far cooling prices is concerned.
Indeed, the world is heading for the second successive year of record rice production. International Grains Council forecasts show 2011-12 production at 461 million metric tons, up 2.2% on year. Carry-over stocks in five major exporters - Thailand, Vietnam, Pakistan, India and the U.S. - are projected to hit a record 33.2 million tons.
Yet, prices are still rising. In the past year when prices of wheat, corn and oilseeds rose to multi-year highs, rice was an exception. Not anymore. Export prices in Thailand and Vietnam, have risen by up to 25% since the start of July.
All this is happening when India, with government stocks of 22.7 million tons – nearly as much as the annual global trade of 32 million tons - is expecting another bumper harvest this month onwards.
Indian supply can be a cooling factor in rice prices, but the government there has allowed exports of only two million tons from the open market, for now.
With governments refusing to let markets function freely, it may take more than a good crop to make rice cheaper. It may become a classic case of rice, rice everywhere, not a grain to eat.
Kazakhstan Harvests 22.7M Tons Grain To Oct. 3
Kazakhstan harvested 22.7 million metric tons of grain to Oct. 3 on 14 million hectares, or 86.8% of the total area to be harvested, with the average yield of 1.62 tons a hectare, the agriculture ministry reported.
On the same date last year, the harvest was reported at 13.325 million tons on 15.243 million hectares with the average yield of 0.87 tons a hectare.
The ministry said Sept. 22 Kazakhstan was likely to harvest this year 25 million metric tons of grain.
In 2010 because of drought Kazakhstan's grain harvest was 12.2 million tons. The country exported in the 2010-2011 marketing year 5.9 million tons of grain.
Talking Points
Danger in the Deli? Listeria Risks Go Beyond Cantaloupe
The outbreak of listeriosis linked to cantaloupes from a Colorado farm field is heightening concerns over its presence in other foods--especially those founds behind the deli counter.
Food-safety experts warn consumers to be aware that listeria, a common environmental bacterium, is linked primarily with meat and animal products, as well as with dairy products such as soft or surface-ripened cheeses such as brie and feta.
In a report in April, the University of Florida's Emerging Pathogens Institute ranked deli meat as the third-highest combination of food and disease-causing micro-organisms in terms of disease burden. Listeria in dairy products ranks fifth among pathogen-food combinations, mainly due to soft ripened cheeses including queso fresco, a traditional fresh cheese, usually made with unpasteurized milk, common in Mexican cuisine.
Michael Batz, a co-author of the report, tells the Health Blog that there have been significant gains over the past decade in reducing contamination rates of pre-sliced, packaged deli meats, but that retail-sliced deli meats have significantly higher prevalence and levels of listeria, and risks from retail-sliced deli meats are nearly five times higher than prepackaged equivalents, and responsible for 70% of the deaths due to the category.
Batz says many of the conditions found behind the deli counter are conducive to listeria, which unlike other organisms, can grow in the refrigerator. It can be spread by worker's hands and colonize in cracks, food preparation areas and food-filled crevices on meat and cheese slicers, which is a challenge to sanitation procedures. He advises consumers to keep their own refrigerators extremely clean, and eat deli meats within three or four days, or by the date stamped on the package at the point of purchase. "From the minute you buy deli meats, there's a window of opportunity for things to get in there," says Batz.
Consumers can take safety precaution at home, such as keeping uncooked meats separate from vegetables and both separate from cooked foods and ready-to-eat foods, avoiding unpasteurized milk or foods made from raw milk, and following labels on use-by dates. Those at special risk might want to avoid deli meats or stick to pre-packaged deli meats, which are prepared with additives that can inhibit the growth of organisms.
Recent recalls of deli products linked to listeria include a May recall of about 16,000 lbs of pastrami and roast beef in California, and a recall in August 2010 of close to 400,000 lbs of deli meat by a Buffalo company. In June of the same year, 500,000 pounds of hog head cheese -- a meat jelly made from swine heads and feet - were recalled after a listeria outbreak linked to the ready-to-eat product in Louisiana.
Of course, the risks of contracting listeria are still relatively low, and outbreaks are less common than other foodborne diseases such as salmonella and E. coli. The latest Centers for Disease Control and Prevention report on foodborne illness in the U.S. shows that laboratory confirmed cases of listeria dropped 38% last year compared to the 1996-1998 period.
But the bug can cause listeriosis, an uncommon but potentially fatal disease, as well as high fever, severe headache, neck stiffness and nausea. Listeriosis can also cause miscarriages and stillbirths, as well as serious and sometimes fatal infections in those with weakened immune systems, such as infants, the elderly and persons with HIV infection or undergoing chemotherapy. Michael Osterholm, a food safety expert at the University of Minnesota, says that even if the overall rate of contamination continues to drop, "we could see an increase in serious illness because of an aging population and an increasing number of people alive today who are immuno-compromised."
Osterholm advises consumers to ask for health-department inspection records at local delicatessens and restaurants and to be judicious in choosing retail food establishments. "If you walk into a place you can usually tell if there are problems, and if there are, don't eat there," he says.
But Osterholm says consumers can't be expected to be responsible for keeping foods pathogen-free. A new food-safety law enacted earlier this year would give the Food and Drug Administration new powers to set safety standards, conduct inspections and tracing programs and recall food. But without sufficient funding from Congress, Osterholm warns, the FDA won't have the resources to enforce the law. "Sometimes you can do things to protect yourself, but when we buy produce or get cold cuts from the delicatessen we have to expect that someone else has done that or we're going to have to stop eating," he says.
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