Monday, January 31, 2011

JAN 29, 201

Cashew prices moved up a few cents in Week 4 although very little business was done. Levels traded were US$ 4.30-35 for W320 and US$ 3.75-3.85 for W320. Some business was done few cents higher as well. Most of the trades were for Feb-Apr shipments. Indian domestic market has been quiet for two weeks and prices drifted a little lower from the peaks.

There is not much trading in RCN. Moz RCN is offered around US$ 1450 and there are reports of Nigeria RCN trading around US$ 1225. Indicative offers are around US$ 1500 for Benin and around US$ 1425 for IVC/Ghana. Our feeling is that there will be quite a bit of volatility in offers for WA RCN during next few weeks. Actual opening price levels will be known only by mid or late March and bulk of the trade will happen in Apr/early May. Till mid March, all quotes are speculative and can only be used as an indication of likely trend. At the moment, all origins are expecting normal crops but low inventories with India & Vietnam processors means processors may not have the luxury of waiting for peak arrivals to bring prices down - they might have to start buying as soon as physical arrivals start.

As we have discussed earlier, the industry needs good crops in all origins in 2011 to replenish drawn down inventory and bring reasonable balance between supply & demand. In addition to this, the other short term factors which will impact 2011 market trend are the offtake figures in the first quarter and the kernel activity in Feb/Mar from the two major importing regions. Apart from this, we have to keep close watch on external factors – economic news (signals are for a smoother and growth year) + currency movements + prices of other nuts.

It seems that most buyers need to buy for shipment beyond April but are trying to delay buying as much as they can. They do not want to extend cover at current levels and then find that first quarter offtake is lower than planned. If they can use existing cover to take them through a few more weeks, they hope that prices will ease when RCN arrivals are at peak in Apr/May and then they can cover their second half requirements. Asian demand is expected to be lower for a few weeks and this might lead to a drifting of kernel prices IF the buyers in USA & Europe are also able to keep away from the market in Feb/Mar. This will enable processors to be slow in initial buying and might lead to softer RCN prices in Apr/May (and this will aid further drifting of kernel prices).

On the other hand, if there is steady periodic buying from USA & Europe – like what we have seen in the last 6-9 months - prices will be remain steady and may even move up a bit (in case any one wants to buy volume for spread delivery). This will add to the need of processors to start buying RCN quickly and opening prices will not come down. Any crop shortage (actual or perceived) or any big delay in movement of RCN will add to the potential for higher RCN prices. Consequently, kernel prices will remain firm.

It is impossible to judge (or even guess) market trend beyond a few months. But it certainly seems that the scales are tilted in favour of a steady & firm market for next few months. Although we might see some small dip in prices in the coming weeks if activity is slow or if there are encouraging reports from origin, a significant price decline in the short term is possible only if there is VERY VERY low buying interest PLUS all the crops are very good and there are no supply distortions.

Pankaj N. Sampat

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