This week, the hazelnut market’s attention was mainly focused on the results of the meeting of the Monetary Policy Committee of the Central Bank of Türkiye, which met for the first time under the leadership of the new head (Hafize Gaye Erkan) on Thursday. A “strong” signal to the markets was expected. Indeed, the central bank also delivered a turnaround signal by raising the key interest rate from 8.5 to 15.0 percent.
The reason for the crash of the Turkish lira
Market participants expected the Turkish lira to regain strength as a result, but the opposite happened. Since Thursday, the lira has lost another 6% of its value against the euro and the US dollar. Unfortunately, this is a very bad start for the duo of the new finance minister and the new head of the central bank. The reason given for the crash of the lira is that the markets had expected an even more significant step. This is understandable because the reality in Türkiye already looks different. If you want to take out a loan in Turkish lira, first of all, it is difficult to get it and the interest rate is often beyond 40%. That is why many analysts had expected an increase to well over 20%.
All in all, this should make it more difficult to achieve the primary goal of fighting inflation (which, according to statistics, is still around 40%). In addition, the wage-price spiral continues to turn strongly. This week, the Turkish government decided to raise the statutory minimum wage by almost 34% to 11,402 Turkish liras net. The signs of an improvement in the overall economic situation have thus not become more positive.
Impacts on the hazelnut market
This also has implications for the hazelnut market. Financing costs will again be a significant factor in contracts. That is why we are currently seeing great differences between the respective producers when it comes to offers for long-term contracts. While some include realistic financing, others do not have the option of financing at all and assume a raw material price at which they can then (presumably) cover. Exporters are currently very interested in long-term contracts so that they can still finance their products in a reasonably affordable way via export credits. Export credits are currently around 12% p.a. for financing in euros or US dollars.
Financing costsha
However, due to the financing costs, it is to be expected that traders and exporters will not buy large quantities speculatively, since the financing costs in relation to the expected price increases hardly promise large speculative profits. Producers, too, will probably want to sell the goods quickly, since they currently still receive about 40% interest if they invest the proceeds of the sale in the bank. It can therefore be expected that, with corresponding commodity pressure in the peak harvest season, the price in the free market will be significantly below the state-guaranteed minimum price of the TMO.
Hazelnut prices to rise
For the coming week, we expect that commodity prices will now slowly move upwards in the hazelnut market. The renewed weakening of the Turkish lira should result in a higher TMO price. This should now probably be > 75 TRY/kg. Currently, we are at 61 TRY/kg in the free market and there are still 6-8 weeks until the new harvest, depending on how you look at it. By then, the level should be approx. 10 TRY/kg below the TMO price expected at that time. Accordingly, we expect an active market next week. However, it will be a short trading week as most factories will be closed from Wednesday for the rest of the week for the Islamic Feast of Sacrifice.
The TMO’s current tender will run until after the Feast of Sacrifice. As of today, the TMO will probably only be able to sell 17,000 – 18,000 mt of the 23,000 mt. The interest of buyers is currently low. However, the development of the Turkish lira as well as the commodity prices will have to be watched next week. Overall, many buyers consider the current level to be attractive, but the opinions about the level for the coming harvest still differ too much between buyers and sellers to switch back to long-term contracts.
Bullet points
- The Turkish central bank raises the key interest rate from 8.5 to 15.0 percent.
- Markets nevertheless punish the Turkish national currency, as a clearer signal was expected. The lira again loses more than 6 percent of its value against the euro in the course of the week.
- The resulting price level is perceived as attractive by buyers. Interest returns.
- Financing becomes an essential part of exporters’ supply policy.
- Sellers have a high propensity to speculate, but not to build up stocks. Supply market therefore very inhomogeneous.
- The fall of the lira will probably lead to a rise in raw material prices in the short term.
- This week is a short trading week due to the Islamic sacrifice festival.