Ingredients Market Report: August 2019
Well, we have a new UK Prime Minister, and Brexit is back on the agenda and at present it is hard to see how we will avoid leaving the EU on 31st October, come what may. Sterling is obviously taking a hit for this reason, and some forecasters are anticipating parity on the US$ and indeed the Euro. This will add 10-20% to all raw material prices, regardless of market savings.
US & China are commencing face to face negotiations over the escalating trade wars which ultimately are not good for either country or the world in general. The US are likely to cut rates again this week in an attempt to weaken the US$, it will also assist their treasury where public spending deficit is soaring, with all limits removed from government departments for a couple of years.
FX Monthly movement
- US$/ £ 1.21 down
- US$/ € 1.11 unchanged
- £/€ 1.09 down
We are starting to hear harvest news from most origins, and in general there are problems, although not huge in most origins. Challenges continue in allergen control and pesticide management. The changes to the organic import protocol from China is causing delays in supply and general issues, but we are working to overcome these.
Otherwise, we are pleased to be welcoming Jake Yerrell into the Unicorn commercial team, and sorry to be saying goodbye to Max Allen, who leaves mid-August.
Prices have stabilized now for old crop supply, although availability is getting quite tight. We will conduct our crop survey this month and report more fully then. But as previously stated, we see the GWS crop expectations to be declining, whilst Shine skin supply will remain fairly constant due to the continued strong domestic demand. A couple of new origins are investigating pumpkin supply possibilities at present, which might be interesting for 2020 supply. We will keep you informed.
All eyes are on Kazakhstan which is becoming the major supply region, and this area is once again suffering some weather issues, with drought impacting on the crop. This has rather reversed the price expectation which we had hoped might drop around 10% and stabilized the market. It seems at this point unlikely prices will drop further, so it might be prudent to cover your requirements, particularly with the FX volatility and Sterling weakness we are likely to experience.
In addition, China who traditionally bought all their linseed from Canada, has granted a license to permit Kazakhstan material to be imported, which obviously firms the market in this region where competition was less.
Finally we see golden linseed supply as quite tight, since the weak prices have discouraged farmers from growing, and Brexit has switch UK farmers to alternate crops.
Well it is still raining in India, confirming the lateness of the monsoon, and delayed planting. On a season where the crop was already short, and there is little/ no carryover it could have meant a rapid escalation in price, but this is not the case. With China well stocked and their crop due first, demand is steady and the market fluctuating due to the INR/USD rate only. But as already stated, new crop sesame will not arrive in destinations now until early 2020 due to the late crop and a clash with Diwali. In addition, it is going to coincide with the strong domestic demand for white sesame for the festival season in India where sesame sweets are popular.
It is potentially going to be a ‘rocky road’ ahead for supplies and prices and for the next few weeks, a real weather market.
Central America will be planting next month, we hope the higher prices and some political uncertainty in some regions will encourage farmers to return to sesame production, which has been in decline for some years. Otherwise prices are quite stable.
We are receiving offers now out of Ukraine and Poland after a long twelve-month break. But crop news is not fantastic. The season started dry in Ukraine, whereas in Poland, it started well, then was followed by excessive heat and no rain! Ultimately the crop is going to be bigger than last season, but not significantly so and prices have stabilized after initially dropping. The good news is there will be millet and it will be levy free.
The USA is offering new crop lower, but if imported correctly for consumption, not under a tariff code that implies it is going for sowing, will as usual incur a levy of around £110-120/mt, making it uncompetitive.
We have good GFSI facilities in Ukraine and recommend these sources for the coming season.
Despite market intelligence and reports to the contrary, which support firmness in the market, prices refuse to budge from the current lows, and we can only put this down to excessive competition in the kernel market where all facilities fight for volume and production efficiencies.
There is surely no reason not to cover sunflower now for the season, close the book, and wait for something to happen upwards.
So harvests are being collected in; Spain, Hungary, Turkey, Czech Republic, and whilst there is generally good volumes, it is perhaps a little disappointing yield wise. Time will tell, but the yield of seed compared to poppy seed straw for extraction is generally poorer than normal, taking the edge off volumes. But there is material and prices for supply of this seasons harvest will be lower, but supplies need to work through the system. This means seed needs separating from the straw, and then cleaning to a culinary quality. This all takes some weeks, so we must wait to see price pressure come onto the market. But it is coming!
It will be interesting to see how the more northern EU crops perform, since dry weather early in the season, and now more unsettled weather will undoubtedly mean reduced yields and potentially desiccation with glyphosate that causes issues for use in EU countries.
There is lots of chia around from Argentina to Peru, this season, although most is produced in Bolivia and slips across borders and is given new origins.
Some new supplies available out of Africa too, Uganda and Zambia in particular. Prices are weaker than last season, but demand seems somewhat quieter too.
Once again prices are off from the highs of last season, which were driven by expected demand from China after importation was approved. In reality this demand never really happened. China’s interest is mainly for coloured varieties. Peru has had a good harvest. Again, the concern is herbicide levels so buyers should insist on receiving pesticide residue reports relevant to the specific batch supplied.