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)
Happy New Year! It seems likely to be another interesting year for the cashew sector.
The year has opened with the unusual situation compared to recent years of plenty of unsold RCN in the market. In West Africa there are some old crop stocks remaining in most countries and most unusually the Tanzanian crop remains unsold in the hands of the government. The market has absorbed the impact of the lack of supply from Tanzania by using the inventories which were lying in Vietnam and India as well as some late shipments from West Africa. However, the overall supply as we enter the new crop in the Northern Hemisphere is unusually high. There are fears among buyers that the old crop and new crop will be mixed causing quality problems and inconsistency in the material which makes processing difficult.
Forecasts for the new crops are good to very good. The major producers such as India and Cote D’Ivoire may not have issued formal estimates but business people are reporting that both crops will be good. Some sources say that Cote D’Ivoire will produce a record crop. Could this be the year that Cote D’Ivoire consolidates its position as the largest grower of cashew nuts in the World? Elsewhere from Cambodia to Guinea the private forecasts are positive. Taken together we calculate that 2018/19 production will exceed last year by 5-6%. This is not much but adds in the old crop stock lying around and that figure could double to 10-12%. The outlook is for a very good crop and no supply shortage overall.
If correct, that would be enough to keep prices at the current levels but there is potential for a fall in price during the harvest season. Cashew kernels WW320 are currently in the range of US$3.60-3.70 per lb FOB origin. There is very little trading and probably some processors who would like to make some sales for March onwards.
RCN prices are very mixed. There are old crop lots offered and new crop forward shipments offered. Some lots are genuine old crop of good quality, some are not and some of the offers are probably based on mixing of old crop and new crop. This seems clear from the specifications offered. Offers are coming from exporters with stock, exporters anticipating new crop and speculators. Prices range from US$1350-US$1750 per tonne Cfr but these are offers to sell and not deal done. Based on these prices especially the higher quality/price end there is no profitable calculation even for efficient processors. Vietnamese processors in particular will be looking to make up some of the losses of last year. In this kind of market, with their own harvests on the horizon buyers in both India and Vietnam are likely to be very cautious in their approach. There seems to be very little buying interest from Vietnam, the largest importer ahead of their Tet holiday. In India buyers are few and limiting themselves to a policy of buying just what they need for now.
As previously reported the cashew kernels market demand was down in some key regions last year as a result of high prices and price volatility. Demand in the United States and the European Union, the second and third largest markets, was down. Of the major markets, only India grew. The poor performance last year combined with high crop forecasts is likely to mean that buyers will take their time before buying. They do have openings for new purchases but probably have cover until the new crop comes in so they can wait and see.
Longer term the current range of cashew kernel prices is attractive for buyers. If prices stay at or below the current range then demand will begin to improve later in the year. Given the underlying positive demand trends, demand growth may return quickly and the second half of the year may bring back the positive trends.
In effect we are still in the hangover from the illogical price party of 2017. Prices went too high and damage was done to demand, to processors and to some RCN traders. As a result, we expect finance to be tighter this year in the international trade. This could add to the problem of liquidating old crop stocks without undermining confidence in the quality at a time when RCN prices are already likely to fall to meet kernels rather than the other way around when kernels followed RCN up in 2017.This may mean a slow start to the international trading season. There could be an opportunity for African processors to procure good quality raw material at competitive prices whilst everyone else waits to see but a cautious approach may be best given the outlook.
In our view the first part of 2019, maybe even the first half, will see the RCN market trying to find its level. Government policy making could dictate how long that takes with questions to be answered regarding the minimum prices to be set in West Africa and at what point will Tanzania sell its RCN stock? Kernels demand should recover but the positives of that will only be seen in the second half of the year. This could be a rewarding year for farmers with big crops and for others who manage their risks well.