Jan 8, 2011
Cashew market continued to be quiet in week 1 of 2011 – for more than one month now, there has been very little volume traded to USA & Europe although there has been reasonable business with other markets. During the last two weeks, some processors from Vietnam and India sold W320 to USA & Europe at lower levels (around 3.65 FOB) because they do not have prior sales and need to move stocks before new crops start in March.
Despite the limited buying interest, most processors from both origins were quoting more than 15-20 cents higher. They do not have much to sell for first quarter and they are not willing to sell at lower prices for second & third quarter because (a) RCN prices have been high in the fourth quarter (b) processing costs are going up in first quarter (c) there is uncertainty about RCN pricing (and movement) in the second quarter. They do not want to sell short unless they get a reasonable premium to cover high costs (and any supply side problems).
Uncertainty of demand trend makes buyers wary as well. They do not want to be carrying long positions at prices which are the highest ever and then see a dramatic drop in demand. At the same time, they need to buy at regular intervals to keep pipeline filled to the bare minimum. This hand to mouth buying will continue to provide floor to the market till we reach a “tipping point”.
There is no change in fundamentals. Supply will continue to be tight in first half – tightness will ease slowly in second half if 2011 crops are good (or at least normal). Normal supply will be restored only if 2011 crops are at least normal AND 2011 demand is dramatically reduced. Steady demand is expected in Asia in 2011 but there is uncertainty about USA & Europe. Some people expect a double digit decline in 2011 due to the high prices but this seems unlikely given that prices for almost all nuts (in fact, almost all food products) are high. Base demand for snack nuts will remain although promotions & special offers may be affected. Unless something dramatic happens on demand or supply side, we expect market to move with 3.75 FOB as middle of range for most of 2011.
If buying from USA & Europe is slow in first two quarters, we will see slight easing of prices when the new crops are being harvested. This would mean processors will be less inclined to pay high prices for RCN (even if kernel prices do not ease, processors will have to target for lower RCN prices to compensate higher processing costs). If 2011 RCN prices are reasonable then we will see further easing of prices in the second half. On the other hand, if there is steady buying with some quiet periods – like what we have seen in the last two quarters – processors will have to buy RCN even if prices are high. In that case, there will be little chance of prices coming down much for most of 2011.
In next few weeks, we can expect bouts of volatility depending on news, reports, rumours about the crops – it will be difficult to separate chaff from the grain. By Apr/May we will have a better picture of supply + demand and then it will be possible to make a realistic guess of market trend. Till then, market will continue to be delicately poised and all factors (including external factors) will have to be watched closely.
Pankaj N. Sampat