Risk sentiment is improving partly due to the recent apparent easing of US-China relations which is helping non-US currencies. The Fed has supported the dollar by implying further rate increases are on the cards.
The Euro had recent encouraging news about industrial output which has given it some support after recent lows against the US$. Easing energy prices also helps the Euro but going forward it is likely to really be at the whim of the US$ and global risk appetite.
Sterling whilst also more dependent on US$ strength/weakness will hope to be supported by the Autumn statement out this week.
FX Monthly movement
- US$/ £ 1.03
- US$/ € 1.18
- £/€ 1.14
Generally, the sector seems to still be impacted by over full warehouses, lack of confidence in future demand, and short forward availability of material. This leads to a complicated environment, where spot sales are often possible at discounted rates as suppliers are desperate to improve their cash flow. It means flexibility in contract supply/demand is less, and all are looking after cash requirement.
Freight rates are dropping, particularly as demand from Asian markets has dropped, and in particular from China where lockdowns are disrupting the supply of material still. It means internal logistics however have increased to counteract sea freight reductions.
There is however a lot of latent potential demand around the world, which will stop markets dropping significantly, and could bring about quite dramatic upward corrections still.
The other factor to consider is the current global inflationary period. With inflation hitting double figures in some places, holding stock is a good hedge for farmers against these pressures. If you don’t need the cash, and prices are rising why sell?
New EU regulation on MRL levels for pesticides and other constituents are making life challenging, particularly for organic materials. Limits are being set for residues which are close to levels of detection and lower than some other items. This is causing many suppliers to drop out of organic supply chains, and frustrating supply.
Whilst within the EU these requirements are legally binding, they apply to UK or other countries exporting material containing the ingredients to the EU zone, so by default we have to comply for many clients in the UK too. These challenges are really quite onerous and need to be followed. They are not always monitored on arrival of goods within the community, but if discovered later do & will lead to product recalls etc. So, customers should be confident that all steps are taken by importers to follow these guidelines.
Finally we have recently had Micaela Carmantigue join the UK commercial team to assist in sales and customer support. We have also strengthened our shipping & logistics team in recent weeks to strengthen our supply chain opportunities.
GWS qualities are currently good value, whilst having already moved up from the bottom. These grades which are mainly exported to EU destinations have had weak demand and thus the differential with shine skin grades is relatively small especially for the ‘A’ grades. This situation is unlikely to continue, since EU demand will come in. The crop is small, perhaps 8-10,000mt, so relatively small requirements can have a large effect. If you need GWS this season, you should buy it now.
Shine skin is different, a large crop is being supported by domestic demand, which tens to decline around Christmas. At this point there is a possibility it could drop a little.
Prices have shifted upwards slightly after falling considerably in the past weeks. Supply issues continue from Kazakhstan, with most routes having to traverse Russia. As usual the weather starts to close in now impacting supply chains, and we think linseed might show modest gains in coming weeks. Other regions are trading at a significant premium to Kazakhstan, which gives room for this region to increase.
As with several European crops, the disruption caused by the war is causing commodities to be dumped out of Ukraine to avoid storage issues or supply problems should the fighting escalate. The counter argument to this is should the war come to a cease fire, prices are likely to jump up to meet world levels for these global commodities.
New regulations in EU start on 1st January regarding Hydrogen Cyanide (HCN) levels which are higher for bakery use than packaging and direct consumption. Some origins are struggling to meet these requirements, and the market structure/pricing will potentially reflect this going forward.
Currently all eyes are on India where the recent crop estimates keep dropping. Currently it is somewhere between 200,000-250,000mt. Since Diwali and SIAL prices have jumped up. The poor crop is due to the unusual weather patterns, which we all know caused major disruption in Pakistan along with loss of life.
Demand has been poor. Most significantly the COVID lockdown situation China has kept them off the market. Korea is also quiet, which is probably for similar reasons due to material crossing into China from Korea. EU sees demand down about 35% on India, due initially to the ETO issues and switching to alternate regions or taking sesame out of recipes altogether.
We see cheaper offers coming out of Africa for hulled, but physical delivery is an issue. We are assessing the quality arrangements in some of these facilities, but even then, it is unlikely we can acquire more than one or two containers regularly, but we will be encouraging clients to approve these sources, if acceptable to us, since they bring a safety & security of supply dynamic as well as a price competitiveness.
In Central America the crop is almost upon us and is expected to be quite small as farmers switched to mainstream crops due to global prices increasing.
In some ways, sesame which was slow to follow the global trends in commodities when the Ukraine conflict started, is perhaps leading the way expected in many other items which we are reporting as being depressed pricewise. But it is driven by supply issues, whereas we expect demand issues to impact elsewhere. So, should demand arrive in sesame too what might happen?
This item is very dependent on the situation in Ukraine. Nearby supplies are available for the reasons mentioned above, but demand is weak. If the supply chains are disrupted by Russia, prices will jump up again. If peace arrives prices will jump up again. The forward positions are very difficult to cover securely. Fundamentally it is difficult to see millet not increasing, and the price jump will be significant.
A little like millet, the Ukrainian war significantly impacts this item Fundamentally price pressure is upwards for sunflower since Ukraine is such a significant player, and global forecasts are down. Nervousness continues over whether export corridors remain open. Russia already attempted to close the Black Sea route after recent drone attacks on its fleet. Truck queues at borders can be upwards of 150 trucks and take 3-4 days to pass. But everyone wants to get material out of their warehouses in case there is no opportunity to move in coming weeks, so prices are depressed.
China is a large buyer of sunflower kernels. This demand is hampered by the COVID lockdown policy, but when it arrives surely prices will increase.
We have been reporting for some time that poppy is going to be short for the foreseeable future. Further statistics support this, with the Czech crop apparently down 30% on last year and the lowest level since 2018. This is primarily due to a reduction in area as yields were good. Farmers are canny in the Czech Republic and aware supplies are tight so to protect against inflation and expecting increased demand are not releasing significant quantities onto the market. Prices are higher and have room to go further. Alternate origins are all down in production areas and yields.
If we add concerns over alkaloid levels and suitable supplies the situation is precarious.
Exports for the first three quarters of 2022 are down 10% on last year from Peru, which is keeping prices under pressure whilst the poor crop is indicating prices should firm. There is a smaller new crop due in Peru, which adds some stability, but the expectation is currently the market is under valued. Like so many if/when demand returns prices will increase.
Paraguay had a bumper crop this year, but demand from its neighbours has sucked out supply and availability is now short. We have seen major issues with offers being withdrawn at short notice, and prices are moving up. Issues surround the crop regarding pesticides and parcels not being suitable for export to UK/EU. We think there is material being held by farmers hoping for higher and higher prices. Even with the recent increases chia is cheap historically.
Other regions will bring some supplies to market, but quantities are very limited and GFSI certification often lacking.