As you know since more than a week season started. I had already informed you about the crop size expectations in different regions.
Although it is proven that the crop is significantly short, the prices are decreasing. On this report I will try to interpret the reason of the decrease.
This year before end of April, when the most serious frost incident happened, the prices were too low. Exporters were offering down to 1500 USD/ton levels. These were historically low levels and such low prices were unnecessarily cheap.
So the importers have used this opportunity and made huge amounts of contracts also for later terms of shipments. When the March period passed, most exporters thought the probability of frost was so low and made more contracts and didn’t cover the reason was the decreasing prices.
Then at a very late time, at end of April we had frost. Historically from what we could find, only once , 30 years ago it frosted on May, it was regional. However it’s damage on those areas was huge but frosts after march were so rare.
Some part of these contracts were for shipment terms even after the start new season. Some of the exporters covered these contracts but most of them uncovered.
So when the season started, the importers weren’t accepting new prices easily. They were trying to collect previously made contracts as fast as they could. Until the finishing of these contracts they aren’t really interested at new prices.
Similarly, the exporters, while most of them having short positions, seeing the low new demand from the importers and increasing prices, they weren’t rushing to buy raw material, which later on (since last Thursday) returned the trend of raw material prices to decrease.
Growers, when they saw the prices turned to a decreasing trend, they panicked, remembered their memories of 2 years ago when the raw material prices increasing to 5,2 liras and then decreasing down to 3 liras. So with this panic they increased their supply in the market and which this helped prices further decrease.
But for 2 years ago, one point we should keep in mind is that California had a huge crop and a carry over. They were trying to decrease their stocks and were a lot cheaper then Turkey. They were asking around 2200 USD while Turkey came upto 2800-2900 usd / ton. (the lira price of raw material was 5,2 liras but the currency (USD/TRY) on those days were around 2,0 but today the lira price of raw material is 5,7 lira/kg but the currency (USD/lira) is around 3,00.
From another point, As I explained on my previous reports, this year the damage on the vineyards in the region where is supplying for vine industry is huge. So these companies changed their demand to Alaşehir and Sarıgöl regions. Normally beginning of the harvest, Raki industry was buying huge amounts in this region. But this year as Vine industry is also there, Raki industry is not in a hurry. Because Raki industry can use both fresh grapes and dried, however Vine industry can only use fresh. Therefore as a natural fact Vine industry was in any case going to be more aggressive so the Raki industry avoided competition. Stocks of Raki is completely empty they buy as much as enough for their needs.
Vine industry is not buying as much as Raki does, Raki will probably be buying most of it from dried sultanas, but for the moment as their demand is also missing in the market this fact is also helping decrease in prices. So we see more drying in those regions. However as Raki is buying less in Fresh they will buy more in dried.
All in all, there is a huge demand to come, but it is not coming yet. This panicked the growers and made them sell faster.
However we now see they are less selling and starting a resistance. Nothing can decrease or increase forever. This decrease will have a turning point and all buyers are looking to catch the bottom level. This is not possible unless by chance, when the trend returns, we expect a panic this time from the buyers and at that time the supply of raw material will be very scarce as the harvest will have finished.
As Özgür, we buy in any market, we don’t have the attitude to refuse our growers when they want to sell. .But we believe the scenario will be the complete opposite then the demand returns back.