AfricasheW450 - May 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)
May was an interesting month. May 2022 followed the pattern of recent years when international prices for cashew kernels rose early in the month, found a new level and then drifted back down a little as buyers slowed their activity. Kernel buyers are in a situation where they can afford to be patient. Prices are lower than expected and below most budgets. There is some uncertainty around offtake and the impact of a possible recession in Europe. Waiting for the price dips has proved to be a good strategy since 2020 as buyers wait for panic prices from Vietnam. This may prove risky in the second half as in most of the last twenty years the July-Oct period has seen higher prices than the first half. RCN prices also followed a familiar pattern for May as they drifted down by $50-100 per tonne CFR as sellers looked to find buyers. In other words, May is often the time when the markets start to find their equilibrium levels and a straight-line relationship between kernels and RCN price returns.
But not in 2022. As the month ended, it was still not possible to buy RCN in the international market and make a straight line calculation back to the international kernels market with a profit margin. This could have a long term impact on processors in Vietnam and the export of kernels from India. It should, logically, mean that fewer nuts will be processed in Vietnam and that Indian export volume should remain on a downward slide. This situation has not arisen due to speculation on RCN as often seen in the past or to ailing demand. It is more a function of low kernel prices from Vietnam as the year transitions from using domestic or Cambodian RCN to using RCN imported from Africa. That is probably why we see so many RCN buyers and processors looking to influence the market toward lower RCN prices. It also underlines the advantages of processing at the origin.
It seems to us that higher kernel prices, given the historically low level of pricing and the strength of demand, would be more easily achieved. But then the problem is that, in recent years, cashew kernels have been marketed not on their quality or the incredibly strong demand or sustainability but simply on lower price. This has led to a decline in quality over the past 15 years and the evolution of the rising premium paid to reliable, sustainable, food-safe processors. This includes several African processors that have sustained premium prices for the past 18-20 months. It should improve the conditions for the development of African processing. It should stimulate further growth in processing like that we have seen in Cote d’Ivoire and Nigeria this year and as is planned in Benin from next year.
However, there is also a trend toward the development of a 2-tier kernels market in West African countries. Some processors struggle to sell. They sell based on competing with Vietnam's low prices. Sales and marketing are neglected. Some end up selling to competitors that re-pack or simply export at a healthy profit in return for providing this vital function of sales and marketing. This segment was in full flow in May 2022. The question is as to whether it will still be around by May 2024 by which time direct subsidies in Cote d’Ivoire may be finished and all of the current generation of processors will know whether they can be financially sustainable or not?
Turning to the harvest situation, May brought some further concerns. In India estimates of the crop were reduced from circa 750,000 tonnes to figures ranging from 625,000 – 675,000 tonnes. There have been regular news reports of a problem with the crop since March. These continue across the growing regions both West and East. This is significant as with demand growing again after the pandemic, India could need more than 1 M tonnes of imported nuts in 2022. This has been reflected in good demand from Indian processors for arriving RCN and strong interest in premium origins, particularly Guinea Bissau.
In the past weeks, the early arrival of rains in the most westerly cashew growing countries, Guinea Bissau and Senegal is also a cause for concern. These high-quality origins were expecting excellent crops. Early rains cast a doubt. However, probably of more concern to RCN buyers right now are slow shipments and delays to export licences. This is not going to be an easy season for exporters. Is it ever?
Focusing back on the major producers in the eastern part of West Africa. During May, the doubts as to whether the crop in Cote d’Ivoire would reach the 1.04 M tonnes level forecast by CCA re-emerged. During the ACA GME with Jim Fitzpatrick on 1st June, Didier Coulibaly of Sobery told us that the crop in some northern areas is poor. Local traders and processors report a similar situation. There must be a doubt now as to whether the crop will reach the emotive 1 M tonnes mark although the country will once again be the largest producer in the World. M. Coulibaly also informed us that 800,000 tonnes have already been commercialised. More than half of this has been exported as RCN and circa 150,000 t should be processed although this could be higher. That would leave somewhere in the region of 350,000 tonnes for export for the rest of the year. To put this in perspective, it is only about 1.3 months of processing stock for India and Vietnam combined.
Elsewhere, ACA reporters informed us that the exports from Benin are progressing slower than normal due to a lack of vessels and that Nigerian exporters continue to face the challenges of logistics. On a positive note, Nigeria also report more processing in 2022 and further major expansion planned for 2023. In most locations rains have started making assembly and drying more difficult and causing quality to decline. Farm gate prices have remained steady in most places despite the fall in quality. In general, it has been an encouraging season in terms of farm gate pricing.
May brought continued good news on demand – at least from a shipment point of view. Vietnams exported almost 50,000 tonnes of kernels in May. That is less than in 2021 but remains a stunning 21% above the pre-pandemic figure for May 2021. Shipments from Vietnam in 2022 are about 4% down in 2021 but this is mainly due to lower exports to China during the April-May lockdowns. Exports to other markets are strong. From India, demand is reported steady with the demand for whole grades recovering from its early malaise and brokens becoming more difficult to find.
With its contradictions and puzzles, May 2022 indicated a sector in transformation globally. Processing is moving to origin. Demand is now based on more than salty snacks. Purchasing decisions are influenced by more than just the price. RCN prices are less influenced by speculation and more by integration. Change comes slowly.
