16 JUL 2018
Cashew Market has come down significantly in the last 4 months.
From a range of 4.75-5.00 in second half of Mar 2018, the market moved down to 3.75-4.25 by second half of June – a drop of about 20% in 3 months and over 25% from the peak of 5.20-5.40 in mid 2017.
Declines of this / higher magnitude have been seen twice before in the last 10 years (and never before in the last 7 years) :
– In 2008 when the market crashed about 35% from 3.50-3.60 in June/July to 2.10-2.30 by December. Main reason was the Global Financial Meltdown.
– In 2011 when the market came down about 20% from 4.60-4.70 in June/July to 3.70-3.80 by December. Main reason was that big jump from 3.70 in March 2011 to 4.70 FOB in July 2011 had disastrous impact on cashew usage in the 2 main importing markets. The price rise DURING the Main (North) harvest was because RCN movement from IVC was badly affected due to civil / political problems.
One significant feature of this year’s decline is that this has happened DURING the main (Northern) harvest – previous declines were AFTER the harvest.
Sequence of events during the present decline :
1) After a steady rise from 3.50-3.75 at beginning of 2016 to 4.75-5.00 by end of 2017 (with a peak of 5.40 in middle of 2017), the market remained in 4.75-5.00 range during Jan/Feb 2018 – up about 30% in 2 years.
2) Although overall availability has been comfortable for last few years, excessive competition drove RCN prices to unrealistically high prices in last quarter of 2017 – range of 2300 to 2450 compared to average of 2000 for 2017 and 1800 for 2016.
3) End of 2017 / Beginning of 2018, W320 was steady around 5.00. At this high levels, kernel buyers were not willing to buy for forward shipments. So, processors in Vietnam & India were not keen to buy RCN at the high levels at the beginning of 2018 harvest. After limited volume trading at higher levels, RCN prices started coming down in April.
4) In the declining market, banks in Vietnam and India reduced (some even stopped) financing processors because of the risks at the higher levels (in addition to strict enforcement of outward remittance rules in India due to some frauds in other industries). This reduced liquidity was probably the last straw on the camel’s back and the tipping point for the present decline. It put a stop to the competitive bidding up of the RCN market. By mid / late May, prices came down to 1800-2000 and declined further to 1600-1800 by end June.
5) During the present decline, 2 links in the chain have borne the brunt of the beating. Processors who over bought RCN at the end of 2017 / beginning of 2018 and RCN traders who were forced to give discounts for sales made in Feb-Apr (in addition to holding stocks bought at high prices). Kernel buyers have been able to make good profits because of their short positions from the beginning of 2018. Growers (collectors) have not been affected much as they got almost the same price as 2017 although they did not get the higher prices they were expecting before the 2018 harvest started.
Currently, Vietnam W320 are trading in the range of 3.75-4.00 range. India is about 5% higher.
RCN are trading in the range of US$ 1550 to 1800.
These prices are about 25% down from the peaks reached in 2017 and at / below the average of 2016.
For all commodities, it is difficult to judge price trends. More so for Cashews which has a long & fragmented supply chain. Small growers / collectors & traders in all producing countries. Small + medium + large processors in the 2 main processing countries.
Some thoughts about what we can expect going forward :
1) In a few weeks, most of the 2018 crop will be in the hand of India & Vietnam processors. After that, the next availability will be from Indonesia & East Africa which is only 10% of what these 2 countries process in a year.
2) Lower imports of RCN in Apr-Jun will have some impact on kernel shipments in Jul/Aug, part of which may be made up in later months. Reduced yields in general coupled with further reduction due to late processing will mean lower kernel availability during second half 2018 from the same amount of RCN.
3) There have not been much kernel sales from origin for shipments beyond Aug/Sep. So, we can expect reasonably good activity in Aug/Sep – trader demand for 4th quarter shipments and retailer / roaster contracting for early / first half 2019 deliveries.
4) After a few very difficult months, processors will probably be cautious in sales. They will not be keen to sell unless there is parity or near parity between RCN & kernel prices (and a cushion for forward sales – especially because prices have already declined significantly).
5) In the declining market, Indian traders also have been buying limited volumes. There has been no build up of inventory in consuming areas. As we enter the festival period and peak consumption period (Aug-Dec), Indian market can be expected to become active in couple of weeks.
Overall, we have a feeling that downside is limited since prices have already come down over 25% from the peaks (both RCN and kernels). So, although we do not foresee any jump in prices, we expect that for rest of the year, W320 will be in the current 3.75-4.25 range with more business in middle / higher end of the range.
We would appreciate your views on market situation, supply & demand news… and your views on the trend for the coming months.
Pankaj N. Sampat
San Francisco & Mumbai
Phone +1 415 881 0633 / +91 98200 79015
email email@example.com / firstname.lastname@example.org