Two major considerations for the FX markets currently apart from the problematic roll out of vaccinations around the globe. Firstly, increased tensions between Ukraine & Russia, with troop build ups and an escalation of the risk by USA authorities. This has largely gone unnoticed in these current times.
Secondly the US has unveiled its economic recovery plan, which is going to focus on economic stimulus for national infrastructure and an ‘onshoring’ of jobs in the manufacturing sectors.
Sterling is reacting positively to the planned lifting of restrictions over the coming two months, whilst the Euro is struggling as it sorts out the issues.
FX Monthly movement
- US$/ £ 1.38 down
- US$/ € 1.17 down
- £/€ 1.17 up
Supply chain challenges continue from everywhere, with each issue knocking on to adjacent regions. The recent Suez blockage has created a potential nightmare of congestion at all ports, as vessel jockey for unloading space. The ships must go in the order due to the way containers are loaded on them. This will add to the delays already experienced. It will also cause delays to vessels arriving from other regions looking for unloading space. Finally, the misplacement of empty containers will only become exacerbated.
All of this keeps freight rates firm, schedules disrupted and the only solution to ensure continuity of supply is to maintain higher stock levels than recent years. We have had containers left behind by vessels from all regions for several weeks, and none of us have planned these types of delays for many years.
The supply of organics continues to be a challenge. India suspended all organic certifications from farmer to export in the last month. China struggles to meet EU pesticide levels. Other parts of the world are often challenged with limited quantities or appropriate processors.
Looking forward we see very little weakness in seed markets, both for this season and next.
The supply situation is now becoming quite severe, especially for the ‘A’ grade materials. Fresh stock is difficult to find and it is becoming clear many processors are short of product to cover their forward sales. Defaults are looming, and with freight rates still 3-4 times higher than end 2020, shippers are under pressure. Fortunately, we switched most of our purchases to FOB, so carry this stress within Unicorn. As a consequence of the price pressure the lesser grades, snow white for instance, are rapidly increasing in price.
The situation is further impacted by pumpkin suppliers from Xinjiang being caught up in the Uighur problem. From our experience and audits, and the regular visits by our China team, we see no issue in our supply chains from this region and any form of slave labour. But this does not stop unilateral removal of this region, the largest source of pumpkin in China, by many clients.
The long term impact of this could be quite serious to the supply chain. Looking ahead it is sowing time in China and the authorities are encouraging farmers to switch to corn & soya due to deteriorating relationships with USA and reliance on South America. Pumpkin might not be easy for 2021/22 seasons.
The market continues to gradually firm up fueled by talk of a Russian export tax, similar to sunflower, effectively helping domestic prices in Russia, and escalating transport costs. The firming market is leading to farmer defaults across Eastern Europe, where farmers see strong spot prices and sell out their inventory and escape from their forward lower price contracts. Golden linseed supplies are getting very short now, so prices will potentially pull further ahead and increase the differential with brown.
India has recommenced shipping, but freight rates are up 100% or more, and EU premiums are around $ 100/mt over other destinations. Testing for ETO & 174 pesticides is being managed by IOPEPC in India, and once arrived one in every other container is being analysed by authorities. This is taking up to 4 weeks, delaying supplies and adding significantly to the cost. Many Indian suppliers are reluctant to ship now, since the risks and potential costs are so high.
Obviously, the Suez issue will impact on supplies from here too, slowing down the restart of this region. Don’t get caught short, there is very little surplus seed in EU/UK.
Other regions have stepped into fill the gap, since Europe buys around 5,000mt/month from India and for 6 months now little has been supplied, so warehouses are empty. Africa struggles logistically and has few suitable facilities to meet the health standards of EU/UK facilities, Central America has stepped up, and whilst at a premium is free of the issues from India. Mexico, which has struggled with getting supplies from India, which have then given positive results for their product, is now battling a severe Covid outbreak.
Japan comes to the market around now looking at natural sesame supplies from South America and Mozambique. The latter is under insurgency escalation currently, so there is supply pressure coming.
Central America has maintained its price for a long time but it is now creeping up as stocks become reduced. There is no potential weakness in sesame for the foreseeable future.
Prices continue to be stable, although good quality raw material is becoming short now. This combined with the EU & UK quota from Ukraine reducing rapidly, gives some possibility of a price increase for Q3 supplies, but this is by no means certain.
The poor weather in South America, is pushing up soya & sunflower markets, and these are being supported by strong demand from China & India and firm mineral oil prices. Export taxes on Russian & Ukrainian material add further support. The supplies at farm level in Bulgaria are limited, shippers are often short and defaults are present. The summer is going to be very difficult for supplies.
With a pressure on corn prices too, we do not expect a bumper planting area either this year, so whilst prices are likely to ease, we will not see the levels of the last two seasons.
Once we get some news on the likely harvest for 2021 it will set the price trend for the remainder of Q2 & Q3. But there are only two options; stable or upwards. We see no possibility of a decline.
There is no doubt the situation is tightening on supply for 2021. As previously mentioned the oversupply of alkaloid in the world due to the decrease in demand for pain relief due to Covid, means production of harvest for 2021/22 is going to be reduced. Furthermore, the situation in Czech Republic is unclear but the news is concerning that farmers are impacted by Covid and likely to plant less. Even if this does not materialise, the world will produce less poppy seed next season, and since supply-demand is balanced, a small reduction will potentially lead to a global shortfall and a rapid escalation in price.
Peru is estimating a crop of 60,000mt, and this will be available to start shipping in May. After weak demand in 2020 due mainly to the reduction in the US hospitality & service sectors. So should demand recover from this region, as expected, price will increase quite rapidly as processors rush to recoup losses from last season.
The crop is being harvested across South America, Paraguay & Argentina, and they are seeing good demand from Asian countries. There is limited carry over from 2020 this season, and as with quinoa the expected increase in demand is likely to firm the market. Other things to consider are the lateness of the Bolivian/Peruvian crop, which will not harvest until August this year and the variable qualities.
There is a distinct two tier market in this product with the premium EU material in very limited supply and at higher rates compared to the USA/ROW qualities. This is all about pesticide levels, so any cheap offers are likely to be from this stock, and customers should be careful.