Cashew Market Outlook
By: Jim Fitzpatrick
(Please note that all views expressed in the “Cashew Market Outlook” section are those of Mr. Fitzpatrick and do not necessarily reflect the view of the African Cashew Alliance)
The past month has provided some answers on the eventual fate of the cashew trade in 2018 but not as many might have been hoped for. Cashew kernels have not recovered further and remain in the range of US$4.65-US$4.85 per lb FOB WW320. Prices from trusted processors for forward positions may be higher but there is very little trade to report.
Most of the attention has been on the raw cashew trade. Although much improved imports to Vietnam in July gave some cause for optimism, unsold/unshipped inventories in West Africa are at record levels for the time of year. Some estimates say this figure may be as high as 250,000 tonnes. High level delegations from some countries have visited Vietnam to discuss moving this inventory on but so far without success. Cote D’Ivoire proactively, has reduced export taxes to get product moving. For almost a decade, we had become used to raw cashews moving in the middle of the year so that warehouses would be empty by the end of August and the season could be wound up. Why is this different in 2018?
Firstly, India, the largest market in the World, had a record crop. The production officially reported is 817,000 tonnes up from 779,000 tonnes in 2017. This has not impacted Indian imports though. They are at 503,038 tonnes to end July up 11% on 2017. Indian cashew kernels exports are well down by just over 27% to end July – don’t panic India only supplies about 20% of the international trade in cashew kernels.
What about Vietnam? Vietnam too, had a better crop but remember Vietnam only grows about 25% of the cashews it processes. Imports to Vietnam are down by 17% to the end of July at 738,811 tonnes. That figure is only part of the story. For the first three months Vietnam’s imports were actually up by 19% so if we take the period March-July imports were down by 26% or 187,000 tonnes. This is the calculated reduction in Vietnamese demand from West Africa in a year when crops in Nigeria, Cote D’Ivoire and others are well up. The conclusion is that Vietnam needed fewer cashews from West Africa up to now. It had bought more cashews from East Africa especially from the bumper crop in Tanzania and also from Cambodia. These facts were made public by the end of March but many traders and governments were not aware of them. They acted as if the ever rising demand and prices were a given. Vietnamese processors acted logically by slowing their purchases down and then buying as the season progressed. Cote D’Ivoire as the largest supplier (31%) suffered the biggest decline with RCN trade with Vietnam down 19.5% to the end of July.
As shipments were slack and crops were good, in a market which started the year at some of the highest prices ever seen, prices began to fall. The problem of contract defaults and “renegotiations” set in as usual. This acts as a kind of multiplier meaning that, defaults create resellers under pressure for cash flow and prices come under more pressure. There are still shipments at destination ports which are being renegotiated at lower prices or seeking new buyers. Cashews which may have been shipped against contracts at U$1750-US$1850 per tonne Cfr are now trading at prices in the range of US$1300-US$1400.
What about demand for cashew kernels? It is no surprise that demand has come under pressure in 2018 as a result of the very high prices seen at the end of 2017. This has been more evident in price sensitive markets. In the US and Europe import tonnages have been resilient but demand at consumer level is reported down by 5%. There may also be a temptation among some buyers to defer deliveries of very high priced contracts made last year. Overall demand has weathered the storm of 2017 very well and the underlying trend remains positive for the medium to long term. Vietnamese exports of kernels are up by 17,000 tonnes but Indian exports are down by 14,000 tonnes. The drop in end demand is probably matched by a build-up of inventory at destination.
So where to next? It seems unlikely that the RCN market will shake off its current malaise until the landed/defaulted/renegotiated shipments are settled. This is further complicated by the declining value of the Indian Rupee which encourages processors to wait. The high prices and the undelivered contracts strain the cash flow and the willingness to buy on the part of international traders. The inventory at origin strains the cash flow of the inventory owners and causes quality to decline as it sits in warehouses at the ports. In the next 60 days new crops will begin to arrive. Indonesian material is offered at US$1850 per tonne Cfr for 53/54 lbs. The Tanzanian crop is forecast to be another good crop. Of course, neither the inventory in West Africa nor the Southern hemisphere crops are in place for processing yet so there is a chance that the log jam in the trade creates a raw material tightness sometime in the second half of October if no one ships new product until the old problems are resolved.
Kernels buyers will come back to the market to cover their needs for 2019. However, there is little incentive for them to act in a market which has fallen far and shows no sign of moving back up for now. It seems likely that they will wait until they get to a point in time when they must move for supply chain or risk management reasons.
It seems to me that 2018 has been a year when processors realised that the panic of 2017 did nothing but harm to their own businesses. That multi origin supply options in a year of good crops gives the option to switch from one supplier to the other and the opportunity to transfer the cost of holding inventory from the processor to the origin. Two destinations buying, many suppliers, record prices to start, good crops – all the signs were there from the outset.
Longer term this does not mark a return to low RCN prices and inventories carried from season to season weighing heavily on the holders and prices as seen in the past. It does underline the need to link policy decisions to long term trends and to the realities of the market through good market information systems.