So finally the wolf has arrived. All these years we've had
the same stories from India about short crop , no raw material , no carry over
stocks but this year it looks like the story is finally true.
Ohh...My God , Are you guys Crazy...etc etc , some of the
very common phrases we have been hearing everytime over the past few weeks and
to a certain extent I agree with the clients that Indians have indeed gone
crazy. Yes the markets are short but the kind of daily/weekly movement we have
seen in the recent past are just plain crazy.
Like I have been saying for the last few months that the
market remains bullish despite the prices which fell periodically from time to
time , the reason being more currency driven rather than an excess supply or a
lack of demand.
Let us look what happened first :-
1:- We all knew that India had a good monsoon but we failed
to recognize the fact that a good monsoon
does not always mean a good crop specially when the crop is sesame . I
had specifically mentioned this point in my september report before the crop
even arrived.
2:- Carry over stocks were depleting quickly and we thought
we can live without them as soon as the new crop would come in.
3:- The currency movements were so sharp in the past few
months that it made the markets almost directionless .Everyone was playing more
with the currency rather than the actual commodity prices.
Current Situation :-
1:- Despite the initial losses due to heavy rains in India
and the losses in the northern states of UP/MP the growth figures coming from
Rajastan and Gujrat made everyone believe that the overall numbers of total
crop would be more or less same as last year , however the late rains changed
all that.
2:- The numbers put forward by various
agencies/associations/trade estimates say the total crop is around 200,000 -
220,000 Mt. I would say these numbers are more or less correct looking at the
average arrivals in the local markets over the past 30 days.
3:- I have no doubts that the export numbers from India will
fall dramatically this year however from now until October 2014 the majority of
global Hulled Sesame demand will still have to catered by India which means we
will still easily export about 200,000 MT in the coming 10 months.
4:- Korean Tenders have shown an affinity towards the Indian
suppliers and even the last tender was a testimonial of the fact that a major
share of the Korean Tender will still be catered by India despite the high
prices here. In a previous report I have explained how the complications with
documents , the finances involved , the complicated Bid bonds etc ,the
consistency in Quality and transit/delivery period all put together give an
advantage to India for the Tenders.
5:- Last year we had carry over stocks at the start of the
season , Indian's entered African market early and got some really really nice
bargains for Importing the sesame into india which helped keep the market under
control , this year however the Africans are in no mood to sell cheap to India.
With prices already very high the risk factor has gone up so much that the
handful of people who really do Import and reexport from India are also in a
wait zone.
6:- The supply continues to remain weak , the quality coming into the markets is 90%
rain damage which means although it can be used for hulling the yields will be
much lower compared to previous years which would mean higher pricing for
Hulled. Sometimes for the factories it takes a little longer to realize the
losses/cost increase due to yields and lower sales but I am sure eventually
everyone will realize these finer points and costings for hulling units will
have to be revised.
7:- The 99/1 grade is in very very short supply , the
arrival overall are not even 100 mt /day for good quality which means that the
prices for good quality Natural are almost at par with those of low quality
hulled.
8:- At the moment there are only 3 kinds of buyers in the
market
a:- Exporters who
sold forward and are short.
b:- Buyer's who
sold forward and did not cover.
c:- Domestic
demand which despite high prices is very strong atleast till dec.
So even though a lot of buyers who say they have enough in
their books and are well covered for the next few months have not been covering more at higher levels
, I am afraid suddenly everyone will realize their warehouses are empty and
will jump back into the market at high levels asking for spot shipments
creating a bigger ripple than there already is.
What can happen over the next few months :-
1:- Diwali festival is over , everyone in India waiting in
anticipation that the arrivals will increase after diwali and a correction will
happen. I have a feeling it might be correct, however we have time and again
told our buyer that the window will be very small . Anyone waiting to catch the
bottom might just miss the train altogether.
2:- If the arrivals do pick up we might see a correction of
about 5-6 % , I am not expecting a big fall right away as the supply chain is
still empty. A supply based bullishness can only be countered by excess supply
and unfortunately we do not see any big supplies coming in and pulling the
markets down.
3:- If the arrivals do not pick up everyone should be ready
to pay a further premium of about 10% . We are already at all time high levels
in terms on pricing in Indian rupee but there is always scope of some further
upward movement.
4:- I remember a few yrs ago when Hulled Sesame crossed Rs
100 everyone said its just not sustainable and prices will crash , I explained
the phenomenon in a previous report about new market benchmarks which are bound
to happen every few yrs , I guess the next target would be Rs 200 , I doubt
that atleast for this year it will be breached or can be sustained even if we
do manage to touch it but I am sure that the current prices are fair enough to be workable over the new few
months.
5:- Africa as we all know holds the key to the markets , if
the big boys there start manipulating the markets , which is very much possible
looking at the global situation right now we are in for a tough year ahead.
6: -The news from Africa is not very promising either , none
of the destinations are reported to have a bumper crop , at least not to the
extent that they can cover the losses in number's we've had in India and China.
BTW China crop was reported short as well and by estimates is only around
250,000 Mt.
Ofcourse the demand will fall this year and maybe to a
certain extent some institutional buying from big bakers and confectionary
makers will be less. However like in the past we still firmly believe that
price is not a deterrent atleast for food products. A company may think that
since their sales are down people are eating less , the fact in most case is
just that one of your competitor is now cheaper or has ready cargo to offer and
your buyer has merely shifted their demand to someone else to average out their
costs and to sustain their demands because you didn't have enough to offer.
Some of my friends tell me..Ahh you can live without sesame
, who's gonna pay such high prices.
But I tell them we can live without a lot of things we don't
really need yet people pay loads of
money to eat them.
I do believe a good chunk of sesame application will be
shifted towards other seeds but as the wheels turn everyone will notice that
the retailers over a period of time have revised their prices and when prices
of sesame do fall these people will make a killer profits as retail prices
hardly ever get revised downwards and the one's who sat back will regret not
being among them.But thats for long term , just a thought :)
I've heard numerous arguments of Africa emerging as a
competitor and taking over the market share of India. The reports are
absolutely 100% correct , did'nt India do the same taking over the market share
of South America and china. The fact is we dont have enough seeds in India so
naturally we are more expensive than Africa is at the moment . Africa also has
the advantage of heavy export subsidies , currency valuations against USD and
duty benefits in China but all these factors put together do not make a stable
and a long term growth story. Its all about which country has a better and
bigger crop , so atleast for the next few years the global markets cannot
ignore the India story. Once India gets back its big crop that would be the
time for a fair comparison.
As always our suggestions this year would be:
1:- Stick to your reliable suppliers. A regular and old
supplier is more likely to help you make a good average over long term rather
than any flash supplier who is offering 4-5% cheaper right now.
I would not suggest
gambling away $60,000 for a $1000-1500 saving on a container.
2:- Stick to Quality , in short term switching to cheaper
grade of sesame might look like a good decision but in longer run you risk
loosing your potential clients when problems start and you unknowingly enter
into a price war market where the competition is that much tougher. If you
loose a business because a client wanted lower quality because it works for him
there is a chance he will come back to you when he has problems or when he
wants to move up in terms of quality segment but when a client moves away
because he's looking for the cheapest price of the lowest quality where do you
go.
Everyone in commodity market knows the china story , they
captured every segment of business with cheaper prices but the party didn't
last long. Would you today buy a cheap chinese product or a slightly expensive
one made elsewhere ? BTW both sell, its just a matter of prospective.
3:- Like always please do not be tempted to catch the bottom
, the best way forward is working on a average and atleast for hulled I would
say an average price of USD 2800-2850 over the next few months should be a good
buy this time. You might not get the volumes every-time so its important to be
active in the markets at all levels and keep shopping/selling at all levels.
Sesame is no longer a cheap commodity and it sure is a very
volatile one , in the next few years the competition is bound to get smaller
because the smaller players will be pushed aside as the profit margins will be
far less than the proportionate prices of investments and the risks involved ,
the one's who will survive will be the one's who stuck to the basics of
business.
Right Quality - Right Price.
Once again we thank you for all the support and look forward
to you comments.
KEEPING IT REAL - KEEPING IT SIMPLE
