The crop growth for the next season across origins is panning out as expected. We expect a lower crop in Turkey, but the growth in other origins, notably Italy, should ensure we have enough crop supply for the coming season. For the current crop, the TMO announced the sale of its last tranche last week, which was slightly higher than the market expectation. Some of that is still unsold, but we expect TMO to carry it over to the next season in case they cannot sell this tranche. The TL rout continues.
For the new crop, the TMO is expected to increase the price to compensate for inflation. The price increase announced for tea, which is another important crop in the Black Sea region, is 75% higher over the previous benchmark price; clearly an indication of adequate inflation adjustment. The currency will continue to play an extremely important role in determining the levels at which new crop will be available for the market.
The exports this year are notably higher than the last year (300k against 250k last year similar period), but we believe it has to do more with the replacement of the Italian short crop and inventory buildup in Europe rather than a significant increase in demand. We have seen some uneasiness from larger retailers/confectioners to cover for longer periods owing to some concern over demand. However, call-offs for most current contracts are on track. Ferrero, too, seems to have covered its seasons demand and might no participate for the rest of the season. Most retailers are expected to open tenders during July and are expected to increase activity for next crop trade.
We expect adequate supply for the next crop. Demand continues to be stable despite worries and inflationary woes. The next year pricing will now depend largely on TMO prices and subsequently how Ferrero operates. We do not see much downside from current levels and expect TMO to set a benchmark considering a possible depreciation in currency during the course of the next season. The currency will continue to play an extremely important role.