Monday, November 19, 2007

Weekly cashews Update
Nov 17, 2007

The climb continues… during this week, price for benchmark W320 grade moved up more than 4% - 10 cents a lb. Other grades also moved up by around 5 cents. Business was done from India & Vietnam for W240 around 2.90, W320 around 2.55, W450 around 2.40 FOB. There are reports of sales few cents higher as well. USA was the most active buyer but other markets also participated to some extent

Brazil is still not offering any significant quantities – in addition to the effects of the strong Real, processors are probably concerned about size of the crop following the delay in arrivals in the main growing areas

Cashew Board of Tanzania announced daily auctions in different areas but like the procurement policy, the auction rules also are unworkable. Due to the limited availability of RCN, prices for the only available origin – Indonesia – have gone up to a level that is unworkable even at the increased kernel prices

One significant factor of the last three weeks has been that although market has gone up 10%, the volume traded has been small. We can see two reasons for this limited volume (1) most processors have adequate sales for next few months and in a sharply rising market, they are reluctant to sell large quantities – more so, due to uncertainty of RCN pricing and weak USD (2) although there has been some buying by roasters, most of the buying has been short covering by importers who were waiting for Brazil & Tanzania crops to cover Oct-Mar requirements but are now forced to chase limited quantities. Delays from some suppliers in India & Vietnam have added to the quantities they need to buy. But, they are buying only what they absolutely need to fulfill delivery commitments

Buyers are not willing to buy any large quantities for forwards at higher levels as they are not sure these levels can be sustained when Northern Hemisphere crops start in March.. Although there is a temporary squeeze in supplies there is no significant change in overall availability.. Current price rise seems to be combination of this temporary squeeze + precautionary buying + shipment delays

As we said in our previous reports, if the market strength continues in the first quarter of 2008 it will lead to higher RCN prices in second quarter which will mean that processors will have to sell in 2008 at prices substantially higher than what we have been used to in the last couple of years

The weak USD will certainly soften the blow for the roasters & retailers in non-US markets (in some cases there will be hardly any change in price) but the adverse impact on rawmaterial & processing costs in origins is quite significant

In any commodity, a sudden change in prices – up or down – has more adverse & less beneficial impact. Sudden moves – without significant change in fundamentals - give misleading signals to people who do not look at the wider picture & their reactions distort operations for all stakeholders in the chain which is not good for the growth and health of the business

We can expect uncertainty – and scarcity of offers - to continue for a few weeks and this should give everyone time to reflect on how they should react to the current situation

Would appreciate your views on present market situation, your forecast on activity & price trend for next 2-3 months and your insight on movements on demand side for 2008

Pankaj N. Sampat

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