Demand for inshells was sluggish during October. Driven by lower kernel activity, many smaller processors have shut down their production facilities, resulting from significant disparity between inshell and kernel prices, forcing processors to sell at a direct loss each of their kernel load. Another driver for the processors is that Tanzania’s new crop opened well above expectations and has started to trade at those levels; an indication that further downside looks unrealistic and losses in each consignment is not viable. Other southern hemisphere crops have mixed news regarding crop size and quality. The Mozambique crop is unlikely to reach historical yields, and will likely end up with a 70K mt crop for the season. In Brazil, crops do not look promising and will likely reach only 100-110K mt.
With kernel prices at a historical low, we continue to see activity from main destination markets such as the US and EU. The Middle East remained active irrespective of the political instabilities in the region. This nearby demand stopped prices from dropping, and with less processors active, spot availability has become limited as well.
Destinations markets remain fairly uncovered for the 2023 crop year, and their main consumption season is just around the corner, indicating we will probably see increased activity during November. The impact and reaction of consumers in response to the increased cost of living looks to be less of an impact than what was expected, as consumption data shows we are not far from the peak consumption rates during the 2020 and 2021.
The almond harvest came to an end in October. Now, the huller and shellers are working overtime to move the product through and send it to the almond handlers for further processing.
During October, the Almond Board released the September shipment report. Crop receipts jumped from 264 million pounds received in August to now 978 million pounds received to date. While still trending behind last year by -8.4%, it is still early in the process, and we can see what a difference a month can make. One would expect to see similar gains to continue through the fourth quarter. The industry should have good insight into the crop size by the end of November, and most certainly by December. Most are still calling it to be somewhere between 2.5 billion to 2.7 billion; no risk there as the NASS estimate was 2.6 billion. Supply is trending down when compared to the 2021/22 season of 2.92 billion pounds, and 2020/21 season of 3.1 billion pounds. Either way, with a carry-out of 837 million pounds, the industry has work to do.
September shipments proved to be a disappointment for the industry as only 188 million pounds were shipped, down 17.2% when compared to last September’s 227 million pounds. Both domestic shipments and exports were off double digits. Domestic shipments were 51.72 million pounds, down by 12 million pounds or 19.33%, from last year’s 64.12 million pounds. Exports were down 16.42%, with 136.6 million pounds compared to last year’s 163.52 million pounds. New sales in September increased by 3.5%, at 240 million pounds, an 8-million-pound increase compared to September 2021.
Finally, commitments rest at 666 million pounds (an ominous number indeed) versus the 720 million pounds achieved by last year at this time.
Market levels remain at historic lows giving buyers confidence to book at rates competitive to other tree nuts creating a value equation conducive to increasing consumption at retail.
The 2022 crop harvest is all but over. The most recent Administrative Committee for Pistachios (ACP) inventory report shows the current crop receipts at 864 million pounds. An updated report will be released in the coming weeks and should reflect the final crop size, which is expected to be roughly 875 million pounds. This will end up being 25%, or 300 million pounds, lower than pre-harvest industry expectations of a crop size between 1.1-1.2 billion pounds. As just about all sellers were expecting a larger crop this year, and lowering prices throughout the season as a result, they all sold early to get ahead of it. This resulted in the industry being further sold than usual going into harvest. With the crop coming in much smaller than expected, all California sellers are now further sold than they are comfortable being this time of year. As a result, we expect pricing to remain firm at least until Q1 2023.
The strength of sales and shipments in the first half of this crop year will determine pricing in the back half. A large 2023 crop is expected, and nobody will want to carry-out large volumes from this 2022 crop year. The industry will need to be in a good sold and shipped position by the end of Q1 to keep pricing firm in the second half of this crop year.
The first shipment month of the 2022 crop season is officially under way. The California walnut industry is off to a decent start, with both shipments and commitments slightly higher than last year. Strong commitments are necessary, as the industry is focused on an improved start compared to last year. While commitments are currently 5.4% higher than this time last year, increased sales and stronger shipment months are needed to reduce the 2022 crop carry-out to a manageable level. Demand, however, has been hard to come by early in this crop year as many global factors are at play, including a record crop in China, weakening demand across nuts, and a strong dollar.
As price levels are already below the cost to farm and lowering the price any further will not likely improve demand, we expect downside to remain limited. The industry needs to put our full efforts behind marketing initiatives to help sell more walnuts.
Early industry consensus is that the 2022 crop will fall short of the initial 720,000 estimate. While this is painful for growers experiencing less yields, any reduction in walnut supply is a welcomed reprieve for the industry. Speculation is that the color and quality of this year’s crop will be down due to the record heat experienced at the end of the growing season. It is worth noting that quality across our small handle is better than last year so far in terms of both yield percentage and color, however, this is across a small sample size.
The 2022 US peanut harvest continues to move along at a very brisk pace. The USDA indicates that the harvest was 68% complete as of October 23rd, compared to the five-year average of 59% and 49% for the same time last year. Assuming the balance of harvest continues at the current rate, harvest this year will be completed in record time, at least compared to recent memory. The weather, though drier than most would have preferred for the last couple of months, has generally been favorable for harvesting. Hurricane Ian brought some beneficial rains to the Carolinas in early October, and a cold front brought a brief rain event through the Southeast a couple of weeks ago. West Texas even experienced a few days of rain around mid-October. The rainfall was a little too late to positively impact yields, but it did provide some benefit for harvesting by helping to soften what had become extremely dry ground. As of October 25th, nearly 1.7 million farmer stock tons have been graded by the Federal State Inspection Service (FSIS). Thus far, there are no substantial concerns regarding aflatoxin. Grades, while lower than last year, are still quite good. Everyone is hopeful that this trend will continue for the remainder of the harvest. Though difficult to fully quantify, the conversation regarding yields is not as favorable. Yields do appear to be lower than last year, and lower than what would typically be expected. In many cases, the peanuts look great when they’re first dug and inverted (lots of pods visible), but many are finding immature kernels and lighter weights, which translates to lower yields per acre.
Earlier in the month, the USDA issued a new crop production report. The latest report predicts production to reach 2.885 million tons. This is a reduction of about 40,000 tons from the September report, and a reduction of over 200,000 tons from their initial report in August. Based on feedback thus far from the harvest, most still feel that the 2.885-million-ton estimate is still too high. It seems that now the consensus is that the crop will be in the 2.7-million-ton range, with some even saying it might not reach 2.6 million tons. With yields being so inconsistent this year, it’s more difficult than usual to estimate where final production will land.
The overall supply for the season is adequate per the market estimates. During the EU Hazelnut Consultation Meeting conducted on October 17th in Brussels, the Italian delegation updated their crop size of 2022 between 80K mt to 87K mt, a significant decrease from the earlier estimate of 120K. This is primarily due to drought late in the season, although it has not made a material impact on the overall supply and demand.
The TMO has physically accepted 130K mt inshells, and the queuing to tender stocks amounts to at least another 70-80K mt. Overall, the TMO looks to be geared up to source around 250K mt for the season. This will significantly reduce the availability of crop moving forward. The principal market buyer has sourced aggressively in the last few weeks and covered almost two thirds of their annual requirement.
Turkish exports in September were around 20% lower than last year, mostly attributed to late crop, substitution of origins and weaker demand as well. We continue to witness weaker than average demand from many markets in Europe, China, and other markets. Several reports are now pointing to a decline in retail demand as well. Overall, we believe the demand will shrink around 5% during the current season unless we see a breakthrough in the Russia-Ukraine war, or an ease in inflation across Europe.
The Turkish Lira (TL) had been stable around the 18.50-18.60 level for almost one month, which is one of the longest periods of stability we’ve seen in the past few years. This is slightly surprising especially with inflation rates crossing 80%. The Euro (EUR) weakness has led the EUR-denominated prices to remain high despite a stable TL price, leading many European buyers to defer their yearly purchases and only cover for immediate requirements.
The next trigger to the market will be the total stocks TMO will be able to absorb till end of November. This will determine actual availability of material for further trade. We continue to believe US Dollar (USD) prices are attractive for mid- and longer-term coverage.
The 2022 crop harvest has mostly concluded in the growing regions, except for China where the harvest cycle takes place from August to November. For South Africa, the final crop size is reported to be 68.5K mt, which is an increase of 4K mt than what the earlier revised estimate. Kernel recovery this year is reported to be better than the average of the last two years.
The crop from Australia came in at 48.8K mt, a decrease in 10% compared to last year, mostly due to adverse weather conditions. The quality and quantity yields were below last year’s average. Kenya is also expected to close a high with crop exceeding 45K mt this year, an increase of 3K mt from earlier estimates. The last leg of harvest is still underway.
The harvest out of China is continuing and there are reports that the crop could be well over 60K mt for the season, which is almost double the size from last year. We will have the final numbers in November once harvest is completed. Despite the increases in production, the Chinese macadamia industry continues to face challenges such as a lack of uniform varieties, inconsistent quality, and poor crop management.
Processors continue to stay long on the broken grades (S4 and below) and differential between wholes and brokens continues to stay at a 5-year high. In terms of inshells, the market has been silent for the last month, due to high destination stocks and local crop harvest taking place in China. We continue to see the prices declining on inshells. All eyes are on the festive season in China, where demand is expected to increase, however, inflationary pressures and weaker currency may keep all in check.