AfricasheW450 - June 2022 Market Analysis
Cashew Market Outlook
By: Jim Fitzpatrick
(Please note that all views expressed in the “Cashew Market Outlook” section are those of Mr Fitzpatrick and do not necessarily reflect the view of the African Cashew Alliance)
It is the end of June. There are still plenty of questions to be answered about the fate of the 2022 cashew season. Is that unusual? Not at all. It is the norm. Reading some of the market reports are confusing as the year's progress is presented negatively or positively often depending on the reporters' needs at the time of writing. In volatile times we must be careful which measures we use to judge the market. For example, if we compare cashew kernels export shipments from the market leader, Vietnam, for Jan-June 2022 with the same period in 2021 we find shipments are down by 5.8%. If we compared it to 2020, they are up by 2%. If we looked closer again, we would find that 70% of the decrease in 2022 is due to lower shipments to China and that this all happened in Jan-April.
The fact is that by the end of June 2022 Vietnam had exported more cashew kernels than in any year except 2021. The numbers are not small +12% higher than in 2020, + 17% higher than in 2019 and an incredible 40% more than in 2018. The same applies when we look at imports of RCN. The strong trend in cashew demand is still there. Marks & Spencer, the British retailer, reported this week that despite higher prices, the consumer is still focused on healthy food, including cashew nuts. In India imports of RCN reached a record for the first four months of the year – perhaps a sign of a poor crop, an indication of good demand and expectations of a declining currency. Yet the dialogue in market reports is centring around inflation and the war in Ukraine.
The RCN market tends to confirm the trade figures. Prices, although a little weaker due to falling quality in some countries are steady in the countries where the harvest is in full swing – Guinea Bissau and Senegal. The argument that RCN prices are too high compared to kernel prices is contradicted by traders, including Vietnamese traders, buying in West Africa.
The comments above might seem like lunacy to someone just watching Vietnamese processors drop kernel prices for July shipment to the lowest levels since 2010. But look again – buyers do not need near shipment, some processors are desperate to sell maybe for cash flow reasons, and African kernel prices are holding up well. Different measures of the market can be used to tell different stories. If we look at exports of cashew kernels from Vietnam and Africa, we find that volumes are steady. Shipments to Europe are certainly lower but the US is strong, and China has recovered almost reaching 2021 levels in May 2022. Making forward sales at the current price levels could be highly risky.
Perhaps the crisis that we should take most note of in cashews is in Vietnam. Reports suggest that large processors have significantly reduced their processing capacity and that some smaller processors have stopped production. That means fewer cashew kernels will be produced even though Vietnam has already imported over 1 m tonnes of RCN. It also means bad news for the people that earn their living in those factories. How sustainable is a system that involves intercontinental raw material shipment moving away from destination markets and stopping/starting work for the people involved? Has the focus on ever-increasing sales taken attention away from the all-important raw material supply chain management? How can it be that Vietnam's cashew sector, after managing the pandemic incredibly well, now finds itself in a situation where medium and small factories are in trouble? Vietnam will continue to be the largest supplier of cashew kernels to the World market, but will it reach the volume highs of 2021 again?
There are all kinds of lessons for the developing African cashew processors. Firstly, sales are not just about price. Buyers’ requirements have changed and are about to change again. Having a well-linked supply chain that allows traceability is becoming a requirement not just an option in the same way that food safety certification did 15 years ago. Secondly, processors must avoid being caught in a situation where they have a full warehouse and an empty bank account. Most buyers do not buy spots or prompt. Those that might, often only do so for a very steep price discount. Risk can be managed by working on marketing, forward sales, and the right kind of relationships with buyers. Thirdly, KYC, know your customer and make sure to select one that fits your business. Fourth, think long term like an investor, not a trader – about 20 years ago a very well-known European importer told a conference that cashew consumption had peaked, and there would be no more growth. It looked right, growth was slow, and it was a luxury product. But by 2021 EU imports have quadrupled.
