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 cashew market weakened during October as the weight of inventories in West Africa and Vietnam caused RCN prices to fall and kernels were lacking buying interest as expected. The situation has changed in the first two weeks of November as the Tanzanian cashew season has turned into an unexpected and quite farcical situation and kernels buyers have come in to take some cover for next year.
WW320 FOB from the main exporter Vietnam, are now in the range of US$3.50-3.60 per lb FOB for near shipments from small/medium processors and US$3.80-3.90 per lb FOB for forward shipments from top class certified processors. The unusually wide spread of prices between the two is an indication of the pressure on small processors to move product to turn inventory into cash as compared to larger processors who have some sales and are a little cautious until we know more about new crop forecasts.
The buying interest was widely expected as buyers reach the next window for cover in what has been a cautious and minimal buying strategy since prices hit the highs of 2017 and then started the long fall. Kernels prices are today about 30 cents per lb above the lows seen in October. In general terms the market demand has done well in 2018 with the expected falls in demand fairly minimal despite the very high prices. If prices are maintained at current levels or even a little higher and if stability returns then we can expect that demand will grow positively in 2019.
The Tanzanian RCN market has recently been thrown into turmoil by political intervention which has seen the Warehouse Receipt and auction system abandoned in favour of direct purchase by the Government. It now appears that the government will purchase the entire crop forecast at 300,000 tonnes (with almost 100,000 tonnes already in the warehouses) at a very high price of Tsh3300 per kilo or approximately US$1439 per tonne. This equates to a cost price of about US$1725 per tonne Cfr India or Vietnam which seems unsustainable in the current market circumstances. It also means that the Tanzanian Government must find about US$450m to pay farmers. Longer term, the problem is that there does not seem to be a plan to sell the crop either as RCN (price being the problem) or as kernels. It would take about 20 years to process this current crop alone in Tanzania based on current processing capacity.
Traders with unsold stock in Vietnam and India are the main beneficiaries. The delays will allow them to reduce the unsold inventories and possibly to move the balance of the stock which arose as the market fell before the northern new crops starts in February. Holders of inventory in West Africa may also benefit as stocks in Cote D’Ivoire and Nigeria may again be in demand. However, the upside is limited as Vietnam is well covered and India, although still with RCN to buy, has passed the peak demand period of Diwali. It is notable in recent days that there has been a huge media effort by interested parties both official and commercial to publicise the impact of the Tanzanian problem. This may be more related to their own need to sell than to the reality of the market.
The Tanzanian crop accounts for about 8.5% of World production which arrives as high quality material during a period when the rest of the World is out of season. However, 2018 is different in that there are large inventories of unsold and defaulted RCN available which can cover the gap in volume although perhaps not the gap in quality. There may be an impact in India but for now at least Vietnamese processors have little interest in the Tanzanian situation.
Meantime, on a positive note, the crop is progressing in Mozambique and a new modern record is forecast. Processors are buying at prices which are improved for farmers and may further improve as the season progresses. Processors will welcome the opportunity to buy at prices which make sense after a tough season 2017/18.
Current forecasts for crops in the Northern hemisphere are positive. Another good crop should keep prices stable in the current range. Prices for kernels may come under downward pressure during the harvest seasons but should recover later next year as demand strength returns to the markets.
2018 may be remembered as a year when Government intervened in the cashew market without real understanding of the market or the impact of their actions. It is no surprise that raised export taxes were followed by lower farm gate prices at a time when the market was in correction mode from all-time highs. Nor can there be any surprise that prices cannot be dictated to processors by a government who seems to have little understanding of the current market trading conditions and supply/demand let alone the long term working of the market. There will be further challenges in February when price levels are set for the 2019 harvest. Ironically in an effort to improve farmer process and to stabilise the market many interventions at government level have had the opposite effect.
As usual the cashew market throws out challenges to even the most experienced stakeholders and analysts. Just when it appeared that the market was about to return to a healthy trading pattern further volatility appears in Tanzania. The key to progress is in a stable market with predictable price moves in line with the supple/demand fundamentals, contract fidelity and governments providing an enabling environment for international export/import. Today buyers and investors will be looking at their 2019 plans and wondering if cashews are more trouble than they are worth.