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)
Last month’s report finished on the optimistic note that we would know the direction of the market within a few weeks. The fact is, that in a very slow start to the season, we are not at all as advanced as hoped for. The rest of the year looks as difficult to predict as it was a month ago.
In the past four weeks the market has improved in demand for cashew kernels but not improved at all in price. Prices for RCN have declined and continue to look weak. Buyers for both kernels and RCN have been few. Kernels buyers have been content with the cover that they already have. They wait to see how the harvest will evolve before coming into the market again. Processors have been active buying their own domestic and regional crops but have not ventured into the international market in any meaningful way so far. In summary, volumes at all levels of trade from RCN to processing to kernels are well down on expectations.
RCN prices have dropped to a lower range of US$1100-1400 per tonne Cfr Vietnam/India depending on quality and shipment which is about US$100 per tonne lower than a month ago. Prices are now below the levels of 2015. Kernels WW320 prices are at 2 year lows and only 9% above five year lows. WW320 prices are in fact at the same levels that they were in 2012 after the last big price rally of 2010/11 and where they stayed for the following three years. Those were three years in which the highest sustained growth in demand was seen. That may be of little consolation to a processor with a warehouse full of kernels today especially if they are cashew pieces. It is an indication that we may be at the end of the price cycle which resulted for many in the nightmare scenario of the last quarter of 2018 when high cost inventories just would not sell and traders of RCN and processors took a bad beating as we have commented on here before.
It seems that the lessons of 2011/12 were not remembered by many. The question must now be asked as to what will be the impact of the recent “boom/bust” cycle on cashew prices? In the short term it appears that there is a much more cautious approach from traders, processors and financial institutions. Even roasters , who may have fared better than others have adopted a cautious buying strategy as their customers have not yet seen or responded to lower market prices. Governments in their sector regulation policy seem likely to come under some pressure to be flexible. Some set what appeared at the time to be workable farm gate prices only to find the market lower within a few weeks . Others like Guinea Bissau with a price of CFA500 per kg seem overly optimistic especially if this is combined with export taxes and an inefficient/high cost export infrastructure. Some governments missed out completely on what was happening for a variety of reasons such as in Tanzania which still holds more than 250,000 tonnes of RCN unsold.
The situation now is that a good to very good crop is being harvested, old crop inventories largely remain in play, processors have not yet come to the market for imported RCN with a knock on effect all the way to the farm gate and roasters wait just to make sure that they have orders for raw material they may buy and that they do not buy in a falling market. All of these are an impact of the volatility of the past two years.
Looking at the risks it seems clear that the kind of volatility that was manageable (just about) when the production was circa 2 million tonnes only 10-12 years ago has a far greater impact now when production is 3.5+ million tonnes. This is especially so when most of the increase has been routed through the RCN trade from West Africa to Asia which has its own peculiar risk profile. We should remind ourselves that the RCN volume doubled and the prices trebled in twelve years.The sharp price rises took a toll on demand in markets where there are alternative products like Europe and North America. The dramatic fall back in price has taken a toll on the RCN trade and on processors. Many RCN traders and some processors remain in shock.
There are signs of the beginning of a recovery in demand. Cashews have not become unattractive to supermarkets or consumers but the constant see sawing of prices is risky and jeopardises future growth. It is possible, even likely that the second half of the year will be a period of a return to growth. However, between now and then there will be some challenges for the RCN trade and for the regulators that seek to manage it.