With most of the Northern Hemisphere crop already in the market, raw cashew prices are expected to stabilize around USD 1650-1800 levels (CNF HCM) going forward. Kernel price (W320), which has reduced by over 5.32% since the beginning of the year is likely to be the range bound between 4.0 and 4.5 USD per lb aiding healthy growth in demand during the second half of the year. Processors in both Vietnam and India are constrained to work under wafer-thin margins.
Cashew kernel prices decline by 13.70 % since May 2017
During first week on June, cashew kernel (WW320) traded between USD 4.40 and 4.50 per lb FOB India and at USD 4.40 per lb FOB HCM. Cashew kernel price has declined by about 13.70% since it touched the all-time record high of USD 5.15 per lb in May-2017. Pieces that did not participate in the rally have remained stable as shown in the table. Secondly, the premium on W320 over LP dropped from USD 1.5 per lb in May 2017 to a more acceptable USD 0.8 per lb in May 2018. This should augur well for continued demand from food ingredient sector.
Vietnam-Ho Chi Minh Average Price of Kernel (USD/lb fob)
Grades May-17 May-18 Change in % 2018 vs 2017
W240 5.43 4.55 -16.20
W320 5.10 4.40 -13.72
W450 4.98 4.28 -14.00
LP 3.60 3.63 0.80
WS 4.13 4.26 3.10
However, Vietnam kernel export continues to be buoyant so far
Vietnam cashew kernel exports in the first five months (Jan-May) of 2018 totalled 141,000 tons, valued USD 1.39 billion as against 117,292 tons exported during the same period in 2017, with value being USD 1.12 billion. VINACAS has trimmed the kernel export target down to 300,000 tons for 2018 as it wanted to focus on improving quality. Vietnamese processors had bought bulk of Tanzanian crop at higher prices in Dec-Jan. Hence, they were selective in buying from West Africa. It is to be noted that in 2017, Vietnamese processors faced a lot of defaults and quality losses on their raw seed purchases from African countries. Thus, Vietnamese processors are facing difficulties in getting loans from their banks.
While India kernel export struggles even after lower duties
India in the first four months (Jan-Apr) of 2018, exported 22,261 tons of cashew kernel valued USD 0.22 billion as against 34,036 tons of kernel exported during the same period in 2017, with value being USD 0.26 billion. India’s kernel exports were constrained by mounting loans by cashew processing units to banks in the key exporting state of Kerala, which led to closure of many processing factories. India rupee has also depreciated by about six percent against the USD since Jan 2018, which is not aiding the exporters as India depends on imports of RCN for half of their processing capacity (total processing capacity 1.6 million tons). It is to be noted that in the Union Budget in Feb-2018, the government of India has lowered the import duty on RCN from five to 2.5 percent which failed to lift the market sentiments.
Going by the trends in exports from Vietnam and India, the volume off-take in the first five months of 2018 continues to remain intact. The question is how would the demand be in the second half of 2018?
Raw cashew prices drop in line with kernel prices
The raw cashew price, which traded even as high as USD 2400/2450 per ton (Tanzania crop) during Jan/early Feb, has declined sharply to USD 1750-1800 per ton during first week of June for 46-47 lbs. The West Africa 2018 raw cashew season started at USD 2100-2200 per ton, but it slid considerably as Vietnam delayed purchases. This has resulted in prices dropping down to USD 1800 to USD 2000 for 48 lbs based on the origin and quality of the produce in mid-March.
Raw cashews availability abundant, quality average
On the supply side, the availability of raw cashew is more than adequate as the 2018 production from all origins is in line with initial estimates, except for India where the crop is likely to be lower. As far as Vietnam and Cambodia is concerned, 2018 crop is likely to be in the region of 475,000 and 525,000 tons (in-shell basis) as against the initial estimate of 600,000 and 650,000 tons. Nevertheless, it is well above the crop size of past two seasons. In Africa, especially West African countries production is more or less in line with the estimates before the commencement of the season, even though the season was delayed in Guinea Bissau due to higher minimum price of 1000 FCFA per kg fixed by the government. The issue was resolved amicably with all the stakeholders and now 1000 FCFA is seen as the reference price.
Northern Hemisphere RCN Crop Production estimate 2018 vs 2017 (in shell basis)
Country 2017 (tons) 2018 (tons)
Cote d’Ivoire 711,236 750,000
India 779,000 725,000-750,000
Vietnam and Cambodia 375,000 475,000-525,000
Benin 120,000 120,000-125,000
Nigeria 220,000 190,000-200,000
Ghana and Burkina Faso 240,000 260,000-270,000
GB, Guinea, Gambia and Senegal 275,000 275,000-300,000
The quality of RCN is still a challenge in many of the African producing countries. This still needs to be addressed properly, as it ultimately leads to lower yield at factories. Falling prices have also resulted in a lot of contract renegotiation and in some cases outright defaults.
So, what next?
Most of the RCN crops for this season from West African countries were either exported or already contracted by buyers for shipments in the coming months. Only crops from Guinea Bissau, Senegal and Gambia may hit the markets in large quantities in the coming months. Hence, the market is of the view that RCN prices may not come down much going forward.
Cashew kernel (ww320 FOB India) price averaged USD 3.56 per lb in 2015, 4.10 in 2016 and 4.91 in 2017. Currently as of June 1st week W320 is traded at USD 4.35-4.70 per lb. We expect kernel prices to hold USD 4 per lb going forward and stabilise by mid-August 2018, which also coincides with western countries buyers returning from their summer holidays and also starting of the peak demand season in India, the world top consumer of kernels.