Shell Game or Strategic Maneuver? Hazelnut Market Left Scratching Its Head

Right at the beginning of the week, the market leader caused a stir in the Turkish hazelnut market with a very unusual action. Almost all major producers received a letter asking them to send the market leader an offer for hazelnut kernels in shell, as well as natural kernels (11-12 mm, 11-13 mm and 13-15 mm), stating the quantity and price. The unusual thing about this is the short notice but also the addressing of the letter. The recipients were asked to submit their bids by Monday evening at 6 p.m. local time. The nature of the invitation to tender is also unusual. In the past, the market leader published a fixed bid and addressed the letter to its usual suppliers. The action was therefore so unusual for most suppliers that they decided to withdraw for the time being and wait for the market to react. Although they were aware of the market leader’s potential shortfall, such an action was not to be expected, especially as it clearly weakened the market leader’s negotiating position at first glance.

Prices Jump, But Questions Swirl: Leader Secures Nuts, But at What Cost?

As a result of the request, there were completely different reactions in the hazelnut market. While the majority of suppliers reacted relatively calmly, there were also offers that clearly overshot the mark. We have heard of offers of up to 150 TRY/kg. In comparison, the market price on the free market was around TRY 110/kg the previous week. After no reaction from the market leader at first, many were already talking about a feint, but towards the end of the week, it became known that the market leader had bought a volume of approx. 20,000 mt (based on hazelnuts in shell). It is estimated that the purchase price was TRY 120/kg for hazelnut kernels in shell and TRY 240/kg for natural kernels.

What could be the reason for market leaders’ unusual behavior?

There are currently various attempts to explain the unusual behavior on the hazelnut market. Some have linked the behavior to the ongoing investigation by the Turkish Competition Authority. An investigation is currently underway against the market leader with regard to the abuse of market power and unequal treatment of market participants. It is possible that this type of tender was a sign that all players would be treated equally. However, the market leader has again mainly concluded contracts with its previous suppliers, focussing on the Akcakoca region. This should now be more or less sold out. Other voices are saying that the quality of the current harvest is worse than expected and that further cover was therefore necessary, as the quantity of usable qualities in stock is lower than previously assumed. An increase in sales by the market leader is also being discussed. In recent years, it has generated strong growth with new products in other segments. It may well be that sales planning is not yet working so well here that additional cover is required.

Rumours about Chilean origin

Another very interesting point is the rumour that there could be shortfalls at the Chilean origin (an increasingly important origin for the market leader’s American business). There are no reports of this yet, but it may well be that the current severe forest fires in Chile are having an impact on the hazelnut plantations there and that preventive action is therefore being taken.

Despite all the unusual aspects, the scenario that the market leader would presumably also have achieved in a conventional tender process materialised. With a tender at this point in time, the prices were significantly increased once again. Although the market leader presumably now has more information about the distribution of positions as a result of the screening, we believe that it has weakened its negotiating position as a result, which will encourage players holding speculative positions not to give up their position for the time being.

Marmorated stink bug threat

With regard to vegetation, it should be noted that the current warm weather is helping pollination. However, it should also be noted that the more advanced the vegetation, the greater the damage in the event of a frost in March/April. To put this into perspective, however, it can be said that the current weather conditions are not unusual. However, there is a lack of a long period of snow and frost, which would then also reduce the risk of the marmorated stink bug occurring en masse. Currently, the first teams are already out in the plantations counting the number of female flowers, from which the hazelnut kernels will later develop. At this stage, this is an indication of the direction the harvest may take, but it is still too early to make an estimate. Nevertheless, the study is important at this stage, as it can provide an indication of the development in relation to the second count in May.

Central Bank Meeting Looms: Will New Leader Hold Steady?

Next week (22/02/2024) will see the first meeting of the Turkish central bank’s monetary policy committee under the leadership of its new president. It is eagerly awaited whether he will continue to consistently pursue the course of his predecessor.

Furthermore, we do not expect any major changes in demand. Although the chances of a fall in prices have decreased this week, most buyers are still tending to wait and see and follow the market rather than engage in long-term hedging. The risk of frost is a scenario that most are currently prepared to take. It will also be interesting to see whether the market settles again after the rapid rise.

Bullet points

• Market leader irritates market participants with unusual tender.
• Commodity prices rose significantly as the market leader covered a certain volume following its tender. However, the overall increase is significantly lower than feared.
• The export price lists show a significant increase in line with the rise in commodity prices.
• The Turkish lira is weakening slightly against the euro, which is dampening the price increase somewhat, but is far from compensating for the increase.
• The market is eagerly awaiting the results of the meeting of the Monetary Policy Committee under the new head of the Turkish Central Bank on 22 February.
• Rumours about possible risks regarding the new harvest and the behaviour of the market leader continue to dominate discussions.

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