Tuesday, April 29, 2008

Cashew Market Price Hikes and Defaults – Must They Go Hand in Hand?

By David Rosenthal

As if a staggering rise in cashew prices were not enough, reliable sources estimate that Vietnamese shippers have defaulted on over 2000 containers of cashews scheduled to arrive between November 2007 and February 2008. This presents a market differential in excess of 40 million dollars. The Vietnamese have protested that the discrepancies between current market prices and the lower prices contracted before the market overheated is so great that honoring the contracts would effectively put them out of business. Indian shippers (who so far have not defaulted) maintain that fulfilling the contracts would not result in substantial losses, because the Vietnamese raw seed, both domestic and imported, was bought at reasonable price levels and was sufficient to meet Vietnamese contractual obligations.

The problem is that much higher profits can be had by delaying shipments and causing supply disruptions. Historically, the default tolerance level is $0.20 lb. Once the market goes beyond this price differential, the temptation to default and sell to buyers willing to pay a higher price (and there appear to be plenty of these high bidders in China and Malaysia) is too much for some suppliers. And there is every possibility that even this traditional default tolerance threshold could decrease.

There is no question that these defaults are fueling the severe rise in cashew prices. It is by no means an isolated problem, but widespread – continuing from last year’s crop into the current one. The number of defaulted containers that need to be covered has triggered a wave of buying that is permeated with fear – both of shortages and of further price increases. The combination of fear and uncertainty is always a grim mix, and Indian shippers who know the extent of the defaults are not likely to allow prices to soften. There is a slim hope for price relief as the peak arrival period of raw seed in India and West Africa approaches, but the fear factor, delays and defaults seem to have created an environment in which the market firms almost as soon as it eases.

The problem is not unique to the United States. Our counterparts at CENTA have banded together and are working through their governments to resolve the situation through treaties and trade agreements with Vietnam. Although the United States does not have the same types of treaties, the AFI is also trying to safeguard the interests of American importers, who are caught in the vise of having to fulfill contracts to their customers while having to pay more for cashews purchased on an emergency basis in order to cover the defaults. Unfortunately American importers have the added handicap of the weakening dollar, making their bargaining position more problematic.

In order to recoup their losses and stabilize the situation, the importers need for these older, less expensive contracts to be shipped in full. There can be no question of “Force Majeure” from Vietnam, because they continue to offer containers of cashews for 5 – 6 months out (at high prices) which we must assume to be the very containers that they are not shipping for their contracts! By whatever means – arbitration, diplomacy, etc. the defaults need to be addressed, and resolved, because it is not only the short term that is at stake. The commodity trading and speculative market approach that has been the mainstay of the industry could be at risk if commodity traders (importers) are perceived to have no power to effectively enforce contracts.

The cashew industry has experienced these “perfect storms” in the past, and will weather this one also. It is worth mentioning that not all of the Vietnamese shippers have defaulted on their contracts – many are honoring their obligations. These tend to be the ‘best of the best’ – shippers who view long term relationships as more important than quick profits. These difficult situations are always learning opportunities – if nothing else, hopefully, the importing community will remember who the reliable suppliers are when the good times come around again.

Thursday, April 17, 2008

Peanut Planting Update

Good afternoon,
In general the peanut markets have been very quiet the last week. Little to no offers on ’07 Crop and certainly no offers on ’08 Crop.
I have talked to some farmers, this week, that advised that some additional acres (planned for peanuts) have been planted in corn. The price for corn topped $6/bl. last week and some acres were planted in corn. The weather was good and University of Georgia planting guides allow planting of corn through April 15.
There is no way to tell how significant this increase in corn may be, but any reduction in peanut acres is not good.
Export Peanut numbers were released by FAS for February. They show total peanut exports up 72% Feb ’08 vs. Feb ’07. For the crop year Exports are up 14.7%. Most exporters agree, this trend will continue. The peanuts have already been sold and the numbers will come in as they ship.
This continues to bring concern that supply will be tight on peanuts as we move through the summer.
Again, it is very hard to get price indications from any Sheller.
The shellers are waiting to see how many acres are planted and shell a few more tons to see how yields come out.
We may see some additional offers on ’07 and ’08 crop in late May or early June.
Let me know if you have any questions or comments.
Thanks Stewart

Tuesday, April 15, 2008

Cashew Concern Certification

I came across the attached commentary in the CCC website on the devastating effect that ignoring potential vulnerabilities has had on the Airline industry. Although addressing these issues proactively would have cost American Airlines a substantial amount of money it pales in comparison to the tens of millions that it will now cost to remedy the situation, not to mention the the effect this will have on consumer confidence.

This comes in addition to the recent news regarding the high levels salmonella recently found in the Malt O Meal cereals and their co packed private label brands. Both of these issues bring to light how vulnerable industries are today and that ignoring potential problems can result in a very costly lesson.

Bentzy Klein

Cashew Concern Certification

Monday, April 14, 2008

Growing NOW problem poses serious pistachio aflatoxin threat

Apr 11, 2008 11:10 AM, By Harry ClineFarm Press Editorial Staff
California’s 2007 pistachio crop was not only huge in size, but also alarmingly high in aflatoxin levels — almost 30 percent in at least one sampling.
For an industry facing future record-after-record crops, the prospect of a growing aflatoxin problem is not good. Handlers report unwanted high levels in the nuts processed from this crop.
The problem has become so alarming, handlers are now considering penalties for growers who deliver nuts unacceptably high in aflatoxin levels/Navel orangeworm damage and to reward those who avoid the problem with good management practices and deliver a clean crop.
And giving your handler a very clean crop is not that difficult, according to Bob Beede, University of California Cooperative Extension tree nut crop farm advisor for Kings and Tulare counties.
Beede told the recent Western Pistachio Association’s U.S. Pistachio Conference in Santa Barbara that a team of UC entomologists have put together a thorough package of knowledge and control strategies to reduce Navel orangeworm populations, and therefore significantly reduce the chances of aflatoxin in California pistachios.
Food safety is hammered hard at just about every crop production and handling meeting these days. It was no different with pistachios which can ill afford a food contamination crisis.
Pistachios remain almost a niche snack food consumers would quickly avoid if they perceived there was a food safety issue.
Consuming high levels of aflatoxin can make people seriously ill. It has also been linked to liver cancer.
“Folks, we have a problem we have to solve collectively. You have to take Navel orangeworm management with extreme seriousness,” Beede told about 400 growers, processors and PCAs at the conference.
Last season’s high levels have been blamed on the “perfect storm” of a heavy crop with strung out maturity, a large percentage of early splits and a late harvest.
Beede acknowledged that it may have been ideal for NOW and aflatoxin, but the overwintering NOW population left behind will not go away.
Nor will the growing number of perennial crops that host NOW go away, particularly almonds, another crop seriously impacted by NOW.
Beede insists that a 7-step program will significantly reduce any overwintering or growing NOW problem.
It begins with sanitation; shaking mummies from trees, blowing mummies off berms into middles, and disking them in.
“It may cost $100 to $150 per acre to do the sanitation work,” said Beede. It may pay off by not getting a call from your processor who says he does not want your pistachio nuts because of high NOW damage/aflatoxin levels.
As important as sanitation and beneficial insects are in controlling NOW, those two things together or alone will not control damaging levels of NOW. Control will go beyond those.
Most all generations of NOW in a season overlap, some in as brief a time span as 10 days per generation. However, the first generation does not overlap with the second. It is that initial flush where growers have a shot at cleaning up overwinter populations with a pesticide.
Beede recommends using one of the new soft, non-disruptive insecticides to control worms then. Don’t use an organophosphate early because it will take out beneficial parasites early.
“This first generation early treatment would be around the first week to 10 days of May in a normal year,” said Beede.
He also suggested disking middles in June to break pest production cycles; applying soft materials in July if warranted.
“If you wait until August to do something about a NOW infestation, you will not be able to control NOW with pesticides then” he warned.
“And harvest early,” he added. “Don’t wait for all the nuts to split. They won’t.”
After harvest, Beede said, is another opportunity to break a NOW reproduction cycle. “Remember when you are harvesting nuts, Navel orangeworm also are harvesting nuts.”
“Look at a post harvest treatment with Intrepid and a pyrethroid,” he suggested.
Early splits create an ideal environment for NOW generations to enter the nut and reproduce rapidly. Early splits last year were correlated to deficit irrigation in many cases, according to one handler.
Emerging NOWs do not have to be high numbers initially to create problems. Beede said one entomologist collected 200,000 mummies, but only 190 adults emerged.
“Not a problem? Let’s say there are only two Navel orangeworms per tree in an orchard. Each one can lay 100 eggs giving you 200 eggs per tree. Assuming 50 percent mortality in those eggs, that still leaves 100 worms per tree. That is a problem,” Beede said.
In the pistachio industry, we are all in the same boat when it comes to NOW and aflatoxin ... all in the same boat without a commander,” Beede said, indicating that NOW control is a grower-by-grower decision.
However, there is one common thread among growers and it is that there is plenty of information about this insect pest and how to control it.
“One thing we all have is knowledge and knowledge is power,” Beede emphasized.
He encouraged growers to “seize the opportunity” to control NOW and reduce any aflatoxin threat and “preserve the food safety and preserve the market that California pistachios have always been recognized for.”
email: hcline@farmpress.com

Friday, April 11, 2008

Vietnam: Long An Food expects Vietnam’s 2008 cashew harvest to drop 23 pct

Long An Food Processing Joint-Stock Company, Vietnam’s biggest publicly traded cashew processor and exporter, said it expects the country’s harvest to drop 23 percent this year. The stock fell for the first time in 10 days. Vietnam’s cashew harvest will decline to 270,000 tons this year from 350,000 tons in 2007, said Le Huu Phuong, deputy general director in charge of finance at Long An Food. The stock slipped VND500, or 1.9 percent, to VND26,000 in Hanoi."The country will have a bad harvest due to the weather", Phuong said Wednesday in a telephone interview from Long An, a province in southern Vietnam. "We have some difficulties, but we foresaw the situation and signed up contracts to buy cashew nuts from African countries." The company needs to source for cashews to boost its earnings. The Long An-based company expects pretax profit to rise 14 percent to VND25 billion (US$1.6 million) in 2008 from VND22 billion last year, Phuong said.Source: thanhniennews.com

10 April, 2008 - A contentious food tracking system that Chinese authorities insist will radically improve safety has been incorporated into draft law

Source: FLEXNEWS10/04/2008

The new product and identification system however has met with resistance from major manufacturers who say it will fail to address the problem while significantly adding to production costs.Under the new arrangements each product will be allocated a unique code which, say Chinese officials, will allow it to be tracked at each stage of its productions and distribution cycle. Once it comes into full law, it will be illegal to sell food without such a code.China’s Government originally said the system had to be up and running by June but has now extended the deadline until the end of 2009.However, reports in Chinese media say many of the largest food companies, including Mars, NestlĂ©, Coca-Cola and Pepsico have raised concerns about the proposed system.Many companies said it would raise production costs and lead to price rises of up to 15%.More importantly, say opponents, the system has a number of fundamental flaws. It does not apply to small companies which, say many, are the cause of the majority of food safety breaches.Li Yu, scientific and regulatory affairs director of Mars China, was reported as saying: “The system is of little use in ensuring product safety, as it doesn't deal with the quality of raw materials."Also, the system doesn't apply to small food plants, and they have the most problems.”A Chinese Government official responsible for implementing the system said the government would work with companies to solve problems as they arose.

Marc Stevens

Monday, April 07, 2008

Weekly cashews update

April 5, 2008

Market was very quiet this week – very little business reported. No change in prices e. g. W240 around 3.25, W320 around 3.00, W450 around 2.75 FOB (some large processors sold few cents higher). Prices for Splits & LWP moved up a bit in domestic market.

WA season seems to be progressing normally - Prices came down 3-4% i.e. Benin is around 950 and IVC is around 875 C&F. If RCN prices ease further, we might see some kernel selling interest as processors would like to have some sales on books before buying too much RCN. But before selling any big volume, they would like to cover reasonable quantities as they would not like to go short again even though prices are high

In Vietnam, Vinacas has organized meetings between processors & some large buyers this weekend.. Outcome of these meetings will have a great impact on supplies from Vietnam and positions & buying strategy of most buyers in main importing countries

Until there is significant improvement in flow of product to USA & Europe – and this is unlikely to happen before June even if enough RCN is available – supply lines will be tight. Need for spot and nearby shipments will probably keep the market firm. In turn, this might result in steady RCN prices affecting ability of processors to offer kernels at lower prices for next few months. What impact this will have in second half of 2008 & early 2009 – on demand and prices - is a big question mark

Overall, difficult times & delicately poised market means that everyone will have to be extra careful for next few weeks

I would appreciate your views on the current situation, information on demand and price trends in your market... and your opinion on how market will develop in coming weeks & months

Pankaj N. Sampat