We wrote in our previous report that the market of cashewnutkernels is a rollercoaster and this is again confirmed over the past days. While we were under the assumption that the crops from West Africa would fill up the gap the damaged Vietnamese crop would give, the latest information from West Africa is that the 2nd and 3rd crop might have issues as well and be less than expected. When this is the case, the prices of raw seeds will remain firm and might be even firming in the coming weeks. This is concerning news knowing that most of the demand for the 2nd half of 2017 still has to be filled in.
The market went up during 2016 from levels around Usd 3,35-3,50 per lbs up to Usd 4,10-4,30 per lbs basis FOB (for the main grade WW320). The main reason for this was the shortage of supply added on to the minor quality of the raw seeds. Due to the minor quality of the raw seeds, processing costs were/are increasing and processors are doing concessions to quality to make sure they can fill in their commitments and signed contracts. This execution of border line quality cashewnutkernels is creating more quality issues at destination as packers and industries are not happy and disapproving lots which is causing a continuous demand in the market to fill up gaps.
Another reason was that most buyers in the beginning of the year were expecting the market to ease. At the cashew conference in Dubai in February, a lot of buyers were anticipating on good crops on the Northern Hemisphere giving a boost in supply and kernel prices to come down. The opposite happened and buyers started to enter the market to cover their commitments, pushing prices up.
For a sustainable cashew market this is not goo d. Where we have seen a stable growing consumer demand (4-7% annually), the 2016 prices might disturb this growing curve. We are not seeing this happening right now but as a lot of contracts for 2017 with the supermarkets will be closed during October and November, the consumer will only see the higher prices from January 2017 onwards and consumer demand might be hit than. Packers and industries will be cautious covering their forwards keeping this in mind and that hopefully will help the market a little bit to find his feet. Stable prices are creating growth. The volatile market of 2016 will disturb this stable growth.
On the supply side we have to wait for the Southern Hemisphere crop. Hopefully this will give some relief but so far the prices do not come down yet (keep in mind that Southern Hemisphere crops will only give 20-25% of the total world supply). Tanzania and Mozambique –who together might produce around 200.000 mton of raw seeds are having a growing domestic processing industry (Mozambique will process approx. 50-70% locally in very good factories and Tanzania will process around 20-30% locally). Brazil is not exporting raw seeds so that India and Vietnam for the coming months will mainly depend on Indonesia and Tanzania.
The prices for Indonesian raw seeds are around Usd 2000 per mton (the equivalent of kernels WW320 would be around Usd 4,50-4,70 per lbs) and is not looking promising as there is a lot of demand for those raw seeds.
Tanzanian prices will be known during October/November while Mozambique only will export –although not of impact in the international market- during February/March of next year.
The crops in the Northern Hemisphere will only become available from February onwards until June/July. Hopefully the main producing origins in West Africa and India will have good crops bringing the peace back in the market. (A note to make here is that a number of West African producing origin are working on protection of their own industry with export taxes or other instruments. This is very good for the local African processors but might give pressure on the Indian and Vietnamese processors buying from West Africa!)
On the demand side we have seen an annual growth of 4-7% which is expected to get a hit in 2017. What the impact will be is hard to say as the cashewnut is still a very favourable nut well appreciated by the consumers. Mainly for snacking but also to the interest of the industry. The cashewnut has to compete –especially now and in the near future- with the almonds which came down in price and due to a good crop are not expecting a price increase. Packers are trying to decrease the % of cashewnutkernels in their mixes and fill up with more almonds. The cashewnut industry has to find his way how to handle this but as the producing / processing countries are divided worldwide, generic marketing will not be easy.
Another very important issue the cashew sector has to work on is food safety. A lot of factories are not ready for buyer’s requirements. Supermarket chains and industries are requiring more and more food safety guarantees to avoid claims and black listings. Especially in the US (with Europe expected to follow shortly) the Food Modernization Act is very high on the USDA & FDA agenda. The cashew industry has to be prepared that while now most of the time it is preferred to have HACCP and BRC certified factories, in the not too long future this will become a requirement and packers to be audited accordingly and only approved/certified factories be allowed to deliver certain customers. We are aware that in Europe some supermarket chains are not approving the origin of the nuts but the factory already!
A ‘threat’ for the cashew industry is the mind-set of processors. Are they a processor or are they a trader? To build your market and customer base, you have to understand the requirements of the buyers (not just fill them in!). A processor needs to know why he is doing something to guarantee his specifications and food safety. A lot of small traders turned into processors over the past years (especially in Vietnam) damaging the image of the industry with small factories not qualified to handle food. Those processors expect to get a better return on processing than they had on trading. This is different than a quality minded processors whose goal is to set and build long term relationships with customer who are satisfied with the product he is delivering! A processor needs to earn money but his main goal should be to get the best factory possible to guarantee specifications and food safety!
Our experience of the past 2 decades is that this creates a sustainable business, giving customers the comfort they are looking for and guaranteeing a long term relationship.
The consumption of nuts in Europe is expected to grow as nuts in general (including cashews) are still recommended as a very healthy snack, food and most importantly, replacement of meat. The academic research supported by the International Nut Council is very important to make the consumer aware of the health claims of nuts and they are successful. The only ‘cloud’ on the continuous growth could be the volatility of prices creating uncertainty with packers (who quite easily can replace cashews) but also the R&D departments of industry who usually work on projects which takes months and sometimes years to find his way from the first idea to consumer. When the nut price is volatile, the product can become too expensive and loose interest. Also because of this, a more or less stable market is the only guarantee for a sustainable cashew trade.
Review of the 2016 crops:
The crops in Asia were severely down, especially from Vietnam and Cambodia. But also West African crops were down from the previous season, a little bit in quantity but severely on quality.
Supply RCN vs demand kernels:
Total availability of RCN dropped by over 10%. The kernel demand however, also supported by the relatively stable (and compared to other nuts, low!) prices, demand grew considerably over the past 3-5 years.
The current high prices for kernels, almost historically high for WW320 and higher grades in the past months, shall impact demand negatively. Cashews have been ‘undervalued’ to a certain extent, but the recent run in prices have pushed the bar to too high levels.
India local issues; Viet Nam local influences; Chinese demand (and supply route):
The local market in India has been vibrant, growing fast on cashew demand, causing India to hardly export any cashew kernels anymore. Demand locally had been fueled by more kernels being available due to Indian companies buying RCN from Africa for local processing and kernel marketing.
India’s structure is predominantly cash based, and hence cash money plays a huge role in the country. The government recently ruled that 500 and 1.000 Rupee bank notes became null and void. This has negatively impacted the local demand for cashews (among other products that are typically bought cash). The impact is so large that various RCN parcels that were destined for India, or even in the ports in India, are now shipped to Vietnam.
The Vietnamese factories are mostly processing at 50% capacity due to lack of RCN, but many factories are totally closed as well due to lack of RCN.
Chinese demand continues to rise as Nuts are considered healthy, a luxury that is often bought to indulge, and of course nuts have been part of the Chinese diet for many decades (whereas cashews are of course more a novelty).
Forward view on market:
Short term, the coming 3-5 months, we anticipate that there will be much uncertainty in the market of kernels. The lack of physical volume of kernels, prices will rule firm.
India’s demand being under serious pressure will create some relief with potentially some processors having selling pressure and that may put more kernels on the export market. Buyers will continue to buy hand-to-mouth, and any increase in demand will spark price increases.
On the RCN side, the first new crop shall be in huge demand for the first crop coming of the trees both in Vietnam/Cambodia and W-Africa. But since the crops in Vietnam and Cambodia are typically at the same time as the West African main crops (Feb/March), there may be some early demand on first new crop shipments from W-Africa, but that will likely only be from speculators/traders that have limited (or no) real connection to the kernel market.
Summarizing, our conclusion is that we will experience a year that might be unprecedented and one must procure RCN with much caution, especially when it is procured for 12 months processing (as all factories do in W-Africa).
A nice video can be found at: Cashews in your Daily Diet
The cashewnutmarket has been calm for the past weeks. A lot of buyers enjoyed a well-deserved Christmas break. The market was very slow and prices eased a little bit.
Supply: the current supply for India and Vietnam has to come from Tanzania. First shipments are arriving and they will start processing Tanzanian seeds just after TET holiday. The Vietnamese new crop is becoming more and more a question mark. The crop is delayed and might be smaller than last season. This is making processors a bit nervous and prices increased again since last week.
Demand: as prices came down and most packers covered for the 1st quarter 2017, demand has been slow. It is picking up now again for the remaining part of the 1st quarter and 2nd quarter of 2017.
It is our recommendation, with the current knowledge, to cover your needs at least until the middle of 2017. The Tanzanian seeds will be processed quickly. The Vietnamese crop is delayed and most probably be down because of the shorter harvest period, West African seeds will only arrive June/July 2017 in India and Vietnam and will only give relief (if it will give relief) during 2nd half 2017.
FYI: due to TET holidays in Vietnam there will be no shipments during last week of January and 1st week of February. This also might give some pressure to the prices for the nearby demand.
Prices stabilized but it is hard to find offers for prompt shipments. Due to TET holiday (Lunar new year), Vietnam will be closed next week and will only start shipping again 2nd / 3rd week of February. Large whole kernels (240 grade and bigger) are nearly impossible to find.
Everybody is awaiting the (reportedly) good crops from the Northern Hemisphere and hopefully this will give some relief to the prices. Crops in West Africa so far look decent to good, even though it is early days.
The Vietnamese crop will be delayed due to some adverse growing conditions earlier in the season and only time will tell what impact on the crop size it had. Cambodia seems to be the surprising producing origin this season with a very good crop coming up.
Current price levels for raw seeds are reflecting the current kernel prices and factories working at break-even or small loss to fulfil commitments. Therefore, prices of raw seeds must come down to give a relief to the kernel market.
Hopefully the producers and traders will be aware that current high kernels prices will likely have a negative impact on demand. It is essential to keep supply and demand somewhat balanced during the coming 12 months, which would mean that RCN prices would have to come off somewhat to encourage buyers to push Cashew kernel sales again.
The longer-term estimation is that RCN supply will continue to grow and demand must go up to sustain good prices to all players.
The market is searching its way! Will it go up again/further or will it stabilize and come down in 6-8 weeks from now??
Supply: The current supply to the processing units is from Tanzanian raw seeds. The volume is significant but will only keep the processing units busy for 4-6 weeks (when all processing units are in operation). After that the processors are depending on the Vietnamese/Cambodian crop and after those crops the West African crops which will start to arrive July/August. At the WCC in Singapore we understood that the Vietnamese crop is delayed by 1 month but in potential 10-15% better than in 2016. The West African crops are reported to be good as well and thus supply should not be an issue during 2017.
Currently prices for raw seeds are varying very much. We hear prices from West Africa around Usd 1500-1650 (for shipment April/May!!), Tanzania still above Usd 2200 per mton and all kind of prices in between. Supply will remain short in the coming months until the crops from West Africa will start to arrive.
Demand: In 2016 we have seen a continuous (as the years before) growth of demand until the 3rd quarter. From the 4th quarter on we heard some reports about a slight decline in consumer demand due to the increased consumer prices. Cashewnutkernels are still a preferred nut, but there is obviously a limit in terms of pricing. Therefore, the slower consumer interest might have an impact on demand of importers and packers during 2017. Hopefully prices will stabilize shortly so that the slowdown of consumer demand can be compensated with special consumer offers.
Due to the ‘short’ supply (spot market is ‘empty’ and no shipment until middle of February because of TET holiday) we expect short term prices to increase. When the Vietnamese crop will start to come in during end March/April this should stabilize and when the West African crops will start to arrive -2nd half 2017- we expect prices to ease.
The price for cashew nut kernels remains high for whole kernels in store and on nearby shipments. Most of the packers from Vietnam and India are fully booked for the March and April shipments, caused by a limited quantity of RCN available forcing the processor to process on lower capacity. First new crop Raw Cashew Nuts from West Africa (Nigeria, Ghana and IVC) are bought and offered by traders at very high levels. Most of the Vietnamese processors are reluctant to book at these levels as the kernel buyers expecting the market to come down based on the actual crop forecasts for the Northern Hemisphere Crops. All in all a very interesting situation wherein buyers continue to buy kernels for their small term needs at high prices and prices expected to ease when sufficient RCN is coming into the market from April onwards.