Currently weakness in the US$ is evident with Sterling and the Euro both holding up against this currency. Sterling is thus holding against the Euro too, which is probably actually masking true weakness in the pound due to the two obvious factors of ‘new variant’ COVID and subsequent lockdown 3 and economic consequences, plus the economic consequences of Brexit. Will this lead to a double dip recession? It has to be likely.
FX Monthly movement
- US$/ £ 1.36 up
- US$/ € 1.23 up
- £/€ 1.11 unchanged
The main issue around currently is freight challenges, with container costs escalating everywhere for EU/UK/USA-bound cargo. In general terms container costs have increased nearly 400% in the last weeks for EU ports and higher for UK destinations. Rates are expected to climb higher, perhaps doubling again and this is causing challenges for suppliers who will not carry such increases. From China this is likely to lead to delays and with Chinese New Year nearly upon us, shipments could not recommence until late February leaving a stock shortage in EU through Feb-April 2021. The situation is complex and cannot be solved overnight, so the impact will be with us for at least first half 2021.
The market for shine skin pumpkin grades is stable, although demand for the last few weeks has been weak. This has not led to a decline since domestic roasting orders are strong, and with the majority of pumpkin stocks in the hands of processors or traders, who paid high prices, there is a reluctance to drop prices. The poor demand for AA grades is impacting on supplies of A grade keeping this price artificially higher than it would normally be against the premium material. We have seen this situation for some months now.
For GWS stability reigns too, since supply is small but export demand weak. The situation can only really change in a firmer tone, otherwise it will remain at these levels.
The supply is dominated by transport issues, and a steady firming in prices as we progress through the season. This trend is likely to change as we approach Spring and the new season. Canada offers competitively but is still haunted by GM issues and the Triffid variety.
The ETO situation has created havoc in this market in EU since mid October. Stocks are dwindling, claims and disputes are escalating on shippers and suppliers, with over 400 RASFF alerts in EU now. The EU and Indian government and IOPEPC have had several meetings to try and resolve the situation. As of this week there is progress due to EU pressure, but many unanswered questions.
Essentially the EU has applied pressure to force the Indian authorities to recommence shipments, with a testing protocol prior to shipment for ETO, Salmonella and 164 pesticides. Then on arrival 50% of containers will be tested again and only permitted for importation if all is clear. The remaining issues include;
- What happens to the rejected containers. Who pays?
- Some EU countries are insisting on destruction of non compliant cargo. Who pays?
- When does the Indian shipper get released from obligation for the non tested containers?
So there is another meeting next week to progress things, but theoretically shipments should start early February so supplies will be available in March some time.
In Central America supplies have been consistent and picked up some of the shortage in supply from India.
The US crop is small and expensive and not a feature in the EU/UK supply chain this season, even if imported on the incorrect tariff to avoid the duty as is arranged by some importers. The new quota system from Ukraine is in place, for both EU and UK supplies, but is already challenged and potentially critical due to the relatively small volumes permitted, so we do not see this impacting the market.
Potentially quite unstable this situation, the market is complex and not allowed to trade freely, with various supports to facilitate trade. So is not reacting to fundamentals. Be careful.
Supply chains are in a better state now, and we see some normality in supply. The prices are very firm still and as we have indicated earlier this is unlikely to change until the new harvested in 2021. A shortage of supply in containers is likely to impact on the supply chain from time to time.
Market news is generally bullish though. Argentine crops look poor, Russia is talking about increasing export tax on sunflower seeds, reducing global supply, planting intentions look poor for 2021 due to price of corn, increasing soya complex prices, China as increasingly large buyer of vegetable oils and oil seeds.
Defaults and renegotiations are ever present now from some weaker suppliers and traders and will remain for coming months, and shipments will continue to be strictly allocated across contract periods to encourage spot sales by the processors to average up their sales price.
The supply of poppy is overshadowed by the drop off in demand for alkaloids creating cash flow issues with all these suppliers. Seed demand has also been sluggish probably due to the COVID situation and a reaction to the high prices of recent times starting to impact on demand. We see the situation a little concerning for 2021 harvests where crops are likely to be smaller than 2020 and thus there is a risk prices could climb quickly again. But for now poppy is at good levels and we would recommend cover is extended to end 2021 now.
The market has increased as processors have less inventory to sell and are capable of funding the new season. EU continues to source product outside pesticide regulations and is not getting exposed. This is a scenario like ETO in sesame, it will catch up with users and importers one day. The correct, EU approved material is around $200/mt more expensive, a small price to pay for the potential recalls that will occur when the authorities in UK/EU clamp down on the current situation.
Demand generally has been poor in 2020, and other countries have stolen the market with good quality, reliable and GFSI supply, from Bolivia and Peru. Glyphosate is still a concern in this product.