Cashew prices surge, growing areas hit by bad weather

Cashew nut prices have surged as excessive heat and lack of rain, linked to the El Niño weather phen…

Cashew nut prices have surged as excessive heat and lack of rain, linked to the El Niño weather phenomenon earlier this year, affected cashew producers in Africa and Asia. At the same time, a rise in labour costs in India as well as an import tax has led to numerous processing plants being idled.

Cashew prices have jumped a fifth from the start of the year to about $4.20 a pound, with buyers facing a tight market for the rest of the year.

The high prices are likely to worry cashew buyers, including retailers and food processors who use the tree nut in a range of foods including biscuits, cereals and sauces such as pesto, say traders.

Vietnam and India are the two largest producers and exporters of cashew kernels. The two countries process raw nuts that they produce as well as importing raw material from Africa, including Ivory Coast, Tanzania and Benin, and re-exporting the processed product.
Saharan winds

The cashew market started rising once processors began to panic after El Niño delayed the Vietnamese crop in March. Exports from Africa were also delayed after the stronger-than-normal Harmattan winds from the Sahara hit the crop in west Africa.

“The adverse weather has decreased both quality and quantity from these origins,” says Corrina Hutchings, analyst at commodities data company Mintec.

Production for 2016 could fall about 4 per cent to 708,000 tonnes, according to early estimates by the International Nut and Dried Fruit Council.

The delays and poor yields meant that packers in Vietnam, who had overcommitted their sales, were forced to delay shipments. This in turn caused a shortage on the European market, further pushing up prices.

While some buyers sought to wait out the rally for further raw nut supplies from Africa to Vietnam and India, the quality and supply volumes have failed to improve, forcing them to scramble in a thin market.

The tight supply situation has been aggravated by the troubles facing India’s cashew processors. A rise in labour costs ate into profit margins, leading to facilities being idled, while a new import tax on raw cashew nuts has also crippled the sector, leading to lower export flows from the country.

Traders are now nervous about the cashew rally, as higher prices will incentivise more production, leading to a sharp fall in prices. On the demand side, they forecast reduced demand from large retailers.

Supermarkets and other large buyers will next month start the tendering for their purchases for 2017 at current prices, forcing them to reduce the quantities they contract.

A decent crop next year combined with reduced purchases could mean a “real drop in prices next year”, says Mr Stevens.