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US inshell prices improve as China begins selling its new crop

September 1, 2022

U.S. new crop inshell prices showed incremental gains in the global walnut market the week to Thursday as the first deals for competing Chinese products were reported at notably higher levels.

Market sources said the USDA’s objective forecast, scheduled to be published on Thursday, is keenly anticipated and could spark a wave of new crop trade, although there are concerns that global inflationary pressures have reduced demand in consumer segments such as supermarkets.

With ample volumes of Chilean 2022 crop still on the market at discounted prices to those offered earlier in the season, buyers are now weighing up the wide range of price and quality options available to them.

Stratamarkets assessed Chandler JL inshell at $0.84/lb FAS U.S., up 1 cent on the week. Chandler LHP 20 was assessed at $1.89/lb FAS U.S., down 13 cents on the week.

Inshell market

Much of the talk in the inshell market this week centered around opening offers for Chinese new crop product, with several transactions confirmed.

One Chinese supplier said he had already sold 34 containers of inshell to destinations such as the U.A.E. and North Africa.

Chinese origin 185 inshell, sized 32mm+ and with a minimum kernel yield of 62%, traded at $2.40/kg ($1.09/lb) FOB Tianjin, while Xin Er (Xin 2), the variety closest to Chandler, sized 32mm+ and with a minimum 50% kernel yield, was sold at $2.05/kg ($0.93/lb) FOB Tianjin.

Buyers and traders said they believe that in order to move large volumes into the export market, Chinese sellers will have to lower offers.

A U.K.-based trader expressed surprise at the offers from China and the transaction levels given their distinct premium to current U.S. offers for Chandler inshell. “If I were a buyer, and I was given the chance to buy at these prices from China, I would probably buy from the U.S.,” he said.

With Chilean Chandler 32+ inshell offered at around $2.35/kg FOB Chile, an Indian buyer said he would continue to purchase from Chile. “Chile is a premium product and these [Chinese] prices are too high,” he said, adding that slow sales and aggressive opening prices from the U.S. had motivated Chilean handlers to reduce their offers.

An east Asian trader said discounts of around 7 cents/kg could already be realized by buying inshell directly from Chinese growers rather than traders and handlers.

“There are different packers and different qualities available, but it is possible to buy cheaper,” he said.

Activity in the U.S. inshell market was light this week ahead of the objective report, with Chandler JL trading at $0.82/lb FAS and $0.95/lb CIF Jebel Ali, roughly in line with prior week transactions.

While different origins compete on price and quality, there is mounting concern within the walnut sector that an abundant supply and continuing weak demand could apply further downside pressure on prices.

A Germany-based trader said that even though aggressive U.S. inshell pricing was the right strategy, he cautioned that the relatively low level of sales thus far was a warning signal.

“Chandler JL is offered at $0.85 and that’s a great price but there have been very few transactions, so you could argue that the price doesn’t mean anything yet,” he said. “At the end of the day, I think the buyers will decide the market.”

However, some market participants said new crop inshell trade was more active in August compared with the same month last year due to the early and aggressive offers from California. They added that new crop inshell trade typically begins in September following the USDA’s objective measurement report.

Sources in Turkey said buying interest for U.S. and Chinese new crop was minimal as buyers managed their inventories and picked up readily available current crop volumes from bonded warehouses in Mersin.

Chinese origin 2021 crop 185 inshell traded at $2.88/kg FOB Mersin on Tuesday, while Chilean Chandler 32-34 was bought on the same day at $2.83/kg FOB Mersin.

Kernel market

Activity in the kernel market seized up amid a low number of purchase inquiries and the U.S. industry’s current focus on 2022 inshell sales.

However, there are signs of emerging kernel demand in the retail sector. A large German supermarket has recently awarded a tender for around 50 containers of U.S. origin Chandler LHP 40 at $2.05/lb FAS Oakland. The tender was split equally between five packers, a market source said.

The source said the price equates to an inshell price in the mid to high $0.80s/lb FAS range depending on meat yield.

Meanwhile, Chilean packers said their low sold position in kernels compared to previous years is a cause for concern. According to Chilenut, its members’ overall sold position (both inshell and kernels) was 66% at the end of July, down from 88% at the same time in 2021 and 79% in 2020.

Chilean origin 80% extra light and light halves are offered at $5.50/kg FOB Chile, down from earlier in the season when the item was trading at above $7/kg FOB Chile.

“The market is full of walnuts,” said the U.K.-based trader referred to previously. “The Chileans are trying to discount as much as possible in order to sell, when usually this time of the year they would be sold.”

Sellers offered new crop U.S. Chandler LHP 20 in the $1.90-$2.15/lb FAS range, with sources citing brand premiums as the main reason for the wide range.

Trades for the U.S. Chandler LHP 20 with the higher-quality Japan specification were reported at $1.95/lb, $2.00/lb, and $2.15/lb – all FAS U.S. However, the trades were not verified and could not be used for the weekly price assessment.

Demand

Sources painted a challenging picture of current walnut demand, saying that rising inflation in important destination markets such as Europe, recessionary fears, and local currency weakness against the U.S. dollar were casting a shadow over the market.

A second U.K.-based trader said that following conversations with end consumer segments such as European supermarkets and retail points, he was “pessimistic” about future demand.

“They say they’re covered in all items until the end of the year,” the trader said. “We will have to see about January onwards.”

U.S. kernel sales to Japan have slowed with buyers deterred by the yen’s weakness against the U.S. dollar and high inventories, said one U.S.-based trader.  According to the CWB, California shipped 41.6 million lbs of kernels to Japan in the September 2021-July 2022 period, up 2.4% on the year.

“Most Japanese buyers have stocks and they are not in a rush,” the U.S. trader said. “There are a few [buyers] who are just aiming for cheaper levels and holding buying interest for now.”

US objective estimate and USDA tender

The USDA’s objective estimate of California’s 2022 walnut crop is eagerly awaited and scheduled for release at 12 pm PDT on Thursday, after the publication of the Stratamarkets Walnut Report.

Some packers said that they were resigned to a record crop this year, with one saying he expected a figure larger than handlers’ own subjective estimate of 789,754 short tons, announced in July. The high end of current packer estimates is 830,000 short tons.

With a large crop expected, U.S. packers have been unusually aggressive in their early sales this year, wanting to secure sales on the books ahead of the official estimate.

Some good news for the U.S. industry is that the USDA has announced a purchase program for an extra 7 million lbs of Combo material for January-March 2023 delivery, on top of the 11 million lbs it purchased earlier in the year.

With just one more month of 2021-2022 shipments to go, California is on course for a record carry-over of between 130,000 and 140,000 st.