Most buyers of cashew nut kernels are sitting on their hands and watching the developments.
This is usual for a market showing weakness price wise. Is this the right decision? Time will tell of course, but several facts on pricing is clear:
- RCN prices are less than 50% of what they were during the past 24 months.
- Kernel prices are down 30-40% vs the average of the past 24 months.
- Demand has kept up during the past 24 months, despite the higher prices vs the years before the strongly risen prices.
- In a market that has weak kernel prices, kernel buyers typically change the strategy to hand-to-mouth buying, which is noticeable since not a lot of longer term contracts are booked, even though supermarkets are locking in some longer term contracts at today’s reality.
What are other observations we see, that we think are important to keep in mind, where we trust all of this will help you in making your decision to buy or wait on procuring your kernel demand:
1. The crops in West Africa are looking decent to good on volume and quality, but demand/uptake of volumes of RCN by the typical RCN traders is very slow.
2. Liquidity in the market is low, which is likely caused by two reasons:
> International traders have much less money (some have no money) due to their credit lines not being renewed after losing money last season (causing them not to repay the bank loans end of last season).
> The typical local traders are not very eager to jump into this market as they had big losses during the 2018 season by applying the same procurement strategy of 2017 crop, where the market only went up.
3. The government in Ivory Coast announced that they will strictly check on the RCN pricing and that exporters offering the RCN from Ivory Coast below the 1.300 USD/mton will be disciplined.
4. As trade of RCN is slow and pipelines in Vietnam and India are just filled for 2-3 month’s with their own crop, this might cause some supply issues from June/July onwards.
5. The Tanzanian crop is sort of a ‘cloud of uncertainty’ above the market. Rumors were that quality was not good due to wrong storage, we doubt if the quality is really bad as Tanzanian farmers know how to dry before selling RCN and goods are stored in usual warehouses, but over time it definitely loses outturn. Probably the quality would come down from a 51-52 to a 47-48 outturn, so still a quality which would be above average. Anyway big question mark remains is Tanzanian government prepared to accept lower prices?
6. What is the world processing capacity today? Due to financial issues (especially in Vietnam), quite a number of processors got problems with the banks and getting finance now is not easy with the additional requirements of the banks. It seems various kernel processing companies are trying to secure kernel contracts to use these as security to obtain a RCN purchase loan from the same banks that they defaulted on, and one is left to wonder what will happen with such kernel contracts once the RCNs are bought and the market starts to be ‘a real market’, because kernel prices of today are not in parity with the RCN prices of today.
7. As the kernel market is weak, buyers wait but have to buy at a certain moment. We are experiencing more spot demand and premiums be paid for spot product. When the market feels that we will be at the bottom, all buyers could jump in at once and prices increase rapidly.
So all in all we might not be at the bottom of the market yet but in our opinion we are close and it might be recommendable to take some additional cover.