In the Nutshell: Turmoil in Turkish Hazelnut Market

Following last week’s unexpected action by the market leader, there has been no calm in the Turkish hazelnut market this week either. At the beginning of the week, we did see that producers were no longer quoting exaggerated prices and were again calculating on the basis of current commodity prices. This initially gave the impression that prices would fall again. However, the opposite then occurred. Despite the high prices, most exporters are currently buyers in the market. On the one hand, the buying behaviour can be attributed to the fact that some exporters still seem to have open positions and are now trying to close them, and on the other hand, some buyers have been active this week. We have heard of active buyers from Europe and also positive business in combination with Gulfood in Dubai. In the Middle East in particular, there is additional demand to cover due to the delay in deliveries (avoidance of the route through the Suez Canal) and buyers are continuing to increase stocks. Demand in Türkliye also remains good due to the upcoming Ramadan, despite the high prices.

Wide range of levels in pricing

The interesting thing is that deals are currently being concluded at a wide variety of levels. For example, we are hearing of many deals that have presumably been concluded from positions well below the current level (mostly not from the origin). On the other hand, the origin is also receiving requests for immediate loading where the price is not being discussed, fuelling speculation about non-fulfillment. Thus, contrary to all reason, it seems to be the case that some sales have been made without physical collateral and purchasing is currently not possible.

Resentment towards the market leader continues

The displeasure about the market leader’s behavior is not abating either. Last week, contracts were concluded for hazelnut kernels in shell, but also for natural kernels. The suppliers are upset that the price for kernels in shell is the same as for natural kernels. However, crackers need this margin to cover their costs. For this reason, suppliers continue to feel unfairly treated and are demanding a change in strategy from the market leader. All in all, the market leader’s unusual decisions are becoming more frequent. More and more voices are also being raised calling for the market leader to be more closely regulated by the competition authorities. The main demand continues to be that the purchase of kernels in shell should be limited.

Will prices drop?

In terms of commodity prices, we are currently capturing the following sentiment. For the next few weeks, the last purchase price of the market leader will mark the lower limit. This is at 120 TRY/kg. In discussions with hazelnut market participants, most indicate that they want to sell at a price of 135 TRY/kg. Based on demand and this week’s trades, we are currently at around 125 TRY/kg. We expect a chance of falling prices at the earliest when the TMO releases a selling price and a corresponding quantity. However, this is unlikely to happen before April.

High level of speculation

The next milestone for the hazelnut market is likely to be the publication of the harvest estimate in May. Against this background, however, it is astonishing that so many traders are currently liquidating their positions. Above all, we can see that the trades have been concluded well below the market price, which suggests that the rapid reduction is intentional. We interpret this to mean that it was probably often cover for the first quarter and the calls must now be made and that there is still so much uncertainty about what will happen beyond the first quarter that speculation is being avoided and profits are now being taken. Overall, all parties are finding it difficult to assess the current situation and the high level of speculation is making them less inclined to speculate, also in light of the liquidity issue.

Inflation is not falling

With regard to the exchange rate, we have seen over the course of the week that the Turkish lira has lost around one per cent against the euro and slightly less against the US dollar. After eight hikes in a row, the Turkish central bank left the key interest rate unchanged this time. The decision was made for the first time under the leadership of the new head of the Turkish Central Bank. Overall, this is seen as a continuation of the previous monetary policy, although there is currently no sign of a significant turnaround in inflation, although this was expected.

Concerning the vegetation on the Black Sea coast, it should be noted that this has been one of the warmest Februarys in 30 years. Accordingly, the vegetation is already well advanced. However, this is not a critical situation, but merely information.

Any change on the horizon?

We do not expect the situation to change significantly in the coming week. As long as demand and buying behavior continue, the level will not change significantly. It is also interesting to note that many of the companies that sold to the market leader last week have been in the market this week to cover goods. The question is for what reasons and how long this will last. There is still the opinion that the hazelnut market leader still has to cover a certain amount, just like the European industry. After some exporters have shown that only by holding a (smaller) position could successfully realize sales, as they could then offer below the market price when prices rose, this example now seems to be finding imitators at the origin, which, however, implies that sellers are expecting prices to continue to rise, contrary to the hopes of buyers.

Bullet points

• Commodity prices at origin are rising significantly due to demand, but most trades in Europe are being concluded well below the market price as certain market participants are liquidating positions. The trades therefore give a deceptive picture of the situation. However, there are also a surprisingly large number of transactions at the market level for immediate delivery.
• The export price lists continue to show a very heterogeneous price picture in the hazelnut market.
• The Turkish central bank leaves the key interest rate at 45% p.a. after 8 increases in a row. The Turkish lira depreciated slightly against the euro during the week.
• It remains unclear how prices will develop after the first quarter.
• There is growing resentment at the behavior of the market leader at the origin

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