May 2018 WALNUT MONTHLY MANAGEMENT REPORT AND DISCUSSION
The California Walnut Board released the May 2018 Position Report. Shipments of 41,354 ton for the month ended May 2018 were up 4.7%% versus May 2017 shipments of 39,504 ton. This May comparison is more favorable due to last May 2017 where prices were much higher and inventory available to sell was much lower. YTD shipments ended May 2018 were down approximately 12.1% from the same YTD period the year prior. For your review is a summary comparison on an inshell comparable basis using an identical shell out rate of 44.1% for both years. With 3 months to go in the season the industry’s is roughly 85.1% shipped. The remaining commitments and their “solidness” are a question mark.
Tons Tons %
May 2018 May 2017 Chg
Carry in 55,976 65,170 -14.1%
Crop Receipts 627,798 680,097 -7.7%
Total Supply 683,774 745,267 -8.3%
Monthly Shipments 41,354 39,504 +4.7%
Export Shipments 24,272 22,602 +7.4%
Domestic Shipments 17,082 16,902 +1.1%
YTD Shipments 534,440 608,169 -12.1%
YTD Export Shipments 374,008 438,342 -14.7%
YTD Domestic Shipments 160,432 169,827 -5.5%
Inventory 149,334 137,098 +8.9%
Shipments as % of Crop 85.1% 89.4%
Shipments as % of Supply 78.2% 81.6%
Shipments of 41,354 for the month of May 2018 were up 4.7% from the prior May 2017 and YTD shipments of 534,440 ton are 12.1% behind the same YTD period the previous year. For the remaining 3 months in the season, the industry needs to average 31,111 ton the next 3 months in order to carry out the same 56,000 ton which on the surface seems doable. In the 2015-2016 crop, shipments averaged 35,600 ton in the last 3 months of the season and in the 2016-2017 crop (last year) the industry averaged 27,5667 ton but the industry had extremely low inventory to sell in this last 3 months. This May 2018 compares favorably to the prior May 2017 simply because there was more inventory to sell and at cheaper prices than the previous May 2017.
Shipments as a percentage of supply are 78.2% for 2017-2018 versus 81.6% for 2016-2017 or a roughly 3.4% decline. Monthly Domestic shipments for the month were up 1.1% while Monthly Export shipments were up 7.4%. Total YTD shipments are down 12.1% compared to total supply which is down 8.3%.
Pricing for all material continued to decline from the last report as follows: Domestic LHP $3.10-$3.20/lb, Export quality 20% LHP $3.20 - $3.40/lb. CHP in the $2.90lb to $3.00/lb range. There is continued motivation among packer’s to clear out inventory and to “not” wait for any possible shortages over the summer to materialize. Most packers have put remaining goods into cold storage so those costs are mostly accounted for in the goods. Export Halves are less plentiful but still in the $3.40 - $3.50lb range. Piece availability is spotty and some packer’s have chopped halves to make pieces. Ironically, CHP, is even more available then before as packers are starting to finally pack their less desirable inventory.
What do we know that will help us navigate the final 3 months?
- India has placed a 100% duty on Walnuts. In the 2016/2017 season, the industry shipped 31 million pounds of inshell compared to 22.9 million pounds this year. The duty will slow shipments down into India and add to the bearish forces that we are seeing in this downside market.
- Turkey, which is California’s largest buyer, had had a duty of 40% which was lowered to 15% in January 2018. Just recently it was increased back up to 20%. Some may view this increase as a negative trend but should we not view this as a “year-over-year” positive trend? This may be bullish for prices but could turn bearish if the duty increases further.
- It is rumored that China’s crop, once thought to be 900,000 ton or more will be down and closer to 700,000 ton. While China and Hong Kong bought 40 million inshell pounds in 2016/2017 and 20 million inshell pounds in 2017/2018, what will purchases be if China’s crop is down 200,000 ton but there are continued trade tariff’s? This is somewhat unknown and neutral to prices.
- Chile has not been able to service Ramadan needs due to this holiday falling earlier in the calendar year. This pattern will last over the next generation where the Middle East buyers will consider California origin “fresher” then the Chilean product. But, for the next few years, these new found sales will only come after the Western and Chinese holiday buying has been done. Meanwhile, California handlers will face competition from Chilean “old crop” from the outset of the season which starts this September. Depending upon crop size and the Chilean carryout, this should be bearish on prices with possible upward price trend coming later in the season.
- The industry needs to average about 31,000 ton the next 3 months to have a reasonable carry out of 56,000 ton. Packers are very confident that this is achievable. Having a carry-out of 56,000 ton or 8.2% of supply is not burdensome to the industry. There are some shortages starting to show up in some products like Combo Medium Pieces and Export Quality Halves.
- Additionally, there is signaling from some growers and packers about a smaller 2018/2019 crop, maybe under 675,000 ton based on what they are seeing in the trees to date. If the actual crop is under 675,000 ton, then that would tend to be a bullish sign on prices, 675,000 to 710,000 ton, somewhat neutral to prices and over 710,000 ton, somewhat bearish on prices. Time will tell on this but if the early indications are true, then this would be a bullish sign on prices from levels that we are seeing today..
In summary, there are a lot of moving parts to the final 3 months of the 2017/2018 walnut season. California is not daunted by the remaining 149,334 ton of inventory and the need to sell only about 31,111 tons in each of the next 3 months to have a reasonable 56,000 ton carry out. The Walnut Industry’s “sales run rate" in the past two years for this final 3 months of the season suggest that California will have a modestly reasonable carry out of under 60,000 ton. Yet, political uncertainty, tariffs/duties, competition from Chile and a 2018/2019 crop where question marks are emerging will make for a very interesting last 3 months which will greatly steer expectations for new crop.
We welcome your questions and comments and are eager to discuss any aspects of this report or any walnut demand you may have or are contemplating.