This week we witnessed once again that markets are not determined by homo economicus. So at the moment, it is once again emotional sentiment that is forcing the hazelnut market to walk a tightrope.
Another marked increase in prices
After we had already noted a clear plus in prices in the last few weeks, we had to record another marked increase this week. The reason is to be found in the behavior of the farmers. They are not happy with the commodity prices. All they hear is that the harvest is bad and that the price is therefore not appropriate. Thus, also supported by social and local media, a majority opinion has quickly formed that one should not sell at the moment, as prices will rise and one can then achieve much better prices.
The target price is 100 TRY/kg. We have already reached this limit locally by the weekend. Quasi intoxicated by their success, some are now already talking about 120 TRY/kg. Good things die from exaggeration, as the saying goes. We started the season with a price of 75 TRY/kg on the open market for hazelnut kernels in shell.
Unnecessary price jumps – Will TMO step in?
In Europe, people continue to shake their heads at the indications they receive from Türkiye. However, unlike in Europe, the price level in hazelnut market has peaked in Türkiye. Exporters have to continue buying and willy-nilly pay the prices called, which has set a price spiral in motion. Millions of farmers are happy in the short term, but the exporters are worried about their existence.
We do not need to speak of the long-term damage in terms of sales planning. The unnecessary price jumps are poison for the sector and weaken Turkey’s origin in the long run. The exporters see the disaster coming and have started to put massive pressure on the TMO managers to release a large part of the volume into the market in the short term in order to burst the bubble. This is a very delicate situation for the TMO. On the one hand, the strategists there see the need to calm the market now. However, the mood is so emotionally charged at the moment that a tender in the current situation would probably be interpreted as a betrayal of the people. In view of the upcoming regional elections in spring, this is a very inopportune moment.
Behavior of the market leader awaited
The hazelnut market is also eagerly awaiting the behavior of the market leader. At the moment, it is receiving only a fraction of the targeted amount. The question is which path it will take to overcome the crisis. Will it adjust its purchase bid upwards, or will it play its political connections and also put pressure on the TMO?
The situation at the moment is far from any rational logic, but still understandable. This year, for example, we are also seeing a comeback in the sale of hazelnuts on a commission basis. This practice was hardly significant in the last few years. This year, depending on the region, it is again up to 50% of the quantity that is sold on commission. The kernels do enter the market, but the exporter who then receives the goods has no idea what price he will have to pay at some point and therefore includes a very high safety margin. This is also a reason why the exporters’ price lists can currently differ by up to 1 EUR/kg.
However, the situation also has one advantage. The TMO has probably only been able to buy about 10,000 mt of goods this season. This increases the amount available to the free market. It is not yet possible to assess whether exporters are currently only covering their immediate needs for the upcoming shipments or whether stocks are being built up beyond that. There are also no valid figures yet on core size distribution and a representative assessment of quality.
For this week, we expect prices to remain stable for the time being. The farmers’ first target has been reached. Also, some commodity pressure should slowly set in as the harvest has now started in all areas.
Market refrains from long-term deliveries
With regard to demand from Europe, there is isolated interest in short-term cover, as some buyers have not yet covered due to a different market assessment. However, we only expect business for individual short-term deliveries. The hazelnut market is refraining from long-term cover, as the current level is not seen as enforceable in the long term.
There were hardly any changes in the exchange rate. Although the US dollar was slightly stronger against the euro again, the Turkish lira was unable to benefit from this. Due to the massive price jumps in raw materials, the changes in the exchange rate in recent weeks have also been negligible.
Where is the hazelnut market heading?
A question we are often asked at the moment is whether the market can move in the opposite direction again or whether the level will remain fixed. Depending on the “collective stubbornness” of the farmers, the following factors speak for a price correction:
- According to our current knowledge, the value chain stages following the farmers do not buy in order to stockpile the goods. If they did this, they would realize losses as prices fell, which would make levels more likely to hold. As long as farmers hold the commodity, the commodity price can change without realizing losses. (We do not consider small gains for farmers as losses). Hardly any actor will speculate at this level.
- Exporters are currently realizing massive losses when contracts from advance sales are fulfilled. This is not in their interest and can become a problem for the industry. Accordingly, pressure is being exerted on the participants (primarily TMOs).
- Intervention by the TMO could burst the bubble. Currently, there is massive pressure on the TMO.
- Farmers do not have the possibility to store large quantities of goods properly at home.
- Then, when there is no chance of big price jumps, it makes sense for the farmers to sell the goods and invest the proceeds in the bank at high-interest rates. We are now tending towards the zenith.
- The high prices lead to a decline in demand. The industry has an interest in reducing the high surpluses.
However, there are also factors that speak for a certain consistency of the level.
- One must not underestimate the willpower (to put it kindly) of the farmers. The behavior is not logical.
- The exchange rate is expected to remain stable in the coming months, so relief is not very likely, but cannot be ruled out.
- The market leader needs goods. If it decides to adjust the purchase bid significantly upwards, the level would be stabilized for some time.
- The TMO might follow political reasons rather than market reasons. A late deadline or even the absence of a tender would also consolidate the level. An upward adjustment of the purchase price would also be conceivable, although very unrealistic.
- If it turns out that the quality and quantity are really as bad as some claim, this could also strengthen the level. At present, however, there are signs of realism here as well.
In the coming weeks, the dynamics of the market in Türkiye will decide where the journey goes. Exporters as well as buyers are currently only spectators and should be moderate in terms of demand.
- Another sharp price jump shocks buyers and exporters – the price spiral continues.
- Raw material price reaches 100 TRY/kg locally, which corresponds to the original target price of the farmers.
- Market leader also faces below-average cover situation – reaction still pending and eagerly awaited.
- TMO has so far not reacted to the events in the market, but we are under massive pressure to release the stock into the market now.
- Price lists are again very different.
- There is interest in the market from Europe, but the price level means that only the absolute necessities are bought by those who really have to.
- The exchange rate was stable over the course of the week. This is also expected for the near future.