01 JAN 2019

To begin with, my best wishes to you (and yours) for a fulfilling and peaceful 2019 – the eternal optimist in me believes that the best is yet to come !!

As we start the New Year, here is a recap of what happened in the Cashew market in 2018… and a peek at what we can reasonably expect in 2019

During 2017, W320 traded in 4.50-5.00 range except for a brief period in May 2017 when they crossed 5.25 FOB (the historical peak which we are not likely to see again very soon)

After moving in a narrower range of 4.75-5.00 from June 2017 to Feb/Mar 2018, market started sliding down in Apr 2018.  It was in the range of 4.00 to 4.50 in the second quarter and crashed to 3.30-3.80 FOB by end Sep/early Oct 2018 (A decline of almost 25% from the average of previous 18 months and close to 35% from the peak of less than 12 months ago).  During Nov 2018, price moved up to 3.80-4.20 FOB and by end of the year, it is in the 3.70-4.10 FOB.  At end of 2018, the closing price is 20% lower than the opening price (the low point during the year was more than 25% below the opening price).

Note : Closing price below opening price has happened only twice before in the last 10 years.  At end of 2008, the price was about 12% lower (2.30-2.40 vs 2.60-2.70).  In 2012, Dec price was about 16% lower (3.00-3.10 vs 3.50-3.65).

In the last 3 seasons, the RCN price market went up more than the kernel market – over 70% vs less than 40%. During 2017, RCN price was in the range of 1750-2000 in the first half of the year and moved up to 2000-2400 by end of the year.  It moved down to 1800-2200 by Mar/Apr 2018.  Buying interest was slow. Processors were not able to buy because (1) Kernel buyers were reluctant to buy big quantities for long spreads and (2) Financing was becoming difficult. Market started drifting lower in Apr/May 2018 and crashed to 1400-1700 range by Aug/Sep 2018.  Some parcels were sold as low as US$ 1200-1250 !! There was mayhem in the RCN market with defaults, re-negotiations etc.

Some salient features worth noting :

1) Normally, the difference in lowest & highest offer on a given day was 10-15 cents per lb. This soared up to 40-50 cents and has remained in that range for most of the year. One result of this is that India kernel exports in 2018 are 30% lower than 2017.  With lower (and stabler) prices, differentials should narrow – 10% is not sustainable.

2) Demand for broken grades is not very strong but differentials have reduced. Splits are about 40-50 cents below W320 and Pieces are about 70-80 cents below W320

3) With high prices, kernel buyers were buying small volumes & short spreads. With current lower prices, we should see more interest for longer spreads but it is to be seen whether processors will take long positions unless they get a reasonable premium  (there are reports that some business was done at discounted prices in oct 2018 for first half 2019)

4) Despite higher prices in 2017 & 2018 – most of the increase was passed on to retail prices – there has been no reduction in demand. Each year, RCN crop has been growing and kernel exports have been increasing. Our feeling is that the price crash in last few months was more due to financial tightness + other external factors and not due to a demand-supply imbalance. Although we do not expect a big jump,  we feel that there could be a quick recovery to reasonable level

5) Here are some thought provoking statistics :
2015              2016                   2017               2018
Vietnam Import Jan-Nov       824,679           1,015,044        1,248,659        1,203,430
Vietnam Export Jan-Nov       300,229          323,498              332,498           358,972

Vietnam Exports in 2018 are 26.5K higher = approx 115K of RCN.  Imports are 45K lower giving a total of 160K = approx 37K of kernels.  Even if 2018 local crop was 100K higher than 2017, this means total inventory in Vietnam at end of 2018 is down by more than 50K of RCN = 12K of kernels

                                                       2015                2016                2017                2018
India Import Jan-Nov            888,680          694,419           669,905          844,016
India Export Jan-Nov               94,600              72,630            80,920           59,208

India Exports in 2018 are 20K lower = approx 85K of RCN.  Imports are 175K higher giving a total of 260K of RCN = 60K of kernels,  Assuming NIL growth in domestic production and domestic usage, this means total inventory in India is significantly higher.  Although inventory is certainly higher, it does not seem to be so much.

6) Despite NIL movement from Tanzania – compared to more than 50% of the crop being shipped before end of the year – there is no impact on the market. Except for a brief period in Oct when kernel prices moved up when buyers covered Jan-Mar shipments, things have been quiet. There is no rush by processors to buy RCN or kernel buyers to cover positions beyond Mar/Apr.  Everybody feels that they will have to start selling the RCN at market prices very soon.  BUT,  the market could be surprised with a “Black Swan” development.  (To most people, the fact that Tanzania has been able to hold on to their position so long is a mystery !!)

Although it is not advisable to make price predictions, i will stick my neck out with an indication of what we can expect :

1) If Tanzania does not start selling RCN in Jan/Feb, there could be a rush for first shipments from West Africa and prices could open around the 1700 range. On the other hand, if Tanzania starts selling in early 2019, we could see the RCN below the 1500 level by Feb/Mar.

2) On the kernel side also, prices in first quarter will depend on what happens in Tanzania. We could see a 10-20 cents increase if Tanzania does not start selling in Jan/Feb.  Conversely, we can expect 10-20 cents reduction if they do start selling.  Second quarter will probably see the market moving sideways in the range established in first quarter.

3) Our feeling is that we will see higher prices in the second half of 2019 if major portion of RCN is traded by Jun/Jul

To sum up, we expect W320 to trade around 4.00 for some time with a strong possibility of moving to 4.25-4.50 range in the second half of 2019

Would appreciate your comments on the market situation + your views on demand and price trends for coming months + any other news or information

Pankaj N. Sampat
Mumbai & San Francisco
+91 98200 79015 / +1 415 881 0633

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