Cashews Market Update - 10 March 2020

As this is the inshell harvest season, we start with the biggest producer of inshells in the world, Côte d'Ivoire (IVC).  As we explained in the previous report, the IVC government has set a minimum price for cashew inshells to protect small cashew farmers.

Unfortunately, kernel trades have happened lower than this price level due to various factors including:

• Spot inventory liquidation due to Coronavirus scare
• Overall lower demand for kernels for the past several months

Along with the above factors, currency/exchange rate fluctuation has also impacted IVC. The CFA Franc is pegged to Euro.  The Euro is strengthening, making IVC cashew inshells more expensive (by about 5% over the last few days). The IVC government is determined not to relent and is stated to be holding firm to its view that the minimum price to the farmer must be supported.

The world has started focusing on other crops temporarily; Ghana, Nigeria, Vietnam and Cambodia. Processors in Vietnam and India are unwilling to make forward commitments as the current prices of inshells are at disparity to kernels.

The situation in destination markets seems different as coronavirus fear-driven hoarding was seen in the past week and some users are reporting 30 to 60% increase in nut consumption. No one really knows how long the consumption increase will last. This sudden spurt in consumption has not translated to spot demand or buying, showing comfortable inventory position with end users. There is also an expectation that demand will improve if China - Vietnam trade flow resumes.

Possible Scenarios

Bullish

• Cashew kernel trading with China may restart soon and Chinese traders will have to fill their pipeline inventories. The current low price of cashew kernels could motivate such a move.
• Coronavirus led stockpiling in destination markets may result in unexpected demand (if sustained).
• IVC government’s reluctance to lower minimum price along with measures to stop smuggling of cashews across the border could result in kernel markets correcting upwards to match inshell price levels.
• Processors in Vietnam/India have sold kernels in anticipation of normal crop arrival and exports from West Africa. Delay in inshell shipments from West Africa due to shipping line capacity issues could result in a temporary squeeze in inshell availability.

Bearish

• If there is no follow-up buying by consumers after the current rush to stock up, we could see lower prices in second half of 2020.
• If IVC government decides to reduce their price expectation, we could see much lower inshell prices and hence even lower kernel prices.
• Crop could turn out to be better than expected.
• Consumption could drop across the globe due to macroeconomic factors.