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Chilean offers hold firm on rainfall uncertainty; US kernels edge higher

April 28, 2022

Chilean-origin walnut prices held their ground the week ending Thursday in the global container market as heavy rainfall in the country cast uncertainty on market direction, while U.S. Chandler kernels gained slight traction amid low liquidity.

U.S. inshell prices were steady amid reports that some packers without cold storage were shedding the last of their inventories ahead of impending warmer summer weather.

Stratamarkets assessed U.S. Chandler JL inshell at $0.92/lb FAS, unchanged on the week, and Chandler LHP 20 at $2.25/lb FAS, up 10 cents on the week.

Chilean inshell

Selling of Chilean inshell walnuts slowed, with several packers saying they were either holding back from offering or limiting available volumes until the impact of recent heavy rainfall on crops in some regions could be assessed.

Business for Chandler 34-36mm inshell was heard done in the $3.10-$3.30/kg FOB range, while 30-34mm material – the closest equivalent to U.S. Jumbo/Large – transacted between $2.60-$2.70/kg.

Early estimates indicate that Chile is on course for a bumper 175,000 mt (385.8 million lbs) crop this year, leading to an abundance of smaller-sized nuts.

Chilean packers said there is less availability of larger-sized inshell mixes such as 34-36 and 36+ so they expected slightly wider premiums for these items.

One packer said that shipments of 30-34mm this year generally contain higher percentages of 30-32mm nuts.

“As long as buyers don’t care so much about the sizes they receive in their samples, they will pay current prices for 30-34, but otherwise they will have to pay $2.75-$2.80/kg for 32-34,” the packer said. 

Chile rainfall update

This week, a strong jet stream steering low-pressure systems across South America caused strong winds and heavy rain to batter parts of southern Chile.

Orchards located in the south-central regions of Maule, Nuble, and Bio Bio, where the rainfall was the most prolonged, are understood to be the worst affected.

One Chilean packer said he was sticking to his current offer prices for kernel items due to the possibility of the adverse weather affecting up to 20% of crops.

A second Chilean packer said on Monday that the market would have to wait to see how the adverse weather might affect crops but added that many packers operating in the southern part of the country were “almost done” with collecting their harvest.

“It is still too soon to see the effect of the rain,” the second packer said on Wednesday. “All will depend on how fast these orchards can pick up and process the walnuts that were sunk in the water.” 

Another packer said he believed the impact of the rains was being exaggerated as the areas where rainfall was heaviest represent a small percentage of Chile’s overall crop, adding that “the harvest was advanced when the rain began.”

He said Maule, with 60 mm of rain over the last seven days, is the largest affected region, accounting for 16% of walnut-planted hectares in Chile. Meanwhile, Nuble (105 mm) and Bio Bio (100 mm) combined account for just 6%.

U.S. inshell

Market sources said U.S. current crop Chandler inshell products were fast selling out, with deals reported in the $0.85-$0.92/lb range in the week ending Thursday.

A Turkey-based trader said he secured 10 loads of Chandler JL for May and June shipment at $0.85/lb FAS Oakland on Monday and insisted the quality of the cargo met USDA specifications.

“This was the last cargo in [the seller’s] hands,” the trader said.

Some market participants have speculated that U.S. inshell trades at apparently discounted levels could be due to available stocks largely being limited to material affected by heavy rains in California last October.

However, a U.S. packer said he believed the $0.85/lb FAS trade was feasible: “A lot of Californian processors are set up to get those inshell shipments out seasonally and be done early.”

He said that for those U.S. packers not equipped with cold storage facilities, the approaching warmer weather in California was a concern.

“You can’t carry walnuts into warmer summer warehouses, so  I think there are going to be a handful of packers for whom the weather change will trigger a sense of urgency to sell,” the packer said on Wednesday.

Inshell demand

As U.S. current crop inshell availability dries up, traders in the key demand hub of Turkey are increasingly turning their attention to Chilean supply, market participants said.

Counter-seasonal Chilean inshell is regarded as a high-quality product and is typically priced at a premium to U.S. material.

A Turkey-based trader said a large Chilean crop would not push sellers in the country to reduce their offers.

“Chilean opening offers have been firm, and the large crop won’t scare them, so they do not need to reduce the price,” the trader said. “However, they do need to keep it stable.” 

He added that any increases in offers from Chile could deter Turkish buyers.

With U.S. crop year-to-date inshell exports to Turkey down 42.9%  to 176,368 inshell equivalent tons (ISE), according to the California Walnut Board, concerns are increasing that lower Turkish demand could develop into a longer-term trend as the country undergoes economic and political upheaval.

The Turkey-based trader said that although Chinese and U.S. origin inshell inventories generally remain ample, supplies of premium light and extra light material are dwindling and buyers of these products are eying Chilean offers.

However, he warned that color requirements would not completely dictate inshell pricing dynamics and that the weakness of the Turkish lira against the U.S. dollar may push buyers back to cheaper products, most likely from China.

He said that if heavy rainfall in Chile did affect the crop, it also raised the prospect of Turkish buyers competing to buy rain-damaged products at very low prices.

Amid the current container freight issues impeding transportation of walnuts, rates from the U.S. and Chile to Turkey are increasing. One U.S. packer said Oakland-Mersin freight during May was now costing around $0.18/lb, while the Turkey-based trader said he was quoted upwards of $0.20/lb for Chile to Mersin.

U.S. kernels

U.S. suppliers of processed shelled products said business was winding down at this typically low-demand time of year with little trade activity heard concluded.

A California packer said he saw $2.25/lb FAS as the “ceiling price” for Chandler LHP 20. Offers for Chandler LHP 80 retained their week-ago levels of $2.95-$3.05/lb FAS.

One packer said his company was currently focused on shipping, as a lack of containers in Oakland continues to delay walnut exports.

“We’re close to 90% committed and our schedule is full through June,” he said. “We’ll have a record month [in April] getting containers out after really struggling in March. It seems things are opening up a little.”

Any pick-up in shipments in the coming months would be welcome in California and would chip away at the current estimated 155,000 ISE carry-out, which would be a record for the second year. Market sources predict the carry-out will consist mainly of lower-grade non-export material such as Combo and Domestic LHP.

“Every packer and their mother is trying to offer Combo,” said one U.S. packer. 

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