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)
During the past three weeks the kernels market consolidated in or around the prices which were established by the short covering after the halting of Tanzanian exports. Prices for WW320 are steady just below US$4.00 per lb for products from top processors. However, neither major buyers nor the top processors have been active in the markets recently so it looks as if we will see a quiet end to the year. Trade of RCN has been limited too. The absence of Tanzanian offers in the market as the bridge to the new Northern hemisphere crops initially firmed prices. Some inventory stored at the processing destinations moved and some contracts were made for new shipment from inventory in the RCN exporting countries of West Africa. The steadier prices have not stimulated a lot of buying activity despite higher exports in 2018 from Vietnam and higher consumption in India. Prices ex warehouse at destination for RCN range from US$1300-US$1750 per tonne depending on origin and quality with some lower quality lots available at lower levels. There is no indication that the remaining inventory will move in the short term.
2018 will end with inventories at origin at the highest level for many years with carry out stocks in many West African countries notably Cote D’Ivoire and Nigeria. In Tanzania with 160,000 tonnes in the warehouses and the stated aim of the government to only export this as processed material that too should be added to the inventory until such time as a real processing plan is in place or the product is offered for sale as RCN. From a Tanzanian point of view there must be some concern that the new crops will come in early narrowing their window for sale at the type of prices which the quality of the material deserves as it joins the 2.8-3m tonnes which will be harvested February-June 2019. Overall the inventory represents around 15% of the global crop. Of itself, that is not a huge concern but the fact that it will most likely still be unsold when the northern hemisphere crop is coming in means that there could be an impact on prices. This could put downward pressure on RCN export prices in Mozambique too where another good crop is coming in.
There are forecasts from one or two market reporters that crops will come early in 2019. The basis of this conclusion is not clear. We wonder if there is an element of information manipulation in these reports given that many processors in Vietnam, traders and end roasters users of cashews are short or have still to cover their needs. It seems likely that processors will not be as adventurous in 2019. Buying may be cautious on RCN to begin with as that is the strategy which worked in the second half of 2018. This could put pressure back on prices and the gains made in the recent weeks could easily be eroded on RCN. Just to mention this scenario assumes good crops in Vietnam and India – any issues with the weather can change the position radically. It will be important for decision and policy makers to have accurate reports on those crops in good time.
In 2018 demand growth in most markets came to a standstill and we will most likely see import figures flat to slightly down for the year. It is true that Vietnamese exports are up but let’s not forget that Indian exports are down. Important consuming markets reacted to high prices in 2017 and early 2018 by reducing cashew consumption. 2018 will be only the second year since 1985 when cashew demand contracted. This is not surprising when we recall that at one point WW320 touched US$5.25 per lb FOB. Nonetheless it is worth considering that even in the extreme volatility of 2017 and 2018 demand was relatively resilient which bodes well for the future. Stable prices especially if they can remain below US$4.00 per lb WW320 could stimulate a recovery in growth in 2019. Prices much over US$4.00 per lb or a very volatile season could have a lasting impact on demand growth.
Looking back on 2018 it has not been an easy year. Processors have had some difficult times and they will be looking to get back to profitability in 2019. RCN traders probably suffered the most in a year when they saw prices fall throughout the season; many contract defaults often in the disguise of quality problems and a financial squeeze emerge as the season progressed. Roasters perhaps had a better year than 2017 but they will have seen volumes reduce and margins tighten. It was a year when the potential impact of Vietnamese buyers in the market was underlined by their withdrawal from the market in April and a string of contract defaults later in the year. It was also a year that governments may have learnt that their policy decisions both long and short term should be linked to good market information.
At this point in the year, there are plenty of reasons to wait so we expect buyers and sellers to do so. It will be interesting to see how the Tanzanian situation evolves in the short term but the big issue now is the size of the new crops, their timing and in West Africa how governments will manage minimum prices and export taxes.