Hazelnuts: Difficult demand situation

 Economists reckon that Turkey is witnessing an unprecedented economic crisis of epic proportions. Hazelnut suppliers report the inflation is much worse than official figures suggest, and exporters are dealing on slippery grounds. The production estimates issued at the International Nut and Dried Fruit Congress also illustrate some surprising trends. (Mundus-Agri) 

Unprecedented crisis

Although relatively firm against the euro, the Turkish lira has recently slipped against the US dollar. In declining by 16% this year alone, the lira is, in fact, the worst-performing currency after the rupee in Sri Lanka and the cedi in Ghana, as Bloomberg reports. As President Recep Tayyip Erdoğan and the central bank continue to employ unorthodox methods to stabilize the economy, there is little faith in the market. Analysts agree that the lira will depreciate further.

Hazelnut suppliers report that reality is much more frightening than official estimates suggest. New regulations stipulating that 40% of all payments have to be immediately converted into the Turkish lira are suffocating exporters and importers. Turkey’s Statistical Institute recently also declared that the country’s inflation rate had reached 70%, which is alarming enough. In reality, however, the prices for most commodities have risen by at least 100-150% since last year. Operational expenses and raw material prices have skyrocketed, but people also have to struggle with rising electricity, gas, and fuel costs. The unit price for electricity used by the production industry, for instance, hit TRY 1755.67 in the first quarter, which is nearly three times as high as last year. The situation in Turkey is, in other words, highly chaotic and set to remain so. Exporters are doing business on very slippery grounds.

Demand is tricky

In spite of the high degree of uncertainty involving Turkey’s economic situation and the impact of the pandemic, exports picked up, especially in November and December. Turkey exported 276,285 mt in kernel basis (552,570 mt in-shell bases) between 01. September 2021 and 16 May 2022. As domestic consumption ranges at 80,000 mt, it can be stated that 630,000 mt (in-shell basis) have already been sold. With 14 weeks left until the end of the season, and if exports retain the average rate of 4,000 mt per week (8,000 mt in-shell basis), they may climb to 665,000 mt (in-shell basis) at the end of the season.

Demand is, nevertheless, tricky. As people in Turkey can barely make ends meet with inflation spiraling out of control and the economic situation getting worse domestic market is undoubtedly shrinking. Only the wedding season in summer and some speculative buying in the hope that the prices for other nuts will eventually also prompt hazelnut prices to go up to have given the market some support.

The war in Ukraine, coupled with inflation, is also weighing on export demand. Ukraine and Russia purchase around 8,000 mt (kernel basis) in Turkey every year. But as the war is expected to drag on, these volumes will certainly remain in Turkey. This will, in addition, impact the exports of confectionary and bakery products made with hazelnuts to Russia and Ukraine, which will hit manufacturers in Turkey and the EU. Demand will certainly decline in the next few months. Major importers in the EU are also convinced that the worsening economic situation coupled with the effects of the war will prompt consumers to refrain from non-essential spending. There are only few importers in Germany and the Netherlands who state that demand is still good.

(INC industry sources)

China to become a major player

At last week’s INC the Black Sea Hazelnut Exporters Association declared that Turkey will produce 760,000 mt of inshells in 2022. Carry-overs will range at 105,000 mt. Global production is also set to range higher and total supplies should reach 1,393,700 mt, whereas consumption is estimated at 1,225,80 mt. Not only is production expected to rebound in Italy as prospects are highly encouraging at present, but China is also becoming a major player in the market. Chile has, in addition, steadily increased production in recent years and has become a sustainable producer. Iran’s production is, by contrast, set to decline by more than 50%.

Ferrero to refrain from purchasing

Suppliers state that Ferrero will refrain from purchasing in Turkey at the start of the new season as sufficient supplies will be available in Italy. Although the situation in Turkey is highly volatile and adverse weather conditions may still impact the crops in all major producing countries, present expectations are that increased supplies will meet reduced demand in 2022/2023. The TMO will also find itself in a tricky situation in the new season. The problem is that the state-run organisation initially bought around 75,000 mt of inshells from the farmers at a purchase price of TRY 26/kg. Prices in the two rounds of sales conducted in recent months, however, ranged much higher and even climbed to TRY 41.50/kg in the final round. The TMO will certainly need to offer the farmers much higher prices next season, regardless of the supply and demand situation. Traders reckon that the TMO’s purchase price will range at TRY 45.00-50.00/kg. Export prices have declined this week. (Mundus Agri) 

(According INC)