What Is Happening in the Turkish Hazelnut Market, Will Prices Fall?

After the turnaround began last week, we saw this week that almost all sellers have followed the trend of adjusting their export price lists in the hazelnut market. Many European buyers only realized the changed situation this week and reacted with a headshake and a lack of understanding. As many buyers have no long-term cover due to the high price level, they are now in a situation where they have to buy for better or worse. The market leader is in a similar situation and also still has to take out cover.

Demand is low but prices are rising. Why?

What is unusual in the hazelnut market is the sharp rise in prices in a very short space of time and this has happened at a time when there was not yet much demand from the domestic market or exports. The price increase was therefore not triggered by increased demand. Rather, it is a deliberately induced increase by some sellers, especially those who work for the market leader. The sellers are also aware of the European industry’s shortfall. What has happened now is a deliberate stimulation of prices, as certain crackers and exporters have traded lots among themselves at higher prices.

As the majority of exporters in hazelnut market do not have a long position, they are now reacting quickly to the adjustment of the market price. Only exporters who have built up a position in recent weeks are currently in a position to trade below the market price. As a result, the level of the indications and the level at which contracts are currently being concluded differ. As the prospect of a short-term return to the level before the turn of the year is rather unlikely, some buyers have decided this week to cover the remaining positions for the first quarter. The level at which deals have been concluded is therefore now much higher than a few weeks ago and is therefore also known in the market.

The question that many are asking themselves is to what extent cover should now be provided. In our view, the following factors could influence the market in the coming weeks:

• TMO tenders: The price increase is generally argued to be due to the shortage of supply. If TMO offers its stocks to the market, this could lead to an easing of the situation, depending on the price expectations. However, a sale before April is unlikely due to the national local elections at the end of March.
• Inflation / monetary policy: The Turkish central bank has adjusted the key interest rate from 8 to 42.5% p.a. in recent months. Despite this, domestic inflation remains above 60%. The government’s decision to significantly adjust the minimum wage once again within 6 months is likely to torpedo the central bank’s efforts and give inflation a further boost. Analysts expect inflation rates of around 75% to be reached again in the coming months as a result. This could weaken the Turkish lira. However, so far we have hardly seen any sellers speculating on falling prices as a result of the exchange rate.
• Raw material price for the coming harvest: It can be assumed that the TMO will again set a purchase price for the coming season. This is usually based on a value of approx. 2.8 – 3.10 USD/kg (€2.55-2.83 EUR/kg) for hazelnut kernels in shell. Most recently, the purchase price was TRY 82.5/kg. However, farmers are expected to compensate for inflation (see above for expected inflation). Calculated in Turkish lira, a new bid should currently be at least TRY 95.0/kg (due to exchange rate compensation), but more likely well over TRY 100/kg. The chance that market prices (calculated in TRY) will fall significantly in the run-up to the new harvest is currently unlikely.
• Harvest forecast: We will receive the first reliable harvest estimate in May. Until then, rumors are likely to dominate the market. For example, a prediction of a small harvest could fuel the market. However, it has also happened in the past that exporters have deliberately talked up a large harvest in order to persuade farmers to part with their stocks. The size of the coming harvest will be a very important factor for the hazelnut market, but the effects will also be limited by a probable TMO purchase bid.
• Weather: There is a risk of frost until the end of April. A frost would lead to a massive price increase. This spectre of frost is a particular issue this year, as the last frost was 10 years ago and a damaging frost only occurs every 10 years or so.
• Export figures: Export figures remain weak compared to previous years. As the season is different than usual this year, especially due to the behavior of the market leader, surprises may still follow.
• Market leader: The market leader still has to provide certain cover. It is said that at least a third of the necessary (physical) cover has not yet been provided. Any contractual agreements are not known.
• Competition: We have massive overcapacity among providers, so the competitive pressure to offer attractive prices is also very high. This will always lead to corrective measures.
• Volume flow: In addition to the statement as to whether sufficient quantities are available this season, which can be answered with a clear “yes”, the question of current availability arises, however. Looking at the situation at the end of December, the following forecast can be made:

At first glance, availability is not yet a cause for concern, however, one must also ask who is holding the stocks in the hazelnut market. Assuming that around 60,000 – 75,000 mt of the product is still in the hands of the farmers and that the crackers and raw material traders are currently only holding around 80,000 mt (of which around 40 – 50% is on a commission basis), it can also be seen that the exporters’ stocks are not too large. Above all, it must be taken into account that the stock is also offset by sales. As we are currently being told, there are only a few exporters who have speculatively built up stocks; most others do not have the financial means to hold a long position. Decisions by farmers and the TMO to sell could ease the current availability situation. This is unlikely to happen in the next two to three months.

For the coming week, we assume that buyers will make one or two more trades and then adopt a wait-and-see attitude again.

Bullet points

• The price increases have now arrived on a widespread scale.
• Commodity prices continue to rise as a certain level of demand has now been added.
• Many buyers have been surprised by price increases. However, some have to buy due to a lack of cover, which is why the price level in the market has now also stabilized.
• The Turkish lira is trending slightly weaker over the course of the week, but can hardly compensate for the price increase.
• The export price lists continue to vary greatly, depending on the position of the exporters.
• The orientation of buyers remains short-term

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