Ingredients Market Report: July 2020
It’s surprising to see all currencies unchanged on the month, despite some strength in the pound during June. There is a lot of activity amongst Chancellors and Central Banks to stimulate the various economies out of the COVID scenario, but potentially the impact will be relatively neutral as all will purely look to stimulate their respective economy. Perhaps more concerning is will there be a significant second wave somewhere in the world? The hang over of financial stimulus is also going to be a major concern and how economies deal with this. Will we enter a period of inflation or deflation, as some EU adviser fear? What effect will increasing unemployment have on demand. Are consumers ready to spend again? Governments will create activity through spending on infra structure projects or QE to some extent. But if China is leading the way post COVID there is good economic news as their manufacturing is rapidly recovering, although export demand is still significantly down.
In the end, I do not think anyone can predict the FX impact for the coming months. So, stay covered!
FX Monthly movement
- US$/ £ 1.23 unchanged
- US$/ € 1.12 unchanged
- £/€ 1.09 unchanged
A slow month for demand, but at least stable as we all get used to the COVID supply scenario. In general, we have seen a push back in demand for most items, extending customer cover further forward and reducing purchasing requirements. Consequently, origin markets, many still struggling with lockdown have drifted lower impacted by a lack of demand, forward orders, and logistical issues on top of approaching new crops and likely carryover of stocks.
Organics continue to be a challenge on supply, and we see this continuing until new crops are available in the autumn.
The slow down in demand has allowed the market, which previously was quite well balanced, drift lower in the past weeks. This has led to their potentially being carryover stocks for next season. For GWS in particular this was unexpected since with a continually declining crop the situation was in balance. Turning to then new crop, planting has occurred but we are advised the crop is behind where it should be at this time of year. There is time for it to catch up however since this is only weather related at this time.
Overall, we still expect total GWS harvest to be below last years 8-9000mt, but the strong demand for shine skin will potentially increase this grades availability. On quality it is too early to tell, but it is unlikely to be better than last season, and this will reflect mainly in the quality of SS A. Buyers have got used to a high percentage of SS AA kernels in their A grade consignments. Since A grade is an uncontrolled quality, this variability leads to significant price differences. (The AA grades are government controlled on the percentage of different type of kernels, whereas the A grades are not and thus can appear very different visually with wide price variability).
As usual dry weather in Kazakhstan is threatening what looks like a good crop of linseed. Some local showers are expected soon which should help alleviate this issue somewhat. So, at present with similar yields to last year we would hope for declining prices. It is again too early to talk quality of the product. But hopefully the news is broadly good on the supply side.
The whole complex has drifted downwards driven primarily by a huge reduction in demand by China, but also by other countries throughout the lock downs being experienced. Africa where some smaller origins harvest now has reacted to the decline in demand from their biggest buyer by dropping prices to unrealistic levels trying to stimulate demand, which has failed to materialize. India, who had a good summer crop are also suffering from lack of demand, but do not have plentiful stocks considering new crop is still 4-5 months away from harvesting. So, we would expect prices to remain stable, or even increase if demand jumps up. There are some supply issues in EU, with importers reneging on some contracts of both hulled & natural seed, causing some distressed parcels, normally from lower quality supply bases to be offered cheap on a spot basis.
There is no doubt a lot of sesame around at present, but much of it is lower grade material, blended with cheaper poor performing qualities or of a mixed nature.
In Central America, the COVID situation continues to deteriorate, impacting supply chains. Demand for these premium origins dropped dramatically in EU as the fast food restaurants closed without warning. There is a backlog of stock to work through, which will take some time, and thus weakens demand for the nearby. The new harvest gets planted in September and if demand and pricing does not return, we could see a smaller crop than usual planted.
Generally, the market is feeling the EU will not renew its October quota for millet from Ukraine. This will lead to a price adjustment from Ukraine to hopefully allow them to continue to compete in the EU. For 2021 there maybe a new quota for the EU, but what about the UK? For now, though, as with Kazakhstan the conditions are favourable and millet crop looks like about 12,000mt in this region. In Poland, the crop was planted late due to unseasonal cold weather, so harvest end August/early September. The USA is still unclear, with very limited availability for this season. The new crop could go either way at present. The hot dry weather is not good for the harvest, but there is still plenty of time for rains to save the situation. Whatever it will not be ready until early September. USA farmers tend to hold millet since prices increase through the seasons, so whilst an adjustment lower is likely, it may not be as big as some might think.
Old crop remains firm, and in many cases, shippers are sold out for this season. The firmness is due to strong demand for vegetable oils, and the pickup of demand from China for kernels. New crops are offered at significant discounts. Partly due to slow demand due to COVID lockdowns, and also aggressive offering, as usual from Bulgarian smaller shippers. There is a slight concern that Russia’s current export ban on sunflower seed could continue and impact global supplies, but for now we must wait and see.
Harvesting has started in some parts of Central Europe, and crops look favorable so far. Prices for supply from this crop are looking lower for the new season. We are yet to see the quality of the seed, however. As usual there will be a split between different morphine levels, and accreditation status of different supply options. There is a carryover of orders still to clear which will delay demand, so it is likely prices might drift slightly lower, unless crops are poorer than expected yield wise. As we have learnt in previous seasons, yield is not known until the crop is collected and segregated. For instance, the Turkish crop of Blue poppy was thought to be 28-30,000mt but is likely to be 15-17,000mt only this season. Harvesting starts in a few days in the origin.
Prices have eased a little in Peru since the government paused the price support buying program. Despite a concerning situation the lockdown is ending in Peru meaning logistics will improve significantly and product start to flow more easily. There is still the general pesticide issue surrounding much of the stock, creating a two-tier market. Unfortunately, a lot of this material whilst outside EU limits still gets exported here. It is a good time to secure Quinoa cover for 2020/21 now of the correct quality.
Paraguay has had some aggressive offers of Chia recently despite the hard drought being suffered causing 50% of the crop to be lost. This means stocks are diminishing fast, and Peru/Bolivia who also suffered the drought, but to a lessor extent, are biding their time to sell their stocks expecting prices to jump. Glyphosate remains an issue with this item. Make sure you get certificates & guarantees with each delivery. Much of the material harvested will not meet EU MRL’s.