EU/UK harvests are upon us now and generally the news is favourable. Some concerns over dryness in the tar South Eastern areas, Russia And Kazakhstan, but generally otherwise things are looking and sounding ok.
Uncertainty over the impact of a possible second spike is making it difficult to commit to supply guarantees since stock levels must be controlled throughout the supply chain, protection cash flows, so any guidance on demand would be appreciated.
China will start to harvest in August, and so far we believe shine skin will be a good crop, significantly larger than the GWS due to the domestic demand from the snacking industry. GWS volumes are expected to decline. The big concern here is that Xingang is the primary producing area and is experiencing renewed lock down issues and travel restrictions. This will make a crop survey difficult to perform and is likely to interrupt supply chains too. There are materials from other regions available in significantly lesser quantities but the primary GFSI certified processing facilities are mainly in Xingang region. Combine this with other regional lockdowns, for instance Dalian a major port area, and we can foresee supply issues.
Prices do look a little more favourable, but this new crop material will not arrive EU/UK until December at the earliest.
Prices have eased back now for new crop, and we see it as a good time to take cover. There is the potential for a squeeze in availability over August/FH September as crushers are known to be short and needing to square their supply requirements. This could put some pressure on prices for a few weeks, but for spot material, once we get into the season things should settle back down. Unless there is a significant impact of the dryness mentioned above. Then we could quickly return to this seasons price levels.
The market has stablised in all regions now at the discounted levels. India whilst suffering seriously from COVID, is also in its monsoon season, so planting will be starting. We do not know the impact of the virus on farmers ability to plant. Stocks are now in the hands of processors and traders, so we might see some price instability should the supply-demand situation change. For instance Korea announced a tender for 9,800mt recently putting spot demand into the market. China appears to have good stocks in its ports and of course this is their harvest time so we do not expect to see demand from here for a few weeks.
Brazil is producing significantly increased quantities of natural sesame now, but seeing China as its major market. This might impact on the African producers who traditionally have had a good share of the market. If there is surplus here they will look to supply India.
The demand for sesame picks up from September to December, partly due to the domestic demand in India for their festival in January, so we would strongly recommend buyers look to take cover in August for at least 6 months.
Whilst we generally feel the EU will have a good crop, we here differing reports from the USA where prices look likely to remain firmer. But the bigger issue here is how we manage the levy situation. With quota’s from Ukraine still undecided on a levy free quantity, and some uncertainty over whether it will be re-introduced, combined with no Brexit agreement and possible levies on EU material, we do not know where things will settle for 2021. Until then it seems Polish millet will remain levy free, whilst Ukraine will attract a levy of around € 130/mt. So pricing for remains of 2020 will be favourable but for UK clients going into 2021 there is huge uncertainty on best option for now.
Old crop availability is tight now with EU crushers short and good demand again from China. We see the situation remaining difficult through August. New crop sunflower demand has been good, at the discounted prices, and we do not see a situation where there will be any further decline, in fact we would predict the next movement as upwards and possibly quite sharply. There is some concern over dryness by farmers in some regions, but we are let to know the severity of this. The other note is that sunflower is a US$ based commodity, so for € producers converting to the commodity base currency, they are becoming expensive.
Spain has harvested and has a good crop, Czech Republic, Hungary and other Central European regions are busy too and all looks good. Turkish new crop is in, and the TMO is supporting prices in this region. So we seem to have some relief in poppy pricing from this harvest compared to the last few years. We expect a smaller crop from Australia than usual next February from what we hear about their planting expectations. Complexity is being added to this market by the range of morphine levels clients require and the availability of seed to meet these criteria. This does add some firmness to pricing over previous seasons due to the complexity and time scale in determining precise requirements. Also the herbicide use in various origins restricts them from using the seed in some parts of the world.
Slow demand from USA buyers, and ready availability has prices at or near their lowest point. Combined with the weak US$ prices look very attractive. We are concerned their will be sufficient material to meet EU regulations on pesticides etc., but this will not worry some importers who choose to turn a blind eye to these requirements and buy the cheaper material. There is mixed quality around this year, so trustworthy origin processors should be used.
The poor dry weather has had huge consequences on Chia yield. Cheap supplies out of Paraguay & Argentina will run out soon, allowing Bolivia back into the market. As usual there are concerns over glyphosate levels in some parcels of seed. Finally the lock down restrictions and continuing Covid situation is having severe impact on supply chains, disrupting flows and causing some stock squeezes.