NOVEMBER 2019 WALNUT MONTHLY MANAGEMENT REPORT AND DISCUSSION
The California Walnut Board released the November 2019 Position Report. Our table of these figures are shown below:
MMR and YTD HIGHLIGHTS
1) Monthly inshell equivalent shipments 1.3% vs PY
- Export inshell equivalent shipments up +1.3% vs PY
- Domestic inshell equivalent shipments up +1.2% vs PY
2) Year to date inshell equivalent shipments now up +1.55% vs PY
- Export inshell equivalent YTD shipments up +2.4% vs. PY
- Domestic inshell equivalent YTD shipments up flat vs. PY
MMR DISCUSSION
The Calif. Walnut industry was up 1.3% in Nov.2019 over PY and up 1.55% YTD vs. PY. Receipts were 632,060 inshell ton through November 2019. Based on historical information this is estimated to be about 98% of the total which extrapolates a total crop of approximately 645,000 inshell ton.If this comes to fruition, this years crop will be about 4% down from the 2018-2019 crop of 672,723 ton. This is a welcome relief from many packer's beliefs (after receiving in much of the early varieties) that the crop would not make 600,000 ton.
Some things to note for the year to date performance:
- Europe Kernel up 23.56% (Germany up 131.3%) and Europe Inshell up 19.9% with impressive results from Germany (up 18.5%), Italy (up 22.8%) and Spain (up 19.8%)
- Middle East/Africa kernel down -55.59% but inshell up 16.23% with impressive results from Turkey up 39.99%, UAE up 42.8%. We see YTD Inshell way down from a number of other countries like Iraq down 77%, Israel down 38%, Jordan down 90%. Lebanon down 71% and Saudi down 92%. Turkey may becoming a conduit to some of these countries.
- Asia YTD Inshell down 53.3% most likely due to a huge Chinese walnut crop and cheap prices. Asia YTD Kernel is down 11.84% with Japan down 5% and Korea down 20%.
CHILE
Year to date Chile has shipped 129,000 ton compared to 120,000 last year. Chile will mostly be a non-factor until their new crop which ships in May 2020 but will be heavily discussed in Feb 2020 at Gulfood. Their crop size and pricing is yet to be determined but will surely influence California at that time. Chilean crop coming out in this timeframe coincides with the California walnut crop cold storage season so that could be looked at as a potential time for a price easing opportunity.
Inshell Prices and Kernel Prices
Inshell prices for Jumbo/Large Chandler began around $1.15/lb several months ago and most recently in the $1.40/lb range. Turkey, a large importer of inshell Chandler for cracking did not disappoint up 40%. The inshell price and the packer mentality of trying to "equate the same return to the grower whether the sale is Inshell or Kernel" has Chandler LHP 20's at a $3.35 to $3.40/lb range. Domestic LHP is in the $3.20 - $3.25/lb range and Combo Halves and Pieces in the $3.00/lb to $3.10/lb range. Chandler halves are in the $3.75 - $3.80/lb range. Without any in depth analysis, prices on kernel seem to be about 30% higher than this time last year and about 20% higher than the average kernel prices for last season. Does this make sense?
Existing Inventory and sales position
Packers continue to be very busy getting orders out and most packers are reluctant to book spot business for quick shipment if it impedes their already full pack schedule. Most of the packers we talk to are at least 60% sold YTD with some over 70% sold. Normally, it's a packers goal to be about 60% sold by January 1st heading into the slower season and the vagaries of what Chile's crop and cold storage season could have on prices. Packers seem to be comfortable.
What We Know and Don't Know
- The crop will likely be finalized around 640,000 to 645,000 inshell ton or about approximately 4.0-4.5% down from the 2018-2019 crop. Buyers will continue to question the disparity between this decline in crop size and the approximately 40% price increase on inshell and 20% in kernel prices over last year's average prices. Are prices levels at equilibrium to move the remaining crop?
- We know that both the Cold Storage season and Chilean offers will be influential in the Spring and might help to influence the prices down if Chile has a big crop. How big will this crop be?
- China has a very large crop and kernel has been shipping cheaply around the world with mixed results on quality. Will China's large crop and cheap prices hurt California Walnuts abroad?
- We know that Calif. has shipped more walnuts YTD (+1.55%) with a seemingly shorter crop (-4.5% est). This has given packer's confidence that they can ship this year's crop easily. Packer's seem to be at peace with where their shipments are year to date with most packers we talk to being between 60-70% sold. What we don't know is the percentage sold of packers we don't deal with. Where is the true "sold" position of the entire industry, 50%, 60% or higher?
- How much more demand will come out of Turkey? YTD, they shipped 61MM pounds, up 40% and Chile will not be able ship to catch Ramadan for many years. How much more will then need to buy?
- How many more USDA Trade Mitigation programs will come out? A recent nut and fruit mix was fulfilled with 1,700,000 pound of walnuts needed for the mix. Surely there will be more buys by the USDA inclusive of walnuts and it does take significant pounds out of the market.
CONCLUSION
The November 2019 MMR report is a slightly bullish report. Bottomline, We are up 1.55% in shipments YTD with a smaller crop providing confidence to packers. We seem to be at "Equilibrium" and this will be very important going forward. For the time being, this report would not purport to ease prices and would seem to limit bids lower than the prices above. We expect those that are uncovered to possibly come back into the market after the holidays after seeing the numbers above with little fear of the market collapsing.
We look forward to any questions, comments or interest you may have and we would be happy to assist you.