Monday, August 30, 2010

Weekly Cashews Update

AUG 28, 2010

Cashew market was very quiet in Week 34 but continued to be firm. Some business was done for W240 around 3.50 and W320 around 3.30 FOB. There was no activity with main markets – probably because most Indian processors were away for Onam holidays this week.

No fresh news expected in the RCN market in the near future – spot market likely to remain firm due to limited replacement possibilities. Tanzania shipments likely to be delayed due to increased procurement by local processors. Time gap between RCN buying by India / Vietnam processors is increasing.

There has been a fair amount of activity in the kernel market during Aug and more is expected in Sep/Oct. Generally, business in this period is for long spreads but this year it is uncertain what the trend will be. High prices might keep buyers away from making long term commitments. Also, processors will be reluctant to make big forward sales unless they get a “risk cushion” because there is nothing on the horizon to signal a change in the firm, upward trend.

To answer the question whether the high prices can be sustained (or when the trend will change), we can look at the medium term (past and future).

The price rise in June 2008 (when W320 crossed 3.50) was sudden (in couple of weeks) and the main reason was defaults of large volumes contracted at lower levels. The current price rise (to current level of 3.30 with some upside still left) has been gradual (over a period of more than 15 months) and supported by steady spot / nearby demand (and higher RCN costs).

The price drop in Oct 2008 was caused due to external factor – financial crisis leading to cash crunch, downsizing of inventories & operations in major importing countries. Although current economic situation is not “great”, it is nowhere near the depressing 2008 (although nobody can predict what surprises the financial markets can throw). Excluding this, the only reasons for a price decline (or change in trend) could be (a) big drop in usage or (b) big increase in availability.

A big increase in availability can happen only if Northern crops are good. (but this will be known only in second quarter of 2011). If the crops are good and RCN prices decline, we could see kernel easing to 3.00 level (maybe lower if the kernel prices decline from current levels before the crops start).

A big drop in usage is possible if retailers and large brands move away from cashews due to the high prices. If this move happens end 2010 or early 2011, prices will start drifting lower and could go below the 3.00 level (maybe lower if the reduced usage continues into mid 2011 when the large Northern crops are being collected). If usage does not reduce in FH 2011, prices will continue to be firm.

Since both possibilities are six months away, market can be expected to be firm in the short term with spot / nearby demand lending support at current level. Any large buying in Sep/Oct will lead to another jump in prices. Quiet period in Sep/Oct would mean prices drifting to lower end of the recent range. Overall, uncertain times ahead !!

Pankaj N. Sampat

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