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)
Over the past month there have been very few developments on cashew kernels . WW320 prices are still in a range US$3.20 -3.40 per lb FOB origin depending on processor and shipping position. Buyers remain relatively well covered. Processors in Vietnam who expect a surge of buying interest once the summer season in US and Europe ends may be disappointed. Cashew kernels are still attractive for buyers in term of price. WW320 are less than 2% above the two year lows and almost 17% below the two year average FOB price.
Demand has been very good in Europe where the low prices have impacted demand.Imports are up by 15% this year to end of June. We do not expect that to be sustained throughout the season. The Indian market is steady and gearing up now for the festival seasons ahead. China, a medium size market for cashews, is well ahead of last year imports from Vietnam now at 34,000 tonnes. The only negative is US imports which are down year on year. They are forecast to end this year 6-7% down on last year. This may be due to the impact of high priced forward cover taken by roasters in 2018 and a fall in the use of cashews in new applications as a result of price volatility.
As we come toward the end of the cashew season in West Africa the RCN market provides a far more intriging situation. The season got off to a slow start. Processors were reluctant to buy as expectations were for lower prices, crops in Asia were good, there were fewer traders involved and in general they had less money to use to buy cashews.
The slow buying pattern casued prices to fall. Prices fell well below the equivalent kernels value and well below the minimum prices in a number of West African countries. Farmers and local traders held on , guided by price regulations that gave an impression that the market would rise. The price decline continued as the quality deteriorated in areas where there is no infrastructure for post harvest management of cashew nuts. Traders, farmers, regulators and analysts wondered when or if the buyers would arrive. They had become used to the frenzied buying of 2017 and early 2018. It was not to be.
In the early part of the season high old crop stocks and the better crops in Vietnam and a major increase in Cambodia gave processors in Vietnam the time needed so that they could stay away from West Africa as prices fell.As the season went on it became clear that there was plenty of buying being done. At the end of July Vietnam had well exceeded its imports of 2018. There was more volume from Cambodia, Cote D’Ivoire , Ghana and Nigeria. Perhaps a lot of old crop was shipped which meant that farmers did not see the buying for their fresh arrivals. Prices at the farm gate fell to levels not seen for almost ten years.
Indian buyers have been more conservative. They can afford to be as they had a good crop although lower than last year’s record. By the end of July Indian imports had just about caught up with 2018 at 350,000 tonnes.
For processors in India and in Vietnam the availability of RCN is no longer an issue in the short term. In the longer term as we look toward the end of the year they will be hoping for good crops in Tanzania and Indonesia to meet their needs. This season there is the complication of Tanzanian old crop still unshipped. The market has been full of rumours regarding the sale or some form of commitment of the remaining 250,000 tonnes. The rumours of a sale of 176,000 tonnes to a Vietnamese company should be treated with caution as experience with large volume deals in the past shows.
Assuming that demand continues at current levels the we calculate that Vietnam needs another 350-400,000 tonnes and India needs a further 450,000 tonnes. This must be met by afloat shipments, stocks unshipped in West Africa, Tanzanian 2018 crop , Tanzanian new crop and Indonesian new crop. Is there enough ? On paper probably there is but as always the position is likely to be tight. On the other hand it is a big expectation to calculate Vietnamese exports continuing at the current levels for the rest of the year. As is often the case it may not be whether or not there are enough cashews in the World but more whether they are in the right place when needed. Speculators have started to mark prices up. This is not unusual at this time of year. We may have seen the bottom of the market for 2019 but buyers of kernels may not follow if prices rise. Processors are unlikely to take a risk of buying high priced RCN preferring to reduce processing instead.
The end of the season is a good time to review production. Based on the latest reduced estimate figures from India we estimate that Worldwide cashew production was static to slightly down in 2019. Nigeria, Cambodia and Brazil produced better crops. Cambodia was the star performer and is likely to continue to increase but production is still below the fifth placed African country.
West African production continued to rise. Cote D’Ivoire, after a forecast of a record 800,000 tonnes, reduced the extimate to 730,000 tonnes. It seems now that production could have reached close to 800,000 tonnes. If correct, Cote D’Ivoire would again have reached the position of the largest producer in the World. Other regional start performers were Ghana, Nigeria and Burkina Faso. Benin had a slightly disappointing year at 115,000 tonnes down from initial estimates of 135,000 tonnes.
In the longer term it is clear that West African production growth has slowed. The five year CAGR is below 2% compared to a ten year annual average of more than 7%. Despite the continued fast growth expected in East Africa and Cambodia the outlook continues to be for a very tightly balanced supply and demand situation in the coming years. There will be another 2017-18 type boom/bust in the future if/when India or Vietnam/Cambodia has a poor crop.
In the shorter term the market looks more stable. This may change. For clues look out to see what is going on in Tanzania – will the old crop be shipped? Where will the new crop be stored? . Keep an eye on demand and shipments of kernels from Vietnam which we suspect may slow down. Look out for any weather issues on Indonesian new crop. Monitor remaining inventories in West Africa – whats left? Will it be shipped in 2019 or “relabelled” in 2020. The 2019 season may yet have a sting in the tail !