market

Edible Nuts & Dried Fruit Market Report: January - May/June 2008

1) Edible Nuts

Almonds:

Prices from California have continued to tighten since our last report and on the basis that there is a growing concern that the optimal new crop may not now fully materialise. Recent but growing concerns on the water levels available in the almond growing areas may well impact on the final production level and this concern may be further clarified by the next official crop estimate on the 30th June.
Should this estimate fall below the last figure of 1.46b lbs (662,000mts) and since recent pricing has already taken this big number into account, then we may see pricing increase towards new crop and already new season prices are now starting to trade at a premium to new crop in anticipation of possible issues.

Comment: it is also growing increasingly difficult to predict demand on-going. Given that almond consumption is increasing organically anyway, the fact that almonds are becoming increasingly well priced comparative to other treenuts will almost certainly increase this trend and of course the extent to which the Far East will extend its growing interest in imported almonds can only be imagined - but it is unlikely to fall unless prices go sky high.
With even a reduced new crop of sub-146 b lbs, it is hard to see this scenario although in our opinion, there is a far greater “upside” potential on pricing than any further potential downside. Given that Sep-Nov are typically the strongest months in terms of demand, it is hard to see new crop declining at least until this seasonal demand is covered.

Hazels:

It is getting increasingly difficult to “call” new crop pricing given that there are 2 almost polar views on what might materialise.
On the one hand, since in recent years the Turkish government has consistently delivered on its promises to support the market by buying a large percentage of available stocks, there is no reason to think that they might not repeat this manoeuvre into the 08 crop season.
On the other hand, the TMO is still sitting on vast stocks (around 200,000mts) of inshell nuts which will need to be shifted at some point and with a large new crop coming, this additional tonnage let alone further new crop stocks procured will bring major weight and pressure to bear on pricing if and when “released” for sale.

Comment: key to this is 2 factors:
First, with no national elections before end 2009, there is no immediate reason for the Turkish government to add additional tonnage to its hazelnut “coffers” as they could effectively suspend its intervention until next season.
Second, given that this new crop, short of any late pre harvest weather related problems, should come in between 550-600,000mts inshell, then this is a really good crop and all indications point to lower prices accordingly from October forward on sheer optimal supply. That said, arguably the Turkish government might yet intervene for no other reason than to attempt to protect its own existing hazelnut “investment”.

Walnuts:

As previously reported, although there are no new parcels any longer available at origin (neither India or China) to be shipped for export, clearly the unsold/committed volumes now available at destination, are key to whether there will be sufficient overall availability to service demand this side of new season - from December 08 shipment.

Comment: with the Pound struggling to hold its value against the Dollar (and with these original purchases made in USDollars), and set against a backdrop of declining supply and strong demand, there seems little to no chance of spot and forward walnut prices weakening. Walnuts remain good value set against some of the other nut markets, so we would not expect to see demand fall and if anything and with seasonal increases usually expected across Europe and the U.S. from September for the Christmas trade, we fully expect prices to firm across the remainder of the year.

Cashews:

As previously reported, widespread and wholesale defaults from Vietnam and in some cases, India has continued to fuel the strong upward trend on cashews. As can happen in this sort of scenario, as the market has increased, so the cheaper / earlier agreed contracts appear to be under increasing risk of default and as origin resells these cheaper contracts at increasingly higher replacement prices.
With importers struggling to get their shipments to fulfil their own sales, so they have been forced to jump into alternative origins and predominantly India.
Sadly, India has been quick to pull their own prices higher and this has predictably brought pressure on some of the smaller Indian shippers, to default on their own lower priced sales.

Comment: meantime, there are plenty of arbitrations and claims being raised on the shippers in origin which predictably but sadly, will have minimal effect on this overall scenario being quickly resolved.
There are signs that this “crisis” is being resolved to some extent by some offers emerging from resellers on physical and forward stocks which are coming through albeit at higher levels and the early signs of surplus to requirements stocks might take the immediate demand away from origin. At these higher levels and at levels unimaginable to origin suppliers only 1-2 months ago, we might find a little more stock unexpectedly available at source and this could start to result in prices finally stabilising. Let’s hope so.

Pecans:

Prices are firming each week and show little to no sign of correction even in the longer term.
This is due to on-going enormous sales of current crop stock to domestic, traditional export and newer Far Eastern destinations - and in unprecedented volumes.
In many ways, this market typifies how difficult it is to predict pricing given that to some extent demand overall and globally is driven to a large extent by prevailing pricing and also to the fact that sales to emerging markets have little to no relevant sales history.

Comment: other than this, in the full and historically based knowledge that pecan production is always poor following a bumper crop, so we can expect to see prices heading to much higher levels next year. On increased demand and the already albeit early but worrying forecasts that the developing crops across the Southern United States and Mexico are not shaping up well, so we can expect to see a reduction in supply into 2009 at a time when demand has never been so strong.

Pistachios:

Pistachio prices have firmed further over the past and continue to do so.
Although Iran is reluctant to put a figure on its own reduced supply, the Californian new crop itself is also thought to be set to fall lower than was produced this year, set against an expected further increase on field pricing to be paid to the growers for their increasingly valuable new crop stock.

Comment: on the above scenario, it is difficult to see any respite on pricing until potentially the turn of the year and when seasonally, there is a downturn in volumes traded over Dec and Jan.

Brazils:

The regionalised floods reported earlier this year across Bolivia, fortunately appeared to present only short term logistical issues rather than impacting on the crop itself.
However, this has resulted in a scarcity of new crop stock which is only arriving in volumes barely able to keep track of the increased demand which seasonally increases to coincide with the first of the new crop arrivals.

Comment: as previously stated, on what is overall a small and questionably unsustainable crop, it is surprising that prices are generally stable and trade within a fairly narrow range when many other peripheral markets are in meltdown. That said and short term, with the delays in new crop coming to their destinations, it would appear that short term pricing will increase until at least October by which time stocks in the UK at least should be replenished to meet the peak of the Christmas demand.

Coconut:

Coconut prices are still being driven to recent and historical highs both and for the same key fundamentals:
With petroleum prices trading to historically higher levels themselves and with little respite to be seen (other than a huge increase in production and/or Government price capping), demand for edible oils has never been so strong – not only from the emerging and rapidly growing bio-fuel sector, but also from traditional destinations for cooking oils.

Comment: with little chance short term at least for the veg/edible oil market to weaken, coconut will continue to be dragged ever higher. This is less of a supply issue and more of an unexpected surge in demand but this does appear to be in danger of running for the remainder of 2008 and possibly even into 2009.

Pinenuts:

Pinenut prices have remained firm over the past month and look set to remain so now for the rest of the current crop season.
Supply has been pushed to its limit over the tail end of this current crop season and on demand from all categories for this product. Used increasingly in bakery, and food manufacture, snacking and mixes, this increased demand is testament to the impact of NPD across the industry where buyers are looking more for innovation and flavour rather than for commercial savings.

Comment: after a tricky year this season with strong prices and reduced supply, we appear to be set for a better production into the new season. Origin is cautiously offering October/November shipments (for Dec/Jan arrivals) at a small discount to current crop and better supply should equate to better pricing - if it wasn’t for the fact that demand is off the scale! As with all other products in this report, nothing short of optimal supply can suffice.

2) Dried Fruit:

Raisins:

Concerns on the depleting water table which have fuelled nervousness amongst the almond growers in California, probably does not impact on the developing raisin crop, to any major extent.
The raisins generally grow to the east of the San Joaquin Valley and to date at least, this region is adequately stocked with its own water reserves.
The new crop itself is estimated to be developing well and the crop should come in weather permitting, around 236,000mts.
What is clear is that the field price to the growers is almost certain to increase by at least $100pmt from 1st October, as the U.S. raisin industry tries to encourage further investment into this crop. While better returns are made by other higher value crops (such as almonds, walnuts and prunes), there is increasing pressure on growers to pull out vines and replant with crops which offer a better financial return.
While Californian raisin pricing remains cheaper than Turkey, they can look forward to continued bumper sales into their export market and they are clearly keen to retain as much of this newly found export market share that they can.
However, at the same time, they are also relaxed about the direction that Turkish prices may take in the knowledge that their domestic winery business is on the up and that the field price will increase regardless.
From Turkey, the situation on Turkish raisin production remains hard to predict. In the knowledge that California has been able, on price, to regain some of their market share, Turkish farmers are extremely cautious in committing themselves to the quantities of raisins they will produce this new season at the expense of their “precious” sultana crop. Even a total of 300,000mts of vine fruits combined might not be enough to flood the market, and as their mainline business remains sultanas and not raisins, and as they still perceive correctly that California remains better priced commercially - for now at least, arguably Turkey will only commit to a proportionally small part of their new crop to raisin production.

Comment: on this basis, we do not expect to see any major reductions in sight on raisins, at least until the end of the year when and once new season offerings are well under way and demand post Christmas and Ramadan buying enters the seasonally quieter period.

Sultanas:

Forecasts on the Turkish new crop continue to support the view that we are looking at least at 300,000mts and possibly more. Based on the developing vines to date and short of any late rains or hail preceding or during harvest, we look set for virtual optimal supply after the difficult season we have endured. If current crop was 210-220,000mts plus the carry in of 20,000mts then 300,000mts+ (albeit with minimal carry in) will restore supply to good levels although the question remains to what extent prices will ease as a result.

Comment: clearly, the Turkish farmers have enjoyed unprecedented increases this season and have earned sufficient profits to play hardball on a potentially weak market. Also, industry demand at present is generally reluctant to buy into new season deliveries in the hope that the longer they wait, the better the prices can be. This however does mean that demand when it does come, will come in some volume. Also, with Iran reporting a 25% reduction in its own supply, and with South Africa now sold out, it means the pressure will be on turkey to make up any other origin shortfalls.
We may also see some buyers revert back to Turkish sultanas from other origins (including Californian raisins) should cheaper prices become available, so forward demand based on price and availability should not be underestimated.

Currants:

Although the Pound has marginally recovered against the Euro, this is not helping offset the fundamental supply issue which has rocked this market since the end of 2007.
With some origin packers reportedly now sold out of current crop completely, and with the effects of the extended port strikes hugely impacting on continuity of supply so far this year, sales of currants have reduced and with many manufacturers then reverting as they have done before, to Californian midget raisins.

Comment: as previously reported, the likelihood is that new crop production in Greece will be affected by the reduction in farmers’ subsidies, although if the high prices are sustained (present pricing remains over 20% higher than at the start of the season), then this might encourage growers to continue to produce in order to take advantage of the historically high pricing.

Apricots:

Apricot prices are extremely firm at the moment and this despite the expectation for the new crop to be significantly better than the 07/08 current crop. Although supply might increase by as much as 50,000mts+ over this year, current crop stocks are now running perilously low and will barely last until the new crop is available form end September.

Comment:…however, another issue has raised its head. Despite the large new crop, the Turkish government appears to be putting processors under pressure to reveal their profits in order to raise additional taxes on these sales. The government perceives that they lose out on considerable revenue on the volume of apricots sold for export and domestic both and in response, the processors are rallying together to try to hold a minimum and higher export pricing structure which will ensure that they have enough profit spare to cover for any unexpectedly higher taxation bands.
While a large crop should ultimately bring some additional pressure to bear on stock holders in Turkey once the new season is under way, they are clearly nervous to sell at present given their complete confusion as to how much profit they may forfeit should the Turkish government take part of the intended margin.

Prunes:

With the South American new crops now harvested and under way, on arrival into the US and Europe this quantity should bring welcome relief to tight stocks at destinations who have been buying hand to mouth in anticipation.
If prices do weaken over the next 2-3 months, this might only be short lived. Worrying news continues to support the belief that the Californian crop once again will not be as good as had been earlier hoped, and with good quantities of Argentine and Chilean new crop also heading into the States, we may see the majority of these origins’ new crop stocks cleared by the end of the year.
Not only will this again push dependence back into France but would also mean that prices may start to pick up once again over the last quarter 08 and into 09.

Mark Setterfield – June 2008

If you have any queries or questions about any of the issues raised in this report or indeed, about any other of the products in our range, please do not hesitate to call.