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Chilean inshell prices increase as US market winds down

May 19, 2022

Chilean inshell walnut prices in the global container market firmed in the week to Thursday, widening their premiums over U.S. equivalent products as buyers accepted offers at the higher end of the spectrum and packers continued to sell their counter-seasonal volumes.

Activity in the U.S. was unsurprisingly slow as the 2021-22 season winds down. However, packers were in a more buoyant mood on the back of last week’s positive April shipping report, which revealed a strong year-on-year increase in sales commitments and a healthy 86% sold position.

Stratamarkets assessed Chilean Chandler 30-34 inshell at $2.70/kg FOB, up 12 cents on the week, and Chandler 34-36 inshell at $3.29/kg FOB, up 11 cents.

U.S. Chandler JL inshell was assessed at $0.95/lb FAS, and Chandler LHP 20 at $2.20/lb FAS, both unchanged.

Chilean sales

Chilean packers reported mixed fortunes in terms of sales during the INC World Nut and Dried Fruit Congress held in Dubai last week. 

Some suppliers said discussions on future market direction, weakening global demand and logistical headaches overshadowed closing deals. Other suppliers managed to sell considerable volumes, particularly inshell.

“Sales are getting closed, and we’re seeing some good interest from Turkey and India,” a Chilean packer said. 

Chandler 30-34 traded at $2.70/kg FOB Chile on Friday and Monday, increasing the item’s price premium to its closest U.S. counterpart, the CH JLIS, to 27 cents/lb. The differential has averaged 29 cents/lb since mid-February when Stratamarkets began tracking prices.

“Chile has been moving the 30-34 price up from $2.50/kg at the start of the season, but it remains to be seen if people are buying in quantity at $2.70/kg,” a Turkish trader said.

Chilean sales appear to be progressing slower this year compared with last year, with one Turkish trader saying that packers have ground to make up because opening sales, traditionally closed at the Gulfood conference in February,  were lower than usual.

That situation may have been exacerbated by shipping delays,” the trader said. 

If Chilean sales do not pick up over the coming months, this could raise the unusual prospect of Chilean current crop product still being available in September, effectively competing with U.S. new crop. It’s a scenario packers in Chile and the U.S. prefer to avoid, the trader said. 

However, Chilean sellers were upbeat, with one packer maintaining they were on course to close out their season by September.

“There have been some problems with shipping but we’re confident that we will finish up in time,” the packer said, estimating that around 50% of the Chilean crop had already been sold.

Rain damage sustained in April could reduce Chile’s 2022 crop from the previously estimated record 175,000 mt, although the toll is likely to be limited given that much of the crop had already been harvested before the rains, a U.K.-based trader said. 

“A high percentage of that eventual total crop is likely to be cracked out for the kernel market, so I don’t think the Chileans will be daunted by how much inshell they have to sell,” the trader said. 

He estimated that demand for Chilean kernels for the year could reach 40,000 mt, which would account for around 100,000 mt of the crop based on a shell-out rate of over 40%, indicating they may only have to market 50,000 tons [of inshell].

U.S. market

U.S. packers said that they were encouraged by April’s shipment report, which reduced the year-to-date deficit to 13%, its lowest this crop year, and solidified hopes of a gentler carry-in for next year.

Because the carry-over is bound to consist of lower-grade Combo and Domestic products largely, its effect would be specific to certain packers with these products on their books and would not compete with new season sales for higher quality kernel products, a U.S. packer said.

“From my perspective, the carry-in will be a number out there but in terms of it interfering with new season Chandler and good quality sales, I don’t think it will be a problem,” he said.

There remains strong speculation that a USDA walnut purchase program for surplus removal is imminent, which would remove a significant proportion of the carry-over from the market and potentially strengthen lower-grade material prices. 

The USDA has approved a $30 million tender that would remove more than 400 loads of Combo HP from the market, a U.S. packer said. Combo HP has been trading in the $1.50-$1.60/lb FOB range over the last few weeks.

U.S. packers’ strong sold position bodes well for handlers as they “clean down, close down, do maintenance on machinery and seek to be ready for the new crop,” said the U.K.-based trader referred to previously. 

Chinese competition

One potential shadow on the horizon for the U.S. new season is China’s emergence as a stronger force in the export market. Sources said that a major discussion point among U.S. packers at the Dubai event was how the industry should tackle this competitive threat.

“As an industry, we really need to address China and consider where our opening prices are and not lose out like we did last season as it really put us on the back foot,” said one U.S. packer.

China produced over 1 million mt last year, and the 2022 crop will likely exceed that. China’s success in the export market will likely be determined by whether the country can satisfy buyers’ quality requirements, particularly around color, to complement its lower prices.

Buyers have rejected some Chinese shipments due to color issues. Still, price-sensitive buyers appear increasingly willing to accept China’s Xin 185 variety as weakening local currencies against the U.S. dollar make California walnuts more expensive.

In the inshell market, China also has the advantage of bypassing ocean freight delays by railing shipments from Xinjiang to Turkey and Europe. Xin 185 inshell was heard offered at $2.65/kg ($1.20/lb) FOB China this week, while 113 tons of Xin Er 33mm inshell traded on Monday at $2.10/kg ($0.95/lb) CPT Kostanay.

Demand

The current demand for walnuts in the Middle East and North Africa remains stifled.

The INC Congress failed to ignite buying interest despite recent stock depletion due to Ramadan, a U.A.E.-based trader said. Though U.S. inshell shipments to the region increased in April,  it was largely supply purchased several months ago but delayed by container freight logjams.

Buyers in Turkey appear to have increased their interest in Chilean products due to a lack of availability of light U.S. walnuts. 

One Turkish trader said a prominent processor within Turkey with significant bonded warehouse cold storage capacity does not have extensive inventories of U.S. inshell, which might be driving renewed Turkish interest in Chilean products. 

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