The principle concern now is what and where are new crop supplies going to come from. A serious of extreme global weather events preceded the conflict in Ukraine. What followed were an increasing number of protectionist export bans on key foodstuffs as countries took a view to protect supplies of key commodities for their own internal use. This combined with escalating energy and cost of living issues, plus high prices for common agriproducts such as wheat, corn and vegetable oils impact the areas sown for smaller niche crops.
We are seeing a diversification in supply options therefore for the coming seasons to increase supply security going forward.
The uncertainty and supply issues are also leading many suppliers to restrict their forward offering. Several are limiting sales to a three-month forward window, to reduce their risk profile, but obviously this makes fixed price twelve-month contracts as preferred by many end users hard to achieve.
Freight turmoil continues, with South/Central America extremely badly hit at present. Container rates are up 3-400% in a matter of weeks. But perhaps more serious is the lack of available space, voyage times and unloading costs which appear to go in one direction only.
The market has turned quite quickly, in particular shine skin, where stocks are controlled by traders and merchants domestically. They see an upturn in domestic demand as covid issues reduce. This leaves limited stock for exporters, where demand has been sluggish too. If EU/USA markets are short covered and demand picks up, we could see prices accelerate upwards very quickly. Acreage is being lost to wheat in China for new crop, although this material will not arrive in destinations until 2023.
GWS whilst traditionally at a premium, but only for export market, will be pushed higher as a consequence of the above, and snow white is already sold out.
EU processors are focusing on completing this season’s contracts at present, so we are seeing few offers for new material. Since it is extremely unlikely Russia will be a supplier in the short to mid term all are switching to alternate potential sources of supply. Wherever it comes from. The starting prices are going to be high, possibly trading at a premium over the current crop. For golden linseed the situation is even worse. Canada has switched be better paying crops, Russia is out of the equation. So where do we go now?
India summer crop started arriving in market yards last week. Current estimates are for 130,000mt including 20,000mt of black sesame. Prices became volatile as processors and stockholders covered in short positions to fulfil Korean tenders etc. Imported prices remain uncompetitive in India so all demand will fall domestically now.
The summer crop comes mainly from Gujarat, so we have to be careful over pesticide content. Demand is still lack lustre and expected from the export market any day. After such a long run of fairly stable pricing, we see no further downside, and as demand picks up, as it will prices will rise.
As already reported South America had a poor crop, so there is little new sesame available until China harvests in August. This crop has been in decline now for several years, and with the pressure on wheat, corn and sunflower we cannot see the trend changing. So, we will expect firmer markets in coming weeks.
Short term stock building is masking the future situation. Supplies from Ukraine and Russia for the new season look doubtful. So where do we all turn for millet? USA produces but has limited hulling capacity these days. Other origins have material, but it varies somewhat in appearance. The GFSI status of supplies looks tricky too.
We are seeing possibilities of some limited supplies nearby at slightly lower prices and alternative origins reappearing as sources of kernels. Forward cover is very difficult from reliable suppliers. The nearby situation is exacerbated by a severe shortage of equipment to ship the containers. Truck delivery is possible but also costly. So, it is difficult to see a good route through. Going forward a spread of supply origins is one solution we believe, which might add to the base cost, but is likely to secure supply through the season. Putting ‘all the eggs in one basket’ origin wise might be a bad decision for 2022/23 harvest. Having origin options will help we feel.
We need to keep in the back of our minds the extreme spring heat across the region too. This is not good for sunflowers.
What we do also know is the demand for vegetable oil is not going away, and the only viable alternative to sunflower is rapeseed. The EU is a major producer but will not be able to scale up production fast enough to compensate for the reduction in Russian and Ukrainian supplies. Canada will have a crop of Canola in November, which is GM modified rapeseed, and obviously this has limited markets for this reason.
The situation is not improving. Australia is planting very limited amounts of poppy for their harvest in December, due to the oversupply of alkaloid straw globally. Other sources are also reporting reduced acreage being planted. Where good areas are planted excessive Spring temperatures will impact significantly on yield.
Hard to see where all the supplies to meet demand will come from. A balancing item will be the demand from Russia which whilst continuing will have to find alternate channels, but as we know from previous seasons this demand plus other requirements in Eastern Europe are happy to pay high prices.
The crop of white conventional and organic quinoa is smaller than originally predicted due to the poor weather experienced and shortage of fertilisers. Stronger demand from the USA is edging prices upwards. The black & red varieties are responding slower as demand from Asian countries is behind as they struggle to escape the clutches of Covid, but it will come.
After a poor start due to drought the weather situation has improved, but this can only mitigate the original effect to some degree since planting areas were reduced. Unfortunately, the weather is however still in control, if the frosts hold off the crop will be better, but if as last year we get early severe frost, then the situation could change rapidly. Paraguay is producing significantly more organic chia this year to satisfy EU demand. We expect to see new crop shipments in July.