After the strong and rapid rise in prices last month, this week we saw raw material prices fall for the first time in the Turkish Hazelnut Market. Thus, raw material prices fell from 100 TRY/kg to about 95 TRY/kg.
We also hear that the quality of the batches currently delivered is significantly better than at the beginning of the harvest. Also, the first values for a kernel size distribution of the harvest are now available. Thus, despite the small harvest, there are again this year rather larger kernels. Thus, apparently, 50-55% of the harvest are kernels with the size 13-15 mm and 40-45% of the kernels have the calibration 11-13 mm. Only 5-10% of the harvest are small kernels of calibration 9-11 mm and below. This means that the gap between 11-13 mm and 13-15 mm should become smaller again as in the second half of last season. However, the gap between 9-11 mm and 11-13 mm is unlikely to be very large this season.
Interview with the CEO of TMO
On Monday, an interview with the CEO of TMO was published. Thus, during the interview, he makes several important statements. First, there will be no upward adjustment of the purchase bid. From the TMO’s point of view, an appropriate price has been set. Due to the changed situation, the market has adjusted upwards, which is very positive for the farmers. Also, they themselves were not unhappy about it. The most important statement, however, was that so far there is no sales strategy for the stocks until the end of December. However, this does not mean that the TMO will change its mind yet. However, it also means that buyers should not expect the commodity market to ease in the short term.
70% of the harvest has already been done in Akcakoca
In the western region around Akcakoca, about 70% of the harvest has already been done. The farmers here are more likely to give the raw produce to traders as on the eastern Black Sea coast. However, here, too, something like a third of the sales were made on a commission basis. On the one hand, the comeback of this type of business is being received positively, because the goods are thus available, but on the other hand, the planning uncertainty brings with it a certain potential for conflict. The advantage, however, is that as long as the raw material has not been sold at a price, the industry does not incur any losses in the event of a weakening market, only a reduced profit for the producer, which is still more than reasonable in the eyes of many market participants.
Farmers behavior
The interesting thing is that this year we have not experienced a situation in which so much raw material is forcing its way onto the market that prices are coming under pressure. This will also no longer be the case due to the progress of the harvest. The reason for this is, on the one hand, the shortfall, as well as the enormous amount that farmers are taking home. The question is how long the farmers will hold back the goods. Some, like every year, will hold the goods until spring, speculating on a frost. However, this is only a small portion of farmers. The vast majority are watching the market and trying to classify. If the farmers come to the conclusion that further price increases are no longer realistic, they will probably sell.
Currently, this assessment depends on the following factors.
- The essential thing will be the reaction of the market leader, which is expected in the next few days. So far the leader has not purchased the usual amounts. It does receive pre-harvest contracts from its partners (mostly other large exporters), but this is only a small part of the usual quantity. As a result, many expect a buying bid in line with the market in the coming days. However, the behavior of the market leader in the origin Italy contradicts this. Thus, the market leader there has placed a very low bid in the market, moreover, it is also not supplied. The market leader’s composure with the situation so far is what still nurtures hope among many that sanity will return. There is also speculation as to whether the market leader has not already agreed to secure certain volumes (not publicly) from the TMO.
- Another factor that reinforces the farmers is the poor quality and low quantity of the current harvest. After completion of the harvest in about 2-3 weeks, the quantity will be well estimated. As of today, however, it is well above the critical level of 550,000 mt. Therefore, we do not see the volume balance as a price-driving factor anymore. The effect is already there, but in a relation that is above what would be appropriate.
- As long as the TMO withholds the goods, there will be a certain restriction on the current availability. In January at the latest, there will be a tender, which will then lead to a certain relaxation. At least temporarily, because then the discussion about the coming harvest will start soon. This can have a positive or negative impact on price development. It should not be forgotten, however, that the exporters and certainly the market leader are putting a lot of pressure on the TMO to avert structural damage to the industry. We are already seeing declines in demand in the Turkish domestic market (dried fruit trade) as well as in exports. We are also now hearing the first reports that contracts are not being shipped or are being shipped with massive delays. This is not good for the reputation of the origin.
We have seen some easing this week, but this is also related to the fact that some market participants have needed liquidity (interest payments at the end of the quarter, figures from pickers, service providers, etc.). Whether this is sustainable remains questionable. Exporters, for example, are still very cautious in their future forecasts. This is mainly due to the fact that farmers’ behavior is not seen as rational.
While the majority of the industry is still being supplied with favorable contracts at the moment, the level in Europe has now been reached in trading. The coming weeks will show how this will be dealt with.
Unsustainable situation
A look at the export statistics shows how unsustainable the current situation is. The average value of exports last week was 6.12 USD/kg ex-station Türkiye. If one compares this with the reference value of natural kernels of the size 11-13 mm of approx. 6.95 USD/kg, then one can imagine with an export of approx. 6,800 mt in the past week that the industry is currently realizing enormous losses. To put this into perspective, it has to be said that many exporters had physically covered the contracts, and especially in the case of processed goods, these lots are now being shipped without realizing losses. In total, however, almost all exporters have certain contracts in their portfolio with which they realize losses. For some of them, we see the fulfillment as questionable.
With regard to the exchange rate, there were hardly any changes that affected the price lists.
For the coming week, the publication of the purchase offer of the market leader is expected. The market should be more or less stable for that long. After that, there should be a reaction.
Bullet points
- Commodity prices ease slightly – Correction in export price lists follow immediately, also the risk premium becomes smaller again.
- Farmers continue to withhold the raw product.
- Harvest is already about 70% complete regionally.
- The market leader continues to not react to the changed situation – for the coming week, the publication of a purchasing bid for natural kernels is expected.
- TMO announced that it will not be a seller in the market until the end of the year. pressure on TMO remains high from exporters.
- Price level slowly reaching Europe – Buyers reacting by switching to short-term covers.
- The Turkish lira was largely stable during the week.
Import/Export Statistics
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