Obviously, the situation that developed in Ukraine last week is and will continue to have a major impact on foreign exchange markets and equities. This volatility will remain for some time, although to date the impact has been relatively minimal bearing in mind the financial sanctions imposed on Russia. Fundamentally the Euro has taken the worst of the adjustment, followed by Sterling as funds move to safe haven currencies, in particular the US$. This will cause imports to increase price, although of course, exports will show some foreign exchange weakness to counteract the adjustment somewhat. It is very hard to see this situation change in the coming months.
FX Monthly movement
- US$/ £ 1.33
- US$/ € 1.11
- £/€ 1.20
Well certainly the War does not make life any easier, giving a view on the next few weeks is very challenging. Normally at this time of year we are writing that we are between crops, life is quiet and markets stable. Not this year! We are also getting used to significantly extended supply chains. As an example, we estimate from the Far East voyage times are roughly 80% longer. This means instead of 40-50 days; vessels can take 70-80 days to arrive in EU. The consequences are obvious, higher financing costs, in a period when money is becoming more expensive. But also remaining BBE times will reduce on delivery.
Sea freight rates are still not reducing, and in some case still increasing. Container availability continues to challenge too, particularly in South/Central America. Schedule disruption occurs again as vessels avoid the Black seas, and congestion occurs in the Mediterranean Sea.
Other trading inhibiting issues are around as the movement of imported cargo from EU to UK and vice versa becomes complex. For some ranges, in particular Organic seeds, it is now impossible to transfer due to incompatible paperwork systems. This will impact supply availability, price and BBE dates,
Finally bunker rates and transport rates generally are going to increase as oil reaches $ 110/barrel, and as the icing on the cake we can expect insurance premiums to increase for some routes.
Weak demand for pumpkin from EU/USA is allowing this market to remain stable. This is against our expectation, and we believe it is due to obvious distractions and challenges being faced by buyers from East European supply bases. The fundamentals remain, and we would still expect to see demand eventually return and cause prices to recover. Afterall new crop will not arrive at destinations until late December 2022 at the earliest.
EU/UK relies on supplies from Russia and Kazakhstan and these origins are obviously extremely challenged now and will remain so. Kazakhstan is land locked and routes out, either by train to St Petersburg, through Russia, or likewise by road through Turkey are long and complex routes now. Russian material processed in Poland also faces challenges. As we have reported earlier in the season, Canadian material is short and firm plus still has some residual GM issues, although this is largely managed now.
Linseed does come from South America, but is generally used for oil crushing, but all their crops have suffered reduction in quantity and quality due to drought.
If this wasn’t enough due to the war, mineral oil and vegetable oil prices have jumped significantly. Expect to see linseed prices never seen before!
Although Korea launched a tender for 14,000mt prices have remained very stable. India is importing some sesame from Somalia which is relatively well priced and available compared to Sudan & Ethiopia. Again, demand is slow as buyers have many other distractions. India’s summer crop is approaching in Gujarat, and we will revert with further news shortly.
As we reported the EU testing regime has relaxed now on ETO but continues on pesticides. In the UK we continue to test for ETO as well as pesticides. To remind all, this means 50% of containers are retained by Port Health and incur demurrage for a couple of weeks, costing £1-3,000 and 20% of containers are retained for Salmonella testing. I have already mentioned lengthening supply chains and reducing BBE dates, so these steps further add to the challenge.
Major concern here. EU and other regions fundamentally rely on Ukraine. Even Polish processors rely heavily on Ukrainian raw material. Vessels have now ceased to call in Odessa. Supply chains are full, but switching to alternate sources is going to be challenging, expensive and as a necessity rapid, requiring urgent technical approvals etc.
We are reviewing options and will be in touch in the coming days.
Well palm, soya and rapeseed oil are seeing levels that are extremely concerning. Sun oil is currently not quoted. As an indication one year ago soya oil was around €880/mt today it is €1600/mt/ eighteen months ago it was € 720/mt. The demand by oil mills in Bulgaria is huge and they are taking all available raw material. Globally Russia & Ukraine are the major producers of sunflower. Availability in Bulgaria, Romania etc. will vanish and kernel prices have risen rapidly and significantly. Already they are up 30%, and potentially there is another 30-40% possible. We must also remember we are approaching the Spring in Ukraine etc. and how much will planting, and crop production be impacted?
Perhaps the concern is that buyers are largely quiet as all the factors are absorbed, when kernel buyers return will the oil mills have left any raw material and will the extra demand push the graph off the charts? Only time will tell.
Stable market, with the lack of demand for alkaloid still overshadowing the market and creating cash flow issues for processors.
Last year was a very poor season with weak demand due to the Covid pandemic. Things are changing now, demand returns and strategies alter. Prices are fluctuating, and supplies are lower than previous years for white quinoa as areas for premium red & black have increased. Shipping isa complicated, and exporters are reluctant to cover this risk now, converting sales to FOB thus passing the risk to the importer.
As we mention the poor conditions in South America have impacted on the harvest. Prices have stayed relatively firm and will not drop further in our view. Other developments are the developing crop in India, although it is limited to only around 1000mt. Africa is developing a harvest to, but supplies are erratic. Global demand will also increase as we hear the Australian producer has withdrawn from the market, which will make Australia a new importer now, whereas they traditionally relied on their own domestic crop. But this struggled to compete with imported seed. So smaller crop, increasing demand. I guess the risk in price is obvious!