Ingredients Market Report: July 2019
Well, I guess we all wait for …
- Outcome of Conservative party leadership contest and plan for Brexit
- Trump meeting Xi Jingping to discuss trade sanctions
- G20 outcome and forecast
- EU key roles candidates for European Commission Presidency and the European Central Bank, amongst others. The search is on for a compromise candidate!
FX Monthly movement
- US$/ £ 1.27 up
- US$/ € 1.11 unchanged
- £/€ 1.13 up
June is the lowest month for market info. We are just before the earliest new crops, and a long way from last harvest. Additionally, summer holidays are around the corner and on people’s minds. In UK generally planning for a possible eventual Brexit is impossible too, and global uncertainty that impacts on FX rates and thus prices are unpredictable.
Prices for old crop are steadily climbing and will continue until harvest in September/October. The demand is all for shine skin, and this will be the main product planted for 2019. GWS demand continues to dwindle and is likely to disappear if trends continue within a few years. As we work with our suppliers. Farm traceable/field traceable product becomes possible, but the market seems uninclined to support this initiative pricewise. Pesticides remain a constant concern, and we are surprised buyers still do not insist on analysis per batch for each lot of goods.
In August we will circulate our crop survey report as usual to give an indication of harvest expectations.
This crop is grown primarily for oil production, so the confectionery seed is the top-quality loads that are syphoned off. This is categorized by boldness and appearance of seed. Major origins are Russia, Kazakhstan, China & Canada. The later still has GM issues due to the variety Triffid, and thus does not reach the EU confectionery market. China is generally uncompetitive, so major supplies are Russian & Kazakhstan. There is some production in EU, but since the removal of subsidies the volumes grown are limited. Global production is around 2.5 million tonnes and the oil is used for linoleum, wood treatment, paints and as a plasticizer in putties etc.
Global edible demand is hard to determine, but we would estimate it at around 8% of global production. As a consequence, we rarely see a scenario where it is not available, and with a fairly wide supply base, plus being quite a hard crop and relatively competitively priced we see little variation in price. It tends to be more currency volatile. This season seems to be developing OK, but it really is too early to predict the harvest in September/October, harvest conditions and availability. Traditionally we can see the price spike in Jan/Feb, when the weather in the origins makes the logistics a challenge.
So, a late monsoon has already started to impact on next season, pushing planting back by 2-3 weeks towards end July. As a 90 day crop it is unlikely, we will see shipments until well into November for Indian sesame.
For the old crop, good white sesame prices remain constant, but cheap hullers who blend in the brown, double skinned or Bengali varieties will struggle to undercut the premium market since these lower grades have now jumped in price negating any benefit from blending they might have gained. These qualities do not impact on the product appearance but shorten the shelf life and discolour on roasting.
So for now prices will probably only fluctuate on the rupee/US$ relationship. We would hope for good areas to be planted this season, but for now it is all speculation.
In Central America, the stocks are running down, and suppliers are challenged by the stringent specifications of some buyers. Japan continues to be a steady, relatively undemanding buyer of seed from this region.
We fully expect Eastern European and EU supplies to come forward this season again. We see an increase in acreage of 33% in Ukraine, according to official statistics. In Poland/Russia we too expect good harvests. The USA material continues to attract a levy, compared to EU/Ukraine material where there is a quote for imports into the EU. Whilst importers continue to mis-declare USA millet, as ‘seed for sowing’ buyers see this as an attractive alternative, but it is an obvious breach of EU regulations and buyers should be concerned about potential demands from HMRC.
A smaller crop is expected in Bulgaria, and demand for new crop has been strong since price levels are at an almost record low. It is hard to see a reason not to cover sunflower forward now. For now, supplies and demand are full for the old crop. There is no carry over in stock or capacity, so a possible squeeze is on the books for physical supply in the coming 2 months. Really why wait? Cover 2020 demand now, prices cannot go lower in base currency terms. The USA/China trade war over soya etc. will impact on this market, along with the rapid escalation in demand from China for Bulgarian kernels.
We are right on the cusp of EU harvests, and all sellers are keen to keep prices up and grab some premium for early new crop supplies. For us the reality is there will be lots of new crop poppy available. The market will be unsettled for a couple of months, but come September, there will be lots of seed, and sellers falling over buyers. The challenge is going to be meeting buyers demands for pesticide/herbicide levels and alkaloid residue levels.
Many single origin traceable poppy supplies are available now, which fit better to buyers’ requirements.
It is too early to know what Australia will plant for 2020 delivery, but there is no shortage of poppy, as we see it, for the coming season.
The harvest in South/Central America is around now and so far, indications are that overall yield and quality are good. Bolivia in particular has good yield and the quality of material from here and the lower use of herbicides in the harvesting process mean it should meet EU targets. Paraguay is also looking at good volumes, but the harvest is a little later here and subject therefore to weather conditions, which are not forecasted as good. In this region Chia is a developing crop. As a consequence, prices have falling for new crop shipments so far. New origins are also coming to market out of Africa. Samples look good and supplies are available from Zambia & Uganda. We are monitoring these origins since we believe the pesticide residue issues will be significantly better.
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.