Northern hemisphere crops are essentially over, and all eyes are on southern hemisphere crops, which are driven mainly by Tanzania, Indonesia, and Brazil. Tanzania starts the first of September and official opening is on September 8. The very first auctions are planned to happen October 14th. Altogether, this crop would probably reach Asian processors just before or right after the new year. Mixed news is coming in from Brazil; time will tell only if there are sufficient local crops to meet their commitments or if we need to, again, source West-African inshell for next year. Indonesia is a niche crop traded at premiums predominantly into South-East Asian markets.
Demand has been weak in August, driven mostly by the ongoing summer break in main destination markets like the US and Europe. Consumers continue to be very selective in their spending habits. Citizens have started receiving incentives by reducing VAT and taxes in certain European zones, which will hopefully improve consumer spending.
The main tender season for Europe is on the corner and most of the needs are for 2023 calendar year coverages. Suppliers are reluctant to offer for next year on current market levels as supply and base pricing remains unclear for now. So far, main processing areas haven’t applied increasing production costs in their ongoing season offers but they will need to calculate these extra costs for next year’s production.
Factors to Watch:
- Southern hemisphere crops on the corner with no clarity on pricing/size/quality thus far
- Europe is starting to get active and eager to cover for 2023 calendar year
- Remaining northern hemisphere crops inshell quality start declining quickly and is likely not able to cater high-quality demanding regions for the rest of the year without additional selection
- Consumption numbers are not great in August
- Retailer forecasts remain unclear for the rest of 2022 calendar year
- Consumer spending remains under pressure
July concluded the end of the 2021-2022 crop year. With that, the almond industry harvested 2.922 billion pounds and finished the season shipping 2.634 billion pounds. This is a 9.12%-year-over-year decrease. This fell behind last year’s 2020-2021 record 3.1-billion-pound crop where the industry shipped 2.898 billion pounds. Looking back historically, it is notable to remind those that may not recall, the 2019-2020 crop was a 2.5-billion-pound crop and the industry shipped 2.372 billion pounds.
The industry fought logistics issues all year long up until the very end, but ultimately could not overcome port slowdowns and a lack of equipment. As a result, the industry will carryout approximately 838 million pounds. The industry remains undersold for new crop at about 11% (assuming a 2.6-billion-pound crop), in comparison to a year ago, the position would be much closer to 15% which would be considered average.
Anyone that has been around the almond industry any length of time will tell you, the industry is resilient and will find its way back to balancing supply with demand. Already, the new crop is expected to be lower in production from 3.1 billion pounds in 2020-2021 to 2.92 billion pounds in 2021-2022, to now 2.6 billion pounds for 2022-2023. If this holds true, we will see a better balance of supply to demand before this crop year is completed.
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The 2022 pistachio harvest began in California with the earliest fields a few weeks ago and is now in full swing. Record heat is forecasted for the Central Valley over the next couple of weeks, which will help to accelerate the harvest. At this point in time, industry sentiment varies widely on the size of the 2022 crop, from sub-1.0 billion pounds to high estimates of 1.2 billion pounds. In just a few short weeks, we will have a much better feel for the size of this crop. Early indications are that sizing is slightly better than last year, but still smaller than an average year.
Outlook on Iran’s 2022 crop has trended down steadily since the INC conference in May. At the conference, Iran’s 2022 crop was forecasted at 110,000 MTs, which was down from their 2021 crop of 135,000 MTs. At this point, it looks like their 2022 crop will not even make 100,000 MTs. As a reminder, their 2021 crop of 135,000 MTs was considered a failure due to frost.
With Iran’s crop significantly impacted, the outcome of the US crop will be the main determinant of price moving forward. A crop of under 1.0 billion pounds would likely lead to bullish pricing, while a crop like last year’s 1.16 billion pounds or larger would likely have a negative impact on pricing.
July shipments were lower than expected at 29,969 tons. While shipments were 15% lower than last July, they were slightly better than the previous five-year average for July shipments of 28,680 tons. Exports were the big driver, down 22% versus last July. Due to the underperforming July shipments, our carryout projection has been revised upwards to roughly 135k tons.
Reported new sales in July were 19k tons and total supply is estimated to be 92% sold, with only 64,195 tons remaining unsold. With the fresh crop on the horizon, we anticipate that this remaining volume will be moved out soon at the current low-price levels.
While July shipments were disappointing, the California Walnut industry has still been able to significantly improve the position heading into the 2022 crop. The 2021 crop carryout was once thought to be more than 160k tons and achieving the current expected carryout between 130k-140k tons seemed entirely out of reach. The momentum gained over the last six months is promising and needs to be carried into the 2022 crop.
For the upcoming California 2022 crop, an unofficial Subjective Estimate of 791,000 tons was released by the California industry a few weeks ago. This indicates a 60,000 ton or 8% increase over this year’s 2021 crop of 730,000 tons. Outlook for China’s 2022 crop also continues to remain positive as growing conditions have been favorable.
With harvest upon us in the coming weeks, it remains clear that global supply will increase significantly in the coming crop year. With this at the forefront of our minds, it is important that the global walnut industry continues to focus on driving new product innovations and growing additional market segments with low penetration, such as ingredients. Given the low-price environment we are likely to be in for the near term, we encourage all our customers to include walnuts in their research and development, and new product development plans and conversations, as they will be able to rely on consistent supply and favorable pricing for the foreseeable future.
Wishing each of our growing partners and the entire California industry a safe and productive 2022 crop harvest!
USDA 2022 crop acreage reports growers planted 1,543,000 acres of peanuts this year, a decline of 2.7% from last year. FSA released certified acres on August 22nd at 1,447,265, including 20k already failed acres. This number is 8.5% less than the final 2021 crop certified acres reported in January of this year. USDA released the first official crop production estimate on August 12th, with production estimated to be 3.1M tons, down nearly 3% from their 2021 production number and close to 4% using the actual graded tons. Estimated production using the certified acres will be more in the range of 2.7–2.9M tons, down 10–16% from last crop’s graded tons.
The World Agriculture Supply and Demand Estimates (WASDE) report was release for July, and domestic demand, crush and imports dropped. US demand still seems sluggish, now down 1% crop year to date (August 2021 – June 2022). US exports also continue to lag compared to last year’s pace, down 18% crop year to date. The 2021 crop carryout is now projected to be at least 1.197 million tons (possibility to end with more than 1.2 million tons), with total demand down again, forecasted to be 3.04 million tons (domestic and export). With a carryout of 1.2M, the above-mentioned decrease in production should still result in a carryout somewhere around 900k-1M tons. There are, however, a few possible factors that could reduce that carryout: China entering the market, tropical storms delaying harvest, yield/quality issues, etc.
As of August 21, US crop conditions remain the same as the week prior at 69% good to excellent, with Texas still in mostly fair to poor condition. Georgia crop conditions are still rated a bit lower than Alabama and Florida, with just 70% in good to excellent condition (93% in AL & 76% in FL). Tomato Spotted Wilt Virus (TSWV) seems to be much more prevalent this year, which could potentially impact yields. Rainfall continues to be scattered from day to day. It is most pertinent that the growing region continue to receive rain into September.
Factors to Watch:
- Weather in the key US growing regions
- Demand, both domestic and export (especially China)
- Global production (China, India, etc.)
- US Dollar value and impact on US exports
- Commodity future...most specifically cotton
- Supply chain disruptions and challenges due to various reasons (COVID, etc.)
As the 2021-22 season ends, the carryout in Turkey will be around 110K as expected. We also expect inventories being carried in the destinations to be higher than previous years.
The new crop expectation has been revised upwards over the last few weeks – due in large part to a good late bloom and conducive weather. The wider market expects the Turkish crop to be more than 775K; internally, we are estimating 760-770K. Italian crop is expected to be better despite the drought worries. Azerbaijani and US crop, too, are expected to be above average. The Georgian crop has had some concerns due to heavy rains during July. The Turkey crop is slightly late – around two weeks and major flows are expected to start around the first week of September.
The TMO has declared 52 TL/kg as their sourcing price for the new crop. This translates to around $2.75/kg at the prevailing exchange rates – which we believe is higher than customer expectation across Europe. While TMO has geared up to buy more than 200K during the season, we expect the open market to trade at a discount to the TMO during early parts of the season. We have witnessed a few trades at significant discounts to the TMO price. The largest market player’s pricing will now be an important factor for the market to find an equilibrium.
The interest rates in Turkey have reached 30% - rendering the cost of carry too high to hold stocks for longer periods.
Currency, too, will continue to play a major part. The Turkish Lire has continued to depreciate against the US Dollar, where we currently see $1.00 US Dollar to 18.21 Turkish Lira. The current price levels continue to be attractive for a longer period.
We have witnessed some concerns relating to confectionery demand – indicating inflation/ recession concerns slowly weighing in. We have published reports suggesting a slowdown in retail demand in most of western Europe. However, we do not see any slowdown yet in other markets.
Most planners and buyers are communicating that their requirement will be stable for the next few months and might not show any growth. This has led in deferment of purchases for some buyers – especially when they see adequate supply for the next season.
The carry cost and liquidity squeeze from Turkish banks pose a challenge for traders/exporters to carry large quantities locally. This can add the bearish tone and exporters might cover only when physical stocks are needed.
Our view stays consistent for the last few weeks. We expect adequate supply for the next crop. TMO price levels have given a price range guidance to the market for some time. Though supply is in excess, the quantity TMO sources and subsequently the sourcing strategy of the largest market player will determine future price trends. We maintain that we do not see much downside to the current levels. The interest rates and currency will continue to play an extremely important role. We believe current prices continue to be attractive for longer coverage.
The harvest is largely concluded in South Africa, and the last leg continues in Australia. Shipments, both NIS and kernels, are in full swing from the origins. The Australian crop is nearing the projected market of 49K MT (-10% YOY), while South Africa numbers are expected to be around 64K MT for the season, which is 3K MT more than earlier this year (+4% at 41.5MT) as the origin is getting ready for the second season harvest in September. Typically, 25% of the crop is harvested in September and October from Kenya. China is also expected to go into harvest next month.
Quality from South Africa has been better in terms of farm yields and an average SKR compared to the last two seasons. The South African weather, and ideal climate experienced over the past growing season, has resulted in outstanding product quality across the board. We are seeing a decrease in quality for the Australian crop, especially from the areas affected by the flood.
Low NIS prices are triggering some late season demand from China, and volumes have started to move as China is opening after the lock downs. Many processors have sold inshell at below-kernel equivalent prices for quicker cash flow compared to kernel sales.
Most buyers of broken kernel styles (confectionary and bakers) are still buying hand-to-mouth, and the sales are continuing at a steady slow place; larger inventories of smaller kernel styles are beginning to pile up. The price gap between the wholes and smaller styles continues to stay at a historic high.