The crop growth for the next season across origins looks above average. The late blooming has been above expectations in Turkey, and the crop expectation now is slightly better. The crop estimate has improved slightly from a 720-730K range now to 730-740K. Italian crop, too, is expected to be much better this year. However, drought in the last few weeks has raised some concerns on the yield and quality of the crop. We expect to understand the impact in the next one to two weeks.
With good supply expected, and that the demand for the current crop is limited, we continue to witness attractive prices for the old crop. However, availability is limited, as most farmers/manavs holding the stocks expect prices to move up once TMO announces prices for new crop.
For the new crop, the TMO is expected to increase the price to compensate inflation. The price increase announced for tea, which is another important crop in the Black Sea region, is 75%. The market now expects TMO to announce a price between 50 and 52 TL, which is around 20% higher than the current crop prices. We expect open market to trade at a discount though. Overall, we believe the opening levels for the next season crop will be around $5.25-$5.50/kg (raw material price available for exporters). The TL continues to touch new lows, including crossing the $17.50 mark most recently.
The supply availability for next season has given some comfort to the buyers and we expect prices to stay subdued over a longer period. However, if TMO purchases a sizable amount of crop in the early parts of the season and if Ferrero follows suit since the absolute prices are attractive, we should expect prices move up from the current levels.
We have seen some uneasiness from larger retailers/confectioners to cover for longer periods owing to some concern over demand. There have been some reports on reduction in confectionary demand in retail. However, call-offs for the most current contracts are on track. Most retailers are expected to open tenders during July and early August, and are expected to increase activity for the next crop trade.
Our view remains consistent for the last few weeks. We expect adequate supply for the next crop. Demand continues to be stable despite worries and inflationary woes, but we are experiencing some concerns from buyers to cover for longer periods. The next year pricing will now depend largely on TMO prices and subsequently how Ferrero operates. We do not see much downside from current levels as we expect TMO to set a benchmark countering inflation and a possible depreciation in currency during the next season. The currency will continue to play an extremely important role.
We believe current prices are generally extremely attractive, especially for any pending current crop coverage. We might not see too many offers from exporters before TMO releases its benchmark, but if offers are available, even at some premium to current crop, the levels look attractive for mid to long-term coverage.