The California Walnut Board has released the August 2018 Position Report. This is a preliminary report due some numbers not reported on time. An updated report will be released after August 31st so the report below would change minimally. Please click on the link below.
Total August shipments were down 4.1% vs Prior Year. August domestic shipments were down 14.7% and August exports up 24% vs Prior Year. YTD shipments are down 10.7% vs Prior Year with YTD domestic down 5.8% and YTD exports down 13% vs Prior Year. Please see the attached Position Report from the California Walnut Board and our statistical summary below:
Tons Tons %
Aug. 2018 Aug. 2017 Chg
Crop Receipts 627,798 680,041 -7.7%
Total Supply 683,774 745,387 -8.3%
Monthly Shipments 26,025 27,150 -4.1%
Export Shipments 9,201 7,421 +24.0%
Domestic Shipments 16,825 19,730 -14.7%
YTD Shipments 618,399 692,189 -10.7%
YTD Export Shipments 408,575 69,560 -13.0%
YTD Domestic Shipments 209,823 222,629 -5.8%
Inventory 65,375 53,198 +22.9%
Shipments as % of Crop 98.5% 101.8%
Shipments as % of Supply 90.4% 92.9%
In addition to the information above, the California Walnut Exporters Association ("CWEA") met today to discuss "Export" pricing. While not an "official" opening, average prices were discussed and presented as follows:
Chandler Inshell J/L $1.02/lb Average, High $1.20/lb, Low $.85/lb and upon further discussion of members, $1.00/lb
Light Halves and Pieces $2.53/lb Average, High $2.80lb, Low $2.40/lb and upon further discussion of members, $2.50/lb
Combo Halves and Pieces $2.34/lb Average, High $2.50lb, low $2.20lb and upon further discussion of members, $2.40/lb
J/L Bleached Inshell Hartley $1.08/lb, $1.10/lb Jumbo Bleached Inshell Hartley
These above prices were discussed for the Export Market but will surely exert significant influence on Domestic prices as well.
Of further note the walnut market could potentially be influenced by a number of situations.
1) USDA Trade Mitigation Programs - On August 27th the Secretary of Agriculture announced that "the USDA is authorizing up to $12 billion in trade mitigation programs which is directly in line with estimated impact of unjustified tariffs on U.S. Agriculture". It is believe that this program of relief will be rolled out in two tranches of $6 billion. Of the first $6.0 billion, the USDA's Agricultural Marketing Service (AMS) will administer the Food Purchase and Distribution Program to purchase up to $1.2 billion in agricultural commodities of which $34.6 million is currently earmarked for walnuts or roughly 15 million pounds (assuming a $2.25/lb kernel price). Some packers believe that the 2nd $6.0 billion tranche would additionally include another buy of walnuts at least or equal to the first amount of $34.6 million. Will this come to fruition?
2) Turkey - The Tariff in Turkey, this time last year was 43%, subsequently reduced to 15% and with 2 additional increases of 10% each, now stands at 35%. This is on top of the devaluation of Turkish Lira which is down approximately 50% year over year and not expected to appreciate any time soon. Additionally, Chile shipped a significant amount of walnuts to Turkey during the this past summer filling warehouses with lower tariff goods. It's unlikely Turkey will be any sort of player until Spring 2019 when it is anticipated that they will be in the market for Ramadan material. In the 2016/2017 crop, Turkey bought 120MM pounds and in the 2017/2018 crop Turkey bought 80MM pounds. For new crop, Turkey is expected to be down 75% from 2016 to about 30MM pounds. How will Turkey react to their significantly devalued currency? How will the California walnut industry react to its largest inshell user potentially being so far down in tonnage right when the industry needs it most to create space and cash flow? What will be the volume increase to regional countries to get around the Turkish tariffs?
3) India - The Tariff for inshell in India is currently 100% and expected to increase to 120% on September 18, 2018. It is expected that India will consume their own crop before they import foreign material. There is a fair chance that India may not import at all this year.
4) Chile - The Chilean situation is twofold. 1) Chile did ship significant amounts of material to Turkey over the summer helping to fill Turkish warehouses with lower tariff Chilean material. As stated prior, Turkey seems to be satiated until Spring 2019 just prior to the Ramadan buying season. 2) Chile may still have significant tonnage to sell and may be a burden to the California Walnut industry for a significant amount of time. Chile's capacity to hold walnuts in cold storage is very limited and they need to ship goods before the hot season arrives. Some CWEA members yesterday put forth that an estimated 40,000 ton under contract has not shipped; that there is approximately 30,000 ton unsold; and possibly 3,000-5,000 ton previously shipped but under renegotiation. While we are not sure of the validity of these numbers, we believe Chile will be aggressive in trying to move out remaining inventory and will have the upper hand in selling to Turkey due to the tariff situation.
5) Preliminary reports indicate that due to mild weather in August and September, the walnut crop appears to be very light in color thus reducing the amount of combo colored product. This narrative seems to have influenced up the combo price which was discussed at $2.40/lb.
In Summary, we generally look at factors that could push the market up $.20/lb or factors that could push the market down $.20/lb. At present, it is difficult to think of anything that would push the market up $.20/lb but we can surely see factors that could lead the market down $.20/lb or more.
- Walnut carryover is significant.
- There is not much positive demand momentum around the world due to Chile's unsold inventory situation, lack of price confidence and lack of cold storage.
- Turkey is forecasted to be lukewarm on inshell just as the season gets started. The Turkish situation would pose to create space issues at plants that try to move large chunks of inshell inventory during a critical 90 day window. This in turn will create cash flow issues in January 2019 when growers will expect their first money installment. Will there be other countries vying to be an adequate surrogate for Turkey to bring in walnuts? It's doubtful the Turkish situation improves over the next 90 days. How will handlers deal with walnut storage if the market starts off slow?
- The potential lack of combo material seems to be real so that the spread between combo and light seems to be narrowing. But, does a lowering of the tide lower all boats? If light prices fall, it will commensurately drag combo prices down with it so today's prices put forth by the California Exporters Association will need to be received enthusiastically by the trade or the season will get off to a slow start. A slow start will erode confidence to buy and a lack of confidence could then create a self-fulfilling prophecy.
- To end on a positive note, don't underestimate the domestic market namely retail and their ability to embrace, promote and ship large amounts of walnuts. If retail can get behind these relatively cheap prices and be modest in their margins, they can help the walnut market tremendously.
We value your questions or comments.