Wednesday, March 14, 2007

Dear Nut Talk readers:

David Rosenthal at Sunrise Commodities recently sent this letter to one of his clients. I thought his insight into the cashew market was interesting and worth sharing.

I just wanted to clarify my views on the market as my thought process did not convey into words very well this afternoon. My point was that this market has been so quiet for so long that the amount that the market has gone down does not relate to the level of inactivity. In previous years this level of inactivity would translate into a consistent downward trend greater than 10 cents per pound over a 1 year period, hence my comment on the double dip. Over the last year price declines have stimulated some activity that has either stabilized prices or caused them to go back up. This has kept market fluctuations within about 10 cents per pound. Price declines have not exceeded two consecutive drops before market activity caused prices to move back up.

For example 320’s traded at the following price levels over the past for months on an FOB India basis at:
Dec 8 $2.08
Jan 8 $2.13
Feb 9 $2.10
March 8 $2.03

About 1 year ago the market in April 2006 from a medium packer was about 2.10

Not a significant difference given how slow things have been. Yes, one could say that we downward trend over the past few days, but overall the slope is very shallow. Not to mention the fact that the upper level shippers have little to no offers into the market … In fact, on Tuesday I received a quote on 320’s from VLC at $2.20 FOB India based on a specific inquiry from a client looking for an offer from a top tier packer. I doubt their price ideas have changed significantly.

Keep in mind that the local Indian processors are trying to sell domestically where the prices are about 7 to 8 cents higher. Certain grades like pieces are not even really making it to the American market. In Vietnam sellers are reluctant to offer anything at the moment and top packers are reasonably sold until the 3rd quarter. At this point they prefer to wait to see how the market develops. Over the past 18 months Vietnamese shippers have lost a great deal of money selling the market short. In order to avoid a “repeat performance” speculative selling at lower than market prices is at a minimum with any reputable shipper.

With this type of market I subscribe to Cashew Buying 101. Buy a portion of your forward requirements and ride the market either up or down. Cost averaging would be in my opinion the best way to approach this uncertain market. You will always be in a good position!

No comments: