Cashew prices have come down significantly since the beginning of this year - a decline of about 30 per cent from a range of $4.75-5 free on board (FOB) in January/February 2018 to a low of $3.20-3.40 FOB from Vietnam in September 2018. At the low end of the range, prices from Africa and India were about five per cent and 10 percent higher.
One significant factor of the decline this year has been the widening of differential in offers from different processors at any given time. Traditionally the differential in prices amongst Vietnam processors was maximum 10 cents - now it is up to 20 cents. Between Vietnam and India/Africa, the differential used to be 2-3 percent - now it is close to 10 percent.
The reasons for the usual price difference was the lower processing costs plus the difference in quality plus the small domestic market in Vietnam.
The main reason for the increased differential seems to be that Vietnam processors who were able to take advantage of the big decline in raw cashewnut (RCN) prices this year have been continuously reducing prices to move the product and buy spot RCN which has been available in plenty for last few months. Once the overhang of supply of RCN in Vietnam is used up, RCN prices will stabilise. At that time, the differentials can be expected to narrow.
After such a big decline, there should be a correction in prices and revival of demand. How long it takes and to what extent the market corrects will depend on how fast inventories (especially RCN) are used up and changes on the shelf (price plus promotions).
The decline in prices seems to have stopped - in October 2018, W320 moved up few cents. Small Vietnam processors who had sold W320 as low as $3.20-3.30 FOB are now asking for $3.35-3.40 FOB. The better processors are able to sell at $3.50-3.60 FOB. Indian W320 is trading in the range of $3.75-3.95 FOB. Reasonable buying interest from the United States and the European Union (EU) for shipments upto March/April 2019.
Most of the problems in the RCN market seem to be sorted out. Prices for West Africa RCN in Vietnam and India are stable in the range of $1,300-1,600. Traders inventories of West Africa RCN in Vietnam and India are being picked up faster than the previous months and will probably be used up by December.
Good quality Indonesia RCN (availability is limited) being traded around $1,700. In Tanzania, crop seems to be good (close to 3,00,000 tonne). Farmers’ cooperatives are resisting the lower prices. So far, only a very small quantity has been traded because RCN traders and processors are reluctant to pay the high prices that cooperatives are looking for (equivalent of approximately $1,800). The general feeling is prices will ease a bit in November or December, but not too much.
It is difficult to judge how any market will move - specially one which has come off 30 percent from a historical high to a range last seen 3 years ago in a short period of six months. The high was reached in a gradual rise over a period of over two years (after three years of moving in a narrow range - more or less the current range).
With the current levels, there will probably be interest from the retailers and roasters to cover some volume for the next four to six months. The feeling is that processors will be reluctant to sell big volumes for larger spreads at the current prices.
It would be reasonable to expect market to move in the $3.50-4 range (with bias towards the middle of the range for the next few months). A break below this range would happen if RCN prices come down significantly in November/December or if the kernel demand continues to be slow in the first quarter of 2019. A break above this range will happen if demand in the first quarter of 2019 is normal or better.
