Freeworld Trading Heads Up 16/07/2018

CURRENCY

EURUSD 1.17 GBPUSD 1.3260 GBPEUR 1.133  10.26 am

A relatively quiet week . Wednesday sees the release of a number of UK GDP growth type figures including the June GDP figure. This, in turn, will impact on the possibility of the UK rate hike at the next BOE. In this context it is interesting that Mark Carney speaks on financial stability tomorrow morning. Meanwhile the dollar is quite strong and euro movement seems to be in the 1.165 to 1.175 range.

 

CASHEW

The last few working days have bought a distinct change to the feel of the cashew market. After two years of poor harvest of RCN due to rain, it seems we have good crops in volume and quality all round. The last four months of trading have shown a steady decline in price and eventually in the previous three weeks this decline accelerated as buyers of kernels effectively withdrew from the market, alarmed by the falling price. This price decline was very significant in Vietnam, but not so strong in India.

 

There are really three classes of factory in Vietnam : Strong self-financed producers who have invested in BRC and the right machinery, companies with BRC but with scope only to sort kernels, a secondary market where RCN is cut in informal ( and therefore cheap) surrounding, sometimes in the open, the kernels are then either sold to an exporter or sometimes the exporter sends his cartons to be filled in the suppliers barn. The secondary market acts as a kind of buffer and many exporters will use it as a kind of hedge rather than rely solely on their own stocks of RCN. This might be because the interest rate in Vietnam is nearly 14%.  The sharp fall in price was caused by reduced buying, but what is interesting to note is that export volumes were consistently higher year on year, it’s just the pattern was lumpier, and in the lean period for sales there was a panic amongst these smaller suppliers in Vietnam, many of whom walked away from essentially unworkable contracts. These defaulted containers had to be sold and presented a buying opportunity to the first class of shipper who were able to use the cheaper parcels to kick start their sales.

 

The change in feel in the market is due to 1) most if not all the cheap RCN is sold  2) as buyers see the price rising and as most of them are “ in the money” they are covering, demand is strong 3) a lot of traders will have been shorting this market, they are coming in to take their cover and this could cause serious problems due to 4) quite a lot of the secondary informal cutters might have changed away from cashew to other labour intensive production like sorting plastic. This may well result in a shortage of production capability. It is already difficult to get an August shipment. 5) Most shippers will be losing money at these levels due to their earlier purchase of RCN, they need at least another 25 cents to get in the money themselves.

 

I should say that FWT sources its cashew with preferment for Dong Nai where the quality expectations are higher. All our cashew is inspected by our own inspection team and any shipments not up to the mark have to be reprocessed, that is , we use a Positive Release System for cashew. Our preferred factories both have a capability to go from RCN to kernel under the same roof. This is actually quite a rare thing in Vietnam!

 

Since Friday this market has gone up by at least 10 cents. Either this market is rising from lows or it’s a dead cat bounce. Up to you the buyer to decide all I can say is that a lot of cover is being taken.

 

WALNUTS

This market has been weak, we have this news from India:

The 2017 crop is almost sold out, and the coming crop is looking like it is going to be normal. Rains in Indian have been well spread and therefore the crop will arrive in time and appears to be in good quality.

 

First arrivals of this crop will begin in the last week of September, and because of a huge 120% import duty for all Indian imports there is very strong domestic demand for Indian walnut kernels, mainly light, at pretty high prices.

 

Diwali, the Indian Christmas will fall on the 7th November and therefore all walnut deliveries will be geared towards meeting Indian domestic demand. This means there will be few quantities available for shipment during October/November 2018.

 

Prices are expected to open at levels close to or higher than the previous crop.

 

We have good offers for Indian organic as well as conventional walnuts and suggest now would be a good time to book your requirements till January.

USA prices have been coming down , many buyers are using Chinese prices but are not complimentary on the quality. Our USA suppliers are now so fed up with this that they are prepared to sell US quality at Chinese prices ! Good time to give us some bids we think again. Chilean material landing now will be new crop and thus of a much better quality than US as it is new crop. If your interest is in quality then this is the one for you.

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