AfricasheW450 - October 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)
Recent weeks have seen an uptick in buying in the markets of North America and Europe. There has been some forward buying and there might be more if reliable suppliers were offering forward positions. This has moved WW320 prices up off the lows of the year but the mismatch between international RCN prices and kernels prices remains. This has caused many Vietnamese factories to close or reduce processed volume reducing the availability of kernels and the demand for RCN.
Indian demand remains strong as the recovery from the pandemic continues. This has been most felt in the imports of RCN that have broken all records in 2022. There is likely to be further buying interest from India through to the arrival of new Indian crop in 2023. Processors however do not have much leeway in pricing so they are likely to be cautious in their approach. Buying at the Tanzanian auctions has been slow so far and the volume sold is far behind last year’s tonnage for the same period.
The Chinese market has become more important in recent years for Vietnamese processors. Hard lockdowns in response to COVID continue in China. This impacts trade. There have been rising cases but, according to news reports, the response in terms of lockdowns is now tending to be less stringent and more dynamic. This could mean that demand could improve during the New Year festivities that start on January 22nd.
The next steps in demand depend on several factors. Firstly, seasonal demand in Europe and the USA. Roasters and packers built up significant stock in the early part of the year following a record 2021. If seasonal sales are positive, possibly helped by the football World Cup, then we can expect to see buying interest rising. Secondly, sales were disrupted by fears related to inflation, rising interest rates and the escalation of the war in Ukraine. Inflation appears to be easing. Interest rates are higher. The war in Ukraine continues but its impact on the world economy is better known. Buyers are now dealing with more certainty than at any time since February. They need to cover for next year. Thirdly, prices are at highly attractive levels. Finally, the US dollar rate vs the Euro is stabilizing. The problem for buyers has never been price. That is why the continual push for lower prices from Vietnam did not attract more buying interest. The problem has been uncertainty.
As more predictability returns so it is more likely that buyers will come to the market. There is now a chance that they will come to the market in a herd at a time when availability is limited. This could cause prices to spike upward ahead of the northern hemisphere crop. Contract defaults could follow adding fuel to the fire.
The southern hemisphere crops are now being harvested. Tanzania is likely to produce a crop of 220,000 – 240,000 tonnes of high-quality RCN. This is similar to last year but lower than early estimates. The sales at the auction are far behind normal levels. Prices ex-warehouse range from US$ 700 – US$ 860 per tonne. With export taxes and costs of shipment, sellers are likely to ask US$ 1325 – 1350 per tonne Cfr. This does not work for Vietnamese processors at today’s kernel prices and barely works for Indian processors.
Mozambique reports prospects of a good crop in the range of 140,000 – 150,000 tonnes. This is tempered by some reports of poor early harvests in some areas. Minimum farm gate prices are lower than last year by about 14% but are in line with the market. Mozambiquan processors will again struggle with low kernel prices, buying may be slow, and more material may find its way to Tanzania.
The Brazilian crop is forecast at 122,000 tonnes by official sources. This is an increase from last year but not enough to satisfy the potential demand for processing and national consumption. Brazilian cashews are likely to sell out quickly based on their high quality, food safety and reliability of suppliers. They are currently making significant premiums above Vietnam's prices.
Overall, from the Southern hemisphere, a crop similar to last year is expected. It may come to market a little slower than in previous years. The gaps can be filled from the remaining stocks in Guinea Bissau and smaller volumes in other West African countries. There should be no difficulty in obtaining suppliers unless kernel buying interest spikes back toward WW320 at US$ 3.00 per lb which would bring Vietnamese buyers back to the RCN market and could clear the remaining transit stocks in Vietnam. It is probably the case that processing cannot be turned back on at the same speed that it was slowed in Vietnam meaning that if a technical shortage of kernels arises it could persist until a new crop.
Looking forward, there are a lot of “ifs” around demand. There seem to be enough indicators to suggest that the very low prices are gone for now. Volatility is more likely on kernels as prices return to parity with RCN than on RCN prices themselves. There is a chance of stronger kernel prices in November/December. This could prove challenging for regulators setting new crop minimum RCN prices in West Africa. As it stands today farm gate opening prices should be lower in 2023 than in 2022. A good Cambodian crop would again delay the arrival of Vietnamese buyers to the market but Indian buyers are likely to continue in 2023 where they leave off in 2022. Meantime, the chances of higher kernel prices, possibly returning to the 2-year average levels, by mid-2023 are strong.
For African processors, it is not a time to be sold short i.e., without RCN cover but it is likely that kernel buyers will push forward business in the coming weeks. In my view, African kernels are still worth significant premium prices over offers from Vietnam. There is a balancing act to be done. As always, be careful out there.
