For southern hemisphere 2022 crops, Brazil seems to have a smaller crop than expected and will likely reach 100K-125K mt. In Tanzania, inshell collections will start by the beginning of October, with first auctions likely to happen in the third week of October. Altogether, the first signs on southern hemisphere crop sizes does not look promising, although it’s too early to make a judgment on final outcome and sizing across the growing regions.
For the 2023 northern hemisphere crops, it’s too early to make any statement or notice, as we enter a third year of La Niña. Crop sizes and qualities will heavily depend on the weather conditions during the growing and harvesting period.
The weaker demand from the beginning of the third quarter has improved during September. Forward demand is starting to pick up. One explanation could be that industry was using their pipeline coverages in the low demand period and now, with demand increasing, they are covering forward needs and gaps in their pipelines. The origin processors had reduced prices heavily during early third quarter to rotate their inshell arrivals and still act in this model for nearby requirements. For forward interest, industry is not keen anymore to sell well below replacement costs. Additionally, the impact of energy is now as well impacting kernel processors, hence their appetite to continue selling at current levels is nonexistent.
Factors to Watch:
- Southern hemisphere crops are, thus far, not promising in size; final quality and opening prices are key for market direction.
- Fourth quarter and forward demand has started picking up as forward pipelines remain low.
- Current spot pricing is at a 15-year low; how much longer can the processing industry lose in each consignment?
- Cost of production has started to impact major exporting regions.
- Consumption numbers for September are lower than expected.
- Destination industry is challenged with increasing cost of production and unclear forecasts from their customers.
- Despite government trying to utilize incentives, especially the EU, household spending pressures continue.
California began the new crop year with 228 million pounds shipped. Historically speaking, this is the strongest August we’ve experienced, and has even exceeded the most optimistic outlooks for the crop year. Growers have gained confidence in the market and are hopeful for a strong fourth quarter for this year.
August receipts were less than expected with 264 million pounds, down 15% compared to last year at the same time. It should be noted that while harvest began a little earlier this season, the pace of the harvest has been slower thus far. As a result, judgments regarding the crop size should not be shared until we know more. In fact, it will take several more months to better determine this year’s crop. Currently, it may range anywhere from 2.5 billion to 2.7 billion pounds. Last year, we saw 2.92 billion pounds harvested.
New sales for August were 195 million pounds, up 42% from last August’s 137 million pounds sold. Meanwhile, commitments thus far are down 14% versus the same time period last year.
Exports were the month’s shining star with 162.8 million pounds shipped, beating last year’s record of 140.8 million, an increase in 15.7%! All major export markets, apart from India, reflect growth. Domestically, however, it is a different story. Shipments were 65.4 million pounds, down 1.67%, or a million pounds, compared to last August. More so, domestic sales for all last year were off by 5.4%, down from the previous year. A trend everyone will be watching out for in the months ahead.
The final shipment report of the 2021 crop year was released by the ACP last week. The 2021 crop carryout stands at 354 million pounds, which is an increase in 70 million pounds (or 25%) compared to last year’s carry over of 284 million pounds. The carryout is down considerably from the originally anticipated 450+ million pounds earlier this year. However, it is important to note that some volumes have been shipped unsold overseas to destination markets.
The 2022 crop is considerably smaller than we expected, with current industry expectations around 800 million pounds, compared to early estimates of 1.1-1.2 billion pounds. Last year’s total supply was 1.45 billion pounds (1.16-billion-pound crop and 284 million pounds carryout).
The Iran crop is also down considerably, with expectation currently between 70k-90k MT. This is down from last year’s crop of 135k MT, and the earlier forecast of 110k MT given at the INC conference.
Given the supply shortages, all sellers are currently off the market, and we expect pricing to firm. Wonderful’s opening price will be released this upcoming weekend, which will heavily determine the way forward for pricing.
The 2021 crop year finished strong with record shipments in August of 36,546 tons, beating the previous record for August by 11%. The strong shipments in August could be an effect of the lag experienced in July, due to protests at the port. Exports, the biggest driver, were up 52%. For reference, exports were down 23% in July. Preliminary 2021 crop carryout stands at 136,673 tons, pending an expected minor adjustment by the USDA in the coming months. The carryout matches our forecast provided last month.
The 2021 crop year was one of the most difficult years the California Walnut industry has faced. While shipments started off very slow, they finished strong. Carryout expectations for this crop year were once as high as 160k tons, so to finish at 136k is a victory. With the challenging 2021 crop year finally behind us, we now turn our focus to new crop, and a lower supply forecast for the 2022 crop. The Walnut Objective Estimate was released by the USDA on September 1st and came in at 720,000 tons. This is 9.0% lower than the Unofficial Subjective Estimate of 791,000 tons released by California handlers in late July. It is also 1.3% lower than the 2021 crop of 729,770 tons.
With a lower supply forecast in California and prices currently lower than most of us have seen before, demand is starting to pick up. The Walnut Industry’s focus should remain to sell and ship as many Walnuts as possible to have a manageable 2022 crop carryout, as these large carryouts are not sustainable for such a perishable product. As the outlook for China’s 2022 crop remains positive, it is likely that pricing upside remains limited for the time being. However, it does appear that we have found a bottom and the bleeding has stopped.
The 2021 crop year reporting period is now closed and we’re on to the 2022 crop. The most recent Peanut Stocks and Processing report indicates that there was the equivalent of 1.181 million tons of 2021 crop farmer stock carried forward into the new crop year. The report indicates that edible usage by US manufacturers was down slightly (-0.6%) versus the prior crop year. Usage for peanut butter was down -2.7% and usage in snacks was down -4.0%. A 13% increase in usage in the candy segment helped to offset the declines in the other major segments. Keep in mind that the industry reported record combined usage in these segments the prior year (2020 crop), so although usage was down slightly for the 2021 crop year, it is still the second highest combined volume ever recorded for these segments in the Stocks & Processing Report.
We also received final export figures for the 2021 crop year, and an updated World Agricultural Supply and Demand Estimates (WASDE) report that provides some final information for the 2021 crop year as well as a glimpse into what the government is expecting for next year. US peanut exports for the crop year were down about -17% versus the prior year. As mentioned in earlier reports, the year over year decline is almost exclusively due to a decline in exports to China, which were off over 60% versus the prior year. With all sectors and segments considered (US domestic edible, crush, feed/waste, and exports), the WASDE report indicates that demand for US peanuts was off about -5% versus the prior year.
Taking a quick look outside the US, there’s nothing substantially new to report that we haven’t already shared. The size of the new crop in China is still a mystery. Most sources indicate that production is down versus last year.
Factors to Watch:
- Weather during the remainder of US harvest. Keep an eye on the tropics as we move into late September and early October.
- US crop production...quantity AND quality.
- Peanut production/planted acreage in other major producing countries (China, India, Argentina, etc.).
- Demand trends, US and globally
- Fiscal policies in the US, the impact on the US dollar and trade. With further interest rate hikes almost a certainty, the US dollar is likely to remain strong versus other major currencies.
- Futures pricing for competing crops…specifically for 2023. The peanut industry will need to be sure enough acres are planted in 2023. Another significant decline in acreage would be problematic.
- Global conflicts, issues, etc., and the trickle-down impacts they have on demand, food supplies, and supply chains.
Overall supply for the new season is adequate. Turkey crop expectation is around 770-780K MT – similar to last year. Smaller origin crops are believed to be average, while the Italian and US crops are expected to be better. The TMO declared a price of 52 TL/kg - this translated to around $2.75/kg at the prevailing exchange rates. We have seen most farmers queuing up to sell to the TMO. It is expected that around 50K MT have been accepted by TMO and another 100K MT in queue to be supplied during October. Due to large supply and the limited ability of TMO to absorb stocks, the open market has traded at a significant discount to the TMO levels.
The largest market player has declared a price of 48 TL/kg and has also sourced a significant portion of their annual requirement during the last few weeks. They were expected to commence their kernel procurement this week but have yet to declare its sourcing level. This has led to some nervousness in the open market leading to a slightly bearish mood. As prices fall, however, the propensity from farmers to sell too has reduced, and they are expected to hold on to stocks rather than selling at levels which are significantly lower than the TMO price.
The interest rates in Turkey have been upwards of 40% - rendering the cost of carry too high to hold stocks for longer period. Currency will also continue to play a major part – The TL has continued to depreciate (though not as sharply as earlier) against the USD and has now reached the 18,50 level. The current price levels continue to be attractive for longer period coverage in USD terms. However, EUR has fallen almost 10% against the USD in the last two months, thus negating the TL devaluation to many customers in Europe.
We continue to witness some concerns relating to confectionery demand – indicating inflation/ recession concerns slowly weighing in. Some reports suggest slowdown in retail demand in most of western Europe. Most planners/buyers are communicating that their requirement will be stable for the next few months and might not show any growth. We have observed many purchase managers deferring their purchases. The carry cost and liquidity squeeze from Turkish banks might make it difficult this year 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 remains consistent with the last few weeks. We expect adequate supply for the next crop. Though supply is in excess, now that TMO has sourced significant quantity, we believe the availability in the open market will slowly reduce. 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.
Over the past few years, we have seen a steady increase in the crop supply, not only across major origins like South Africa, Australia, China and Kenya, but also some of the upcoming new plantation regions like Malawi, Zimbabwe, Mozambique and Zimbabwe. The 2021 final crop number was reported at 241K MT (inshell), +10% YOY. Crop estimate for 2022 stands at 271K MT (NIS).
The 2022 Crop harvest has mostly concluded in all the regions. For South Africa, kernel recovery this year is reported to be better than the last two-year average, mainly due to favorable weather conditions and rainfall throughout the season across most of the producing regions. South Africa numbers are expected to be around 64K MT for the season which is 3K MT more than earlier forecasts.
It was a delayed start of the season for the Australians due to adverse weather conditions. The crop harvest is expected to complete by the end of September. Shipments out of Australia were delayed this season and the quality/yields have been below last year’s average. Australia crop looks to be on track with the projection mark of 49K MT (-10% YOY).
Kenya numbers are also expected to grow more than the forecast provided earlier this year (+4% at 41.5KMT) as the origin gears for their 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. China crop number is forecasted at 47K MT for 2022, however, the origin has historically struggled with poor farming practices and lower yields. As a result, the crop number has been stagnant for the last three years at around the 29K MT mark.
Many processors are long on the broken grades (S4 and below) and differential between wholes and brokens has increased in the season. Reduced price on broken styles has helped to trigger demand with increased macs inclusion in mixed nut SKUs. This should help to move the pending inventories in the festive season. The price gap between wholes and smaller styles continue to stay at a historic high. In terms of NIS market, we have seen China demand picking up for the festive season, partially fueled by historically low prices.