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Inshell prices come under pressure as Chile lowers offers

September 15, 2022

U.S. inshell prices in the global walnut market came under more pressure in the week to Thursday as Chilean packers lowered their offers to chase demand amid a challenging opening season for northern hemisphere producers.

Prices for Chilean high half-count items registered the week’s largest losses. Stratamarkets assessed Chandler 34-36 at $2.40/kg FOB Chile, down 58 cents on the week, and Chandler 36+ at $2.85/kg FOB Chile, down 43 cents.

Both items are at their lowest level since Stratamarkets started tracking prices in May.

Chinese new crop inshell offers also fell as buyers mostly sit back from the market, citing no urgency to purchase due to high stocks in local markets.

“Prices are falling daily from Chile and China and California pricing has reverted back to the pre-estimate levels,” said a U.S.-based trader.

U.S. kernel business was slow but prices for some items found support. Handlers largely held off from offering kernels as they assessed the impact from a heatwave in California that could limit the availability of light color material.

Stratamarkets assessed Chandler JL inshell at $0.82/lb FAS U.S., down 3 cents on the week. Chandler LHP 20 was assessed at $1.90/lb FAS U.S., unchanged.

Inshell market

While counter-seasonal product from Chile – which typically trades at a substantial premium to U.S. walnuts – is usually sold by September or October, some Chilean packers offered at heavily discounted prices. Those offers from Chile are attracting attention from buyers normally focused this time of the year on U.S. new crop.

Chilean Chandler 30-34 traded at $2.10/kg ($0.95) FOB Chile on Wednesday. It was offered at $2.50/kg ($1.13) CFR Europe at the close of the September 8 to September 15 assessment period.

Chandler 30-34 was assessed at $2.10/kg FOB Chile, down 5 cents on the week and its lowest since Stratamarkets started tracking prices in February.

Despite the dip, the Chandler 30-34 premium to the item’s nearest U.S equivalent, Chandler JL, edged up 1 cent on the week to 13 cents/lb. That’s still down 13 cents from its average of  26 cents since Stratamarkets started tracking the premium in late February.

One buyer said that Chilean sellers of Chandler 30-34 may soon have to accept a FOB price closer to $2/kg ($0.91/lb) to improve their sold positions.

“With China coming lower, if Chilean packers want to be able to sell their whole crop, they will probably at some point have to match California prices, that’s their strategy,” said a U.K.-based trader.

Offers for Chinese origin 185 inshell have fallen to $2.15/kg ($0.98/lb) FOB Tianjin and $2.35/kg ($1.07/kg) CIF Mersin, down around 14% from opening offers of $2.50/kg FOB at the end of August, according to traders.

An Argentinian packer said that tepid European demand forced him to look closer to home to close inshell sales at discounted levels. He reported selling larger size Chandler 34-36 and Chandler 36+ at $2.25/kg and $2.65/kg FCA Argentina to Brazilian buyers.

U.S. offers for Chandler JL inshell reported to Stratamarkets were in the $0.80-$0.90/lb FAS range during the assessment period, with transactions ranging from $0.78/lb FAS to $0.88/lb FAS.

The temporary lift in U.S. inshell prices that occurred after the USDA’s September 1 objective estimate surprised to the downside has evaporated, market sources said. Buyers are showing interest in purchasing limited volumes amid competition from Chile and China.

A large German supermarket recently launched a tender for Californian variety inshell of Jumbo Large, 30+mm size, for delivery from early December 2022 to March 2023.

One source in Germany said he believed total volumes for the tender award, which was due to close at 10.00 am CET on Thursday, would be around 1,600 mt and would likely be split between suppliers from the U.S. and Chile.

“The market here is concentrating on the ongoing tenders from [the supermarket] which normally also forces other retailers to come out and ask for offers as well,” the source said.

Kernel market

Trade for U.S. kernel items was light, with premiums for high half-count items narrowing. Chandler LHP 80 traded at $2.30/lb FAS on Thursday, the lowest level so far reported for the new crop item.

Chandler LHP 20 was offered down to $1.95/lb FAS after trading at $2.05/lb FAS earlier in the assessment window. Three loads of 20% Japan specification were sold at $2/lb FAS on Friday.

Falls in Chilean kernel offers are applying extra pressure to the market, sources said. A consignment of Extra Light/Light 80% Halves was sold at $6/kg ($2.72/lb) CFR Europe, while offers were heard at $5.80/kg ($2.63/lb) on a FOB Chile basis.

A Chilean packer described this season as his most challenging:

“The shelled market has been impossible due to the warehouses in Europe being full of walnuts, as well as 2 $/lb CIF Turkey

oversupply and overproduction,” the packer said. “The buyers are just waiting for the prices to continue dropping.”

Potential heat damage

Much of the talk in the U.S. kernel market has centered around a five-day heatwave in California last week in which temperatures soared to 110-115 degrees Fahrenheit and the potential

‘sunburn’ damage this has inflicted on the new walnut crop.

While temperatures above 110 degrees Fahrenheit are not unprecedented during the growing season, sources said it is highly unusual for them to occur at this stage of the harvest.

Sunburn can compromise a crop’s quality and reduce the amount of light-colored kernels harvested. Late-harvest varieties including Chandler, which constituted 58% of California’s 2021 crop, are most at risk of volume loss.

Some packers are withholding offers for kernel sales of lighter material until the extent of the damage can be further assessed. This is not likely to be until Howard – a mid-harvest variety that accounted for 14% of California’s 2021 crop – starts to go under the huller in about 10 days.

However, one market participant in Californian said he does not believe the scope of the damage will be severe enough to materially affect market prices, citing what he views as the pronounced supply-demand imbalance in the market.

Demand

A second U.K. trader said that while heat damage could provide U.S. packers with the opportunity to raise prices again, a bigger issue for him was the “alarming” lack of demand in local European markets.

He said buyers in Italy and Germany have plenty of produce sitting in warehouses and are expecting to top them up for the high-demand Christmas period with containers arriving late from Chile due to logistics problems.

“Consumption, or lack of it, is the fundamental issue here,” he said. “I’m not sure adjusting pricing is going to be the solution when there may not even be a market for your product big enough to make you sell out.”

U.S. packers said that although the season has started slowly, they’re receiving an increasing flow of kernel inquiries and believe customers are gearing up to purchase albeit during later stages of the season than expected.

A second U.S. packer described recent inquiries he received as “a start of the process” as buyers checked market levels.

“That suits me fine as I don’t want to dive into kernels because prices are weak now,” he said, adding that unsold supply from the 2021 crop was still weighing on the market and he expected new crop prices to gain momentum once the surplus has been cleared.