Pepper Crop Report 2013

Transcription

1 US$ per ton Pepper Crop Report Monthly Pepper Prices CFR EBP 12,000 10,000 White pepper 8,000 Black pepper 6,000 4,000 2, S Year The historical pepper price chart as depicted above clearly shows that pepper prices have been on the highs during the last couple of years and the big question is where will they go from here? To better understand the situation let us review the situation: During the year pepper prices remained quite flat. Somewhere deep inside we had anticipation that price could come down due to higher production. However still both buyer and sellers were at peace; buyers at one hand were content that they did not have to adjust their average buying price due to rude price fluctuations seen in previous years, and on the other hand sellers at the farm level could make reasonable profit from their produce. As per statistics available the total exports of pepper excluding the raw material used for manufacturing purpose of oil and oleoresin was around 261,000mt when compared to 251,000mt for 2011, with Vietnam cornering a major share of 45% followed by Indonesia, Brazil and India. During pepper production was estimated to be 392,000mt when compared to 328,000mt as in 2011, registering a 19% jump. This was mainly due to increase in production from Indonesia, Sri-Lanka and Vietnam; triggering the question - Why then did prices not go down? 1

2 Possible reasons could be: 1. Sellers financial capacity Farmers have grown financially strong in the major producing countries due to good prices they have earned during last few years. It is estimated that the cost to maintain the crop is approx. USD 3/kg, whilst during the last couple of years they earned an average of USD 6/kg. By now dependence on banks and dealers to finance their stocks is significantly less. 2. Price information The IPC, International Pepper Community based in Jakarta, had started broadcasting market prices to farmers in Indonesia, like the VPA, Vietnam Pepper Association, is doing in Vietnam. This reduced significantly the traditional information advantage that dealers and exporters had over farmers. The power was handed over to the farmers to decide their selling price, instead of dealers and exporters making the market. 3. Indian angle Indian production was lower in, which prompted certain cartels to corner the pepper stocks in the market so that they could sell and profit when the pipelines in the Indian markets would dry up. They started buying well above international market prices; at times Indian prices were quoted at USd2/kg above the international parity. As a result exporters in India had to stay on the side-lines most of the year and India became a net importer. The global demand was largely catered by Indonesia, Vietnam and Brazil. 4. Consuming countries buying strategy Since the banking crisis in and the subsequent need to manage fund flow efficiently most buyers have adopted the strategy to buy on a AS IS NEEDED basis. This did not create big buying spurt which in turn did not push the exporter in the origins countries to cover aggressively. 5. Keep life simple attitude. There is a shift in mentality among the buyers to concentrate on their core business and stay away from speculative position taking. There were times when many of the traders and stockist would enter the pepper market for making windfall gains based on the expectations of prices being on bearish or bullish trend. 6. Lack of external forces effect was also a year with little drastic news or rumours that would start a wave of bullish or bearish reaction. There were no reports of any serious crop damage, weather patterns or any sellers from the origin getting hit or coming out with fire sales of stocks. Production and Supply Whereas showed a substantial production increase of 19% to 392,000mt we estimate the production to be around 401,000mt, a 2% increase. A jump in the crop size has been reported from India, with Vietnam almost in same range as the previous year. Indonesia last year reported a bumper crop year, many even estimating as high as 75,000mt. The Indonesian crop, which is to be harvested during July- August, is expected lower at 60-65,000mt. Trade estimates for Brazil average out around 39,000mt. In the following paragraphs the crop numbers from the production and supply chart (see bottom) are translated into stock positions and stock ratios. The Stock Ratio in simple terms is the measurement of the 2

3 stress factor in the supply chain of pepper and is calculated by dividing global stocks by global demand. Global indicates that sellers in the origin have a stronger holding capacity resulting in improved controlling power. On the other hand this could also lead to panic selling if unwarranted news hits the market. 350, , ,000 Global Pepper Consumption 0 50,000 0 The global stock positions have been slightly inching up, primarily due to the increased production in and continued better crop in. As per our analysis the stock ratio is at 30% which means that there is a buffer of 3.5 months of supply, not much by the historical standards. 160% 140% 120% 100% 80% 60% 40% 20% 0% Global Stock Ratio End of year stock levels at the producing countries are building up to much more comfortable levels when compared to the stock levels in consuming countries. This Asia Europe Africa Middle East North America Producing Countries Global consumption of pepper is growing at an average rate of 3% with the main drivers being Asia (primarily India and China) and the Middle East. Growth from the Americas and Europe (incl. Russia) is fairly stable with slight increase. Global consumption per month corresponds to approx. 30,000mt, where Asia, including the producing countries, consumes about 12,000mt per month. Furthermore we know that pepper consumption is fairly inelastic to price fluctuation. Since demand started overtaking supply year on year, which meant that growing world demand resulted in declining global pipeline stocks. These global stocks reached their low point in 2011 with a corresponding Stock Ratio of 28%. Since global production started to look up as farmers took good care of the pepper vines. New pepper plantings were undertaken in many growing countries in -2009, 3

4 450, , , ,000 50,000 - which started yielding new volumes to the supply chain as from As the chart on Global Consumption and Production shows production started to fill the gap between demand and supply in and in we see further improvement with pepper production increasing and overshooting global demand with a slight margin. White Pepper Global Consumption and Production White Pepper Quantity in Mt Production total (seasonal) Demand Exports Indonesia 5,,000 22,000 3,000 16,700 7,300 Vietnam 2,000 18, ,000 4,500 Brazil 500 2, , Malaysia 1,200 7,000 2,800 2,800 2,600 China 5,000 30,500 32,000 2,500 1,000 Total 13,700 79,500 38,300 39,000 15,900 White pepper production for is expected to be approx. 79,500 mt with domestic consumption from the producing countries being at 38,300mt and the exports to the non-producing countries at 39,000mt, which would leave a closing stock of approx. 15,900 mt. The emergence of Vietnam as a white pepper producer has changed the equation on the supply side as they convert part of their black pepper production to white depending on the demand. To recapture the points supporting bullish and bearish trends in short: 1. The sellers are financially much stronger and have learned the art of selective release of stocks to keep a check on the price slide. Buyers on the other hand do not sit on big stocks to be able to tide over larger waves of adverse news in the market. 2. The End of Year are building up in the producing countries slowly but steadily and better crop prospect could lead to more of it. At the buyers side stock positions remain low and therefore vulnerable. The change in the buying strategy i.e. not to take speculative positions and buying as much close to the requirement, will keep buying limited but consistent. 3. The prices we saw during 2011 must have been the highs. However the current demand and supply balance is in a very delicate equilibrium state and can tip either side on bullish or bearish news. In the absence of such news and against the backdrop of a production that is outstripping demand prices may reach lower levels during the next 6-12 months. For the long term, however, demand continues to grow and it remains to be seen whether production can keep pace.. 4

5 Production and Supply Table Indonesia Vietnam Brazil India Malaysia China Srilanka Others Total 112, , ,167 34, ,621 67, , ,383 49, ,672 90,576 Indonesia Vietnam Brazil India Malaysia China Srilanka Others Total 90, , ,500 40, , ,076 5