Monday, January 24, 2011

Weekly Cashews Update

JAN 22, 2011

In Week 3, cashew prices were steady with a firm undertone – the very low offers seen couple of weeks ago are out of the market. Range of prices offered and traded continue to be wide : W240 from 4.20 to 4.30 and W320 from 3.65 to 3.85 FOB. There is reasonable buying interest at the lower end of the range but not much selling interest. Resellers are quoting few cents below the top end of the range. Despite quiet market, most processors are not willing to reduce prices to get orders.

RCN prices came down a bit – Tanzania due to lower quality and Mozambique due to lack of buying interest (since kernel market has been quiet for almost six weeks now) but the quantity available is limited. All eyes now are on the three big crops (India + Vietnam + West Africa) which will start arriving in a few weeks. So far there is no adverse news from any origin (except for the concern about movement in IVC – since it contributes over 15% of world production, developments in IVC need to be watched closely). There will be lots of rumours about crop prospects in the next 2-3 months but until crops are well under way (say end Mar / ear Apr) it will be difficult to have a reasonable estimate of the crops.

On the demand side, Asian markets will continue to buy steadily but volumes may not be as big as last quarter of 2010 (which is a good thing as availability in first quarter will also be lower due to holidays in Vietnam + lower RCN availability in India). USA & European buying will depend on offtake by retailers in Jan/Feb. General feeling is that there is very little cover beyond April. If there is a big drop in first quarter offtake, buyers may be able to extend cover and delay any big buying for a few weeks. If the drop is not as big as feared, steady buying can be expected from USA & Europe as well.

There is widespread uncertainty and concern in USA & Europe about the impact of the higher prices on consumption. Apart from the fact that almost all nuts (for that matter almost all commodities) have seen significant price increases in the last year, we have to keep in mind the change that we have seen in geographical distibution of cashew consumption. USA & Europe now account for less than 50% of world consumption. A 10% decline in these markets means a 5% decline in world consumption which is less than the 10-12% reduction in supply we have seen in 2010. Demand-supply will be balanced only if there is a very big decline in consumption coupled with good (or atleast normal) 2011 crops.

Over the next few weeks sellers and buyers will be inclined to sell or buy only what they absolutely need to – nobody will be in a mood to take any big positions because of the uncertainty. So, prices can be expected to move in a narrow range. By April, there will be some clarity on both sides of the equation – crop prospects and demand trends. Before that, if anybody needs to take any large position – buying or selling – there will have to be a sufficient premium or discount to induce the other side to act.

To sum up, we expect a lot of volatility for couple of months (depending on news AND rumours about crop prospects) and a steady market around current levels for next few months (unless there is big negative news from the demand side).

Pankaj N. Sampat

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