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.