Although the market is relatively quiet, the cashew market has a firmer undertone.
The reason for the firmer undertone is the fact that finally there has been news about the ‘old’ crop out of Tanzania. As a friendly reminder; the President of Tanzania decided early 2019 to buy the entire 2018 cashew crop from the farmers since he was unhappy with prices for raw inshell cashews that were paid in the international market. The actual truth was that the President had promised farmers, prices of around USD 1800 per mt in a market which was trading at USD 1400 per mt at that time.
Normally the crop in Tanzania is shipped in the period of November-February which is perfect for Vietnamese shippers since their own domestic inshell cashew season starts in February. Due to the actions of the Tanzanian President, Vietnam was denied the chance to import the 2018 RCN from Tanzania and the market reacted nervously and prices for kernels went up back then. Vietnam had to look elsewhere and started buying from many origins which eventually resulted in the fact that at the end of July 2019, Vietnam had imported a staggering 939,881 mt during the period January-July which in comparison to January-July 2018 meant an increase of 275,786 mt or 41,5% more.
For quite some months, Vietnamese shippers feared that Tanzania would come to the market to sell the ‘old ‘ 2018 crop. The fear was that the government of Tanzania would have no choice but to sell at any cost which would bring down the kernel market as a result. Tanzania had stored about 218,000 mt of the 2018 crop and the market knew these would be coming to the market sooner rather than later.
The news about the ‘old ‘ crop in Tanzania is that the T&T Group of Vietnam has reached an agreement with the government of Tanzania to purchase 176,000 mt to be shipped to Vietnam in the next 3-4 months. At the same time several shippers in India reached an agreement to buy 40,000 mt so the government of Tanzania took care of their problem (for now).
The Vietnamese cashew industry is very happy with this initiative of T&T Group since it basically means that the old crop will not get dumped onto the market but T&T Group will try to sell at market levels. That is why we have seen kernel prices stabilizing lately and even going up again. From BRC packers in Vietnam current prices are about USD 3,45 per lb FOB. From good packers (Not BRC approved) prices are 10-15 cents lower.
Can the market sustain these levels or do we see possibilities for a firmer or weaker market?
We are strong believers in looking at the supply/demand situation since in the end this decides the market, most of the time. However we realize there are certain forces that always try to influence the market and there are situations unforeseen at this moment in time that can also change the course of the market.
As mentioned, Tanzania normally ships during November-February to Vietnam. Harvesting of their 2910 crop has started or is about to start. The news about the new crop is that quantity wise it is a good crop so on top of the 176,000 mt which T&T bought and wants to (or must) ship to Vietnam, Tanzania is about to start harvesting their next crop of approximately 300,000 mt. On a side note; we hear good stories out of Brazil where the crop is estimated to be about 200,000 mt which is a very positive quantity in comparison to the last 5-6 years.
As mentioned, Vietnam has already imported 939,881 mt in the period Jan-July 2019. If we look at the period of August-December 2018, Vietnam imported about 550,000 mt for a total of 1,261,574 mt for the year 2018. If Vietnam were to import the same amount of 550,000 mt in the period Aug-December 2019, the total number for 2019 would end up at 1,4-1,5 mln mt. Even if Vietnam would ‘only’ import 50% of this amount, they still would end up at the same quantity as last year. Consequently we think from a supply side, there is really no problem.
The government of Tanzania is desperate for T&T to ship the entire quantity of old crop. They want the old crop to move to make way in the warehouses for the new crop. One can imagine that if T&T is not able to ship the 176,000 mt in the next 4 months, Tanzania will be forced to come to the market with their new crop, immediately competing with the old crop that T&T is trying to sell. If T&T is unable to sell the old crop at a profit and they see competition out of Tanzania with the fresh new crop, they may pull out of the deal all together leaving Tanzania with an enormous problem. Other Vietnamese shippers realize this as well so we think T&T might get support from bigger shippers in order to avoid the competition with the new crop out of Tanzania.
One of the biggest cashew market participants, probably the biggest, is bidding USD 3,20 per lb FOB to those Vietnamese shippers they also sell RCN to. So they are basically establishing a bottom in the market and hope for other shippers to jump on this bandwagon to create a firmer market. The smaller shippers in Vietnam do not have the funds to buy large quantities of RCN. Consequently the market in Vietnam is in the hands of only the bigger packers and as long as they pull together, the market might not come down.
On the demand side;
Exports from Vietnam to the USA for the period Jan-July 2019 are down by about 3% in comparison to the same period in 2018. Exports from Vietnam to the EU & other markets are up by 12,6%. Exports from Vietnam to China are up by more than 50 %. It seems that the trade war between the USA and China has a positive effect on Vietnamese cashews being exported to China as a substitute for the nuts (almonds) China normally imports out of the US.
Totally, Vietnamese kernel exports are up by more than 10% which is a pretty big number.
Considering the above, we feel both the downside of the market as well as the upside are pretty limited. On the supply side we do not expect any problems any time soon however main supply is in the hands of a limited amount of shippers, who are all looking for higher prices. On the demand side we belief that most roasters in Europe as well as the USA are pretty well covered for this year and are looking for the right time to start taking some coverage for 2020.
As a result the market might trade in a narrow range between USD 3,25 per lb FOB low and USD 3,60 per lb FOB high for the next few months.