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ANALYSIS

Cashew market movement in Q1 ’19 reflects comfortable supply situation
Thursday, 04 April, 2019, 15 : 00 PM [IST]
In the first quarter of 2019, the cashew market has moved sideways in a narrow range with a soft undertone, reflecting comfortable supply situation.

Opening the year at about 3.60-3.80 FOB, Vietnam W320 drifted to a low of 3.25-3.35 FOB by the end of January/early February, moved up to 3.50-3.70 in mid-February and eased again to 3.40-3.50 FOB by the end of March.

The current range of offers from Vietnam is W240 about 3.80 to 3.90, W320 is about 3.40 to 3.50, splits is about 2.60 to 2.75 and pieces is about 2.30 to 2.45 FOB.  Prices from India are 20-25 cent higher (for wholes).

RCN (raw cashew nut) prices have also drifted downwards – decline of over $300 per mt in the first quarter. The current range of offers in Ghana and Benin is around $1,250-$1,300; Ivory Coast is around $1,225-$1,250 and Nigeria around $1,050-$1,150 C&F India/Vietnam.

Current prices – RCN and kernels – were in the range last seen in 2015. Lower than 2016 and significantly lower than 2017 and 2018. And this is despite the fact that over 250K of Tanzania, which is normally available for processing in India and Vietnam, between November and February (providing 50K of kernels in the first quarter) is still lying in Tanzania six months after harvest.

Outlook for 2019

Northern crops is good. Continuing the trend of the last few years, kernel yields from some West African RCN, including Ivory Coast, is lower. But, since overall RCN supply has increased, the reduction in yield is not having much impact on kernel availability.

India and Vietnam processors are not as aggressive as usual in buying early shipment from West Africa. Even though the prices are the lowest since 2015. They are buying only in small lots as their domestic crops which are also being harvested now are good; there is fear of what will happen when Tanzania RCN comes to market - which it eventually will, and the kernel market is not very active.

There is very little funding in Africa from RCN traders who are nursing big wounds from the 2018 season. And this is keeping prices low. Farmgate prices are significantly lower than the last three years. Any further big decline could mean reduced collection in some areas leading to crop wastage.

Slow RCN buying, coupled with financial tightness (RCN traders, as well as India and Vietnam processors) could mean lower volume of processing in India and Vietnam.  So even though RCN supply is adequate, there could be reduced kernel availability in some months.

Going forward, it is difficult to judge what will be the price trend. When prices are firm, all factors look bullish. When prices are soft, everything looks bearish.  Fundamentally, supply is comfortable. There is steady (but not spectacular) growth in demand.

The big fall in prices that we have seen since middle of 2018 was mainly because the prices went up to unrealistically high levels in 2017 and remained there till mid-2018. Of course, the fact that supply was more than demand added to the speed of the decline. It will take a few months more for the effect of that price decline and excess supply to be worked out of the system.

But one thing to be kept in mind is that despite the steep in increase in prices from 2016, there was no decline in cashew usage during 2017 and 2018. Overall, globally, there was probably a small increase in usage in each of the years.

It is believed that comfortable supply has been accounted for in the current market situation. The price trend will now depend on the demand trend. In the short term, we can expect some volatility depending on what happens with RCN prices and speed of RCN buying. Any move from Tanzania could create another dip in prices.  Except for that, downside is limited.

After three years of rising prices, lower prices should help growth in usage, especially in the biggest market (India). There is a possibility that prices could move up later in the year after bulk of the 2019 RCN crop is traded. But the increase would be slow and gradual, not a big jump. Extent will depend on what levels RCN are traded between April and June.
 
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