As we celebrate Diwali the festival of lights , we at Shakumbhri hope that the it brings Prosperity Good fortune and good health to everyone.
This week almost everyone in India will be busy in festivity and the farmers will take their well deserved break before they get ready to toil again in the fields for their Winter crops , I thought about sharing some information about the sesame market as it unfolded in the last 1 month and try to look ahead at the things that might or might not be.
In my last report on 16th July 2018 I wrote the following,
"By the time we finish this season and merge into the new 2018 crop we could be closer to levels not seen in a long time, low priced stocks at destinations would have finished and the markets adjusted to new levels. Most commodity traders would agree that when we switch the season on a higher level the price volatility is that much bigger but a crash is highly unlikely because that would mean the whole trade to loose money. Its alright if it happens the other way around when markets open at the bottom and remain their but a crash from high's to low's takes more than just demand to bring it down.
Slow demand at best can keep the markets stagnant or trigger small corrections but a overall bullish sentiment usually prevails , at-least until we reach the top line.
For the season ahead ,Top line in my estimate for good quality Natural Sesame 99/1/1 type is USD 1850-1950 PMT and USD 2400-2500 PMT for good quality Hulled Sesame . Bottom lines should be USD 1250-1350 PMT and USD 1650-1750 respectively. "
Its almost scary that every word has turned out just as I had thought it would. I guess its my
" I told you so " Moment.
The new season for 2018 has begun and what a start we've had, levels not seen since a long time in local currency but within range in Dollar terms due to the exchange rates.
The New Crop 2018 :-
Till about a few months ago everyone is India expected a good crop, the prices were favourable , the weather just right and the general sentiments and logic told us that the sowing should and would be better than previous years , all was good until Mother Nature decided otherwise , it rained and it rained and it rained , surprisingly all the more in the sesame growing regions. Farms got washed away , the farmers decided they've had enough ploughed the fields and left the little surviving crops in the field to wither and rot away. The few areas that survived is all that we had left. I heard contrdicting informations from different people so I decided to make a long 3 Day field trip to the sesame growing areas in the last week of September. What I saw was exactly what was told , the high altitude fields survived but the rest was in a mess , the yields per Hectare reduced drastically as rains or lack of it when needed shunted the growth. Long story short we were not going to have a crop that we needed.
Last week our Trade association IOPEPC came out with their survey numbers , the numbers shocked some and reaffirmed others conviction in the crop size.
Madhya Pradesh ( MP ) :- 22,500 MT
Uttar Pradesh. (UP). :- 41,500 MT
Rajasthan :- 40,000 MT
Gujarat :- 38,000 MT
Others
:- 36,000 MT
Total 178,000 MT
Now last year i.e Oct 2017 this Number was 418,000 MT and the year before i.e Oct 2016 was 560,000 MT . We, myself including debated those number furiously, but now since the carry overs are down to almost Zero those number make sense. We would not have exported 30,000 MT monthly if we didn't have those numbers since the domestic demand alone uses up about 150,000 MT annually.
Let us assume the predictions are off by 10% , we still end up below 200,000 MT . The Carry overs would not be more than 10-15,000 MT by any calculations and we can easily discount that as we would anyways have that much minimum going into next year even if prices double or tripled.
We will still need about 150,000 MT for our domestic consumption , that demand is price elastic and even with a demand fall of 10-20% it hardly makes a difference as that would be substituted by some speculator stocking.
That leaves us with practically nothing to work with, all we can do is wait for Imports to come in and offer our buyers based on that. The next crop pressure will not be before May 2019 when the summer crop and the Bengal crop comes in.Can the world wait up its consumption for the next 7 months, I don't think so, and even that comes with " *Conditions Apply " about the size and demand.
All of being in food business for various commodities know this very well , price is a deterrent in consumption only for a while then people stop caring. Which commodity ever have people stopped eating because it got expensive or which they ate up too much just because it was cheaper. Doesn't really work that way, at least I never believed it did. You can go through my blogs 10 yrs ago and I still maintain that demand merely shifts (from Seller/Origin/Quality/buying pattern/stock levels) but never falls.
If our sales our down it just means our clients are not buying but someone else's client is buying and people still consuming. Clients and consumers are two different entities , so lets not confuse the two.
Ever since the crop came out and caught everyone by surprise the discussions have gone up, not because we have spare time at hand but because after many years the markets lacked a clear direction, we need to go through some of the discussions and draw our own conclusions to the road ahead, we are just a month into the crop and with 11 Months still to go it is going to be a eventful year.
The Discussions :-
Everyone is entitled to make his/her own assumptions on the current situation ,as always I leave it on you to conclude the outcomes of each.
1:- The demand will drop drastically, people will stop eating sesame and prices should correct. True to a certain level I would say but can a 10-20% drop in consumption substitute the 50% shortage in crop that India has. Will a smaller Myanmar crop ( No data to verify though) not play its part , will the bullish stockiest not create a shortage by hoarding , can it mitigate the lost cushion of carry overs that the trade enjoyed for the last few years .
I say that again with conviction , drop in demand is very different to drop in consumption.
2:- There were talks about global trade balance at our Annual meet , numbers of big African crop were put out , they might be right they might be wrong, we shall find out soon enough , the argument was that the world needs X amount of Sesame and the total production is also X so why the panic , easy maths right.
Thats what we have been told over the decades by Big corporates that there was a surplus production of a certain commodity at origin , prices should crash but at the same time there was a region in the world which starved and went to bed empty stomach. So the point is, if there are 10 people and 10 apples its easy to assume that each should take 1 and sanity should prevail but thats hoping for a Utopian society. Chances are that someone would try to eat 2 apples or one of the apple would Rot.
The global trade is not just about having something , its also about having it at the time when you need it most. Before or After are risks that need to be factored in.
Murphy's law is an adage or epigram that is typically stated as:
"Anything that can go wrong will go wrong".
3:- Ever since that I have joined business the first argument of Bulls was " Africa/China has a bad crop and we have a good crop that means prices will go up ", now some people are arguing
"India has a bad crop but Africa has a good crop that means they will flood India with their cargo and prices will crash ".
In Isolation the statements sound right but when you read the two in totality the logic is bizarre. Agreed that African cargo will come to India but does that mean they will sell it cheap to us , does everyone have access to that cargo , will in arrive in time to create enough pressure to trigger a fall , Africa of 2019 is not what it was 5 years ago , they are not isolated with the global prices and demand anymore , 60% of African trade is handled by Indian Brokers/Exporters who organise/finance the trade between Africa and China, with 1 more NET BUYER in the markets they would know where to move the goods to get their African suppliers the best value for money.
4:- Carry over's world over are at all time low , for years we talked about Chinese port stocks but failed to acknowledge that India had its own "Cushion stockpile " , the only difference was while Chinese stocks were measurable the Indian stock was fragmented into 100's of Big/Small stockists and was never in the limelight. However the power of that stock is what we saw last year , despite a poor crop it kept feeding the market with full vigour and at all levels and practically stalled the prices for a good 6 months , it was only after June/July when the warehouses really started to empty out did the markets manage to gain pace.
With that Arbitrage gone of low levels stocks which usually by now would have triggered a profit booking spree and pulled the prices down the markets seem to be moving in one direction.
5:- The export numbers of Indian sesame have been stagnant in the range of 300,000 MT annually ( Plus/Minus 10% ) over the last decade or so , I always wondered why?
While African exports moved up twice thrice in Quantum we remained stable , I guess the difference was while India adjusted itself to the worlds demand of Food Safety/Better Quality and Services , smaller things like Sorting Natural for Bakery Consumption , Palletising the cargo to save costs at buyers end , cleaning the Natural for better yields at Chinese/Taiwanese/Malaysian Oil mills, the Africans at the same time were doing FARM to CONTAINER business. They pumped in the supply chains not for the end users but to the Industrial demand of China/Vietnam etc.
Lately they have started to catch up in the Hulled/Sorting business as well but the transition will still take a while , the fascination from Volume Business to Value Business is a tough call for most business houses to make , it sometimes requires not just a change in mindset but the whole business model itself.
Having said that , the end use market of the World still depends lon India to a great extent for supplies, yes there are options available but not everyone has access to those at all time and neither are the options big enough to replace India in a flash.
The stocks at destinations are also at all time low , usually in a Bull markets we saw 2 Scenarios pan out
a:- Markets went up in India , we quoted high levels so the buyers went looking for cargo in the spot market , they found someone who had stocks at low levels and he decides to book profit at current market price and offered lower. The buyer now has cargo at low price so they could afford to wait up which caused panic in the markets and prices dropped.
b:- The same scenario played out domestically as well , as soon as markets went up there was someone sitting on low priced stocks who decided to discount and take home the profits , with price differential the market parity mismatched.
All 2 scenarios created a Cat and Mouse situation, usually it played out just the way it should but this year with historic low carry over the situation may just pan out differently.
6:-A seller offers his clients X price, the client has several options and decided to take the lowest price from a new Broker/Supplier , this creats a doubt in the genuine sellers mind, he thinks that market is not accepting X levels and we must move down , in another scenario the lowest bidder (Profit booker) with X-1 tried to make a sales pitch to a client and the client decides that since the volatility is too much I will stick to my regular supplier who has X price and leaves the lowest bid.
Now the Lowest bidder is thinking that markets are not accepting his levels even though he was cheaper that the benchmark price so there must be a downside in the market while the Regular Exporter is thinking that I offered a fair price and it got accepted so market is firm.
If you have already experienced this situation then you are definitely in a Bull year already.
Arrivals and Stocking :-
The real arrivals picked up only around 5th November onwards, in the 4 states of UP,MP,Gujrat,Rajasthan it peaked to about 35-40,000 bags , thats about 3000 MT , even with the peak its averages about 80-85,000 MT over the last 30 days which has already arrived in the markets.
Stockist took some , the forward sales of Oct/Nov would have consumed some, the domestic demand will eat up a big chunk as well, assuming after Diwali the trend continues( I highly doubt it would , arrivals may peak for a few days at best) for the next 45-50 days i.e till Dec 31st we shall have a 100,000 MT more.
Assuming the bears are right , the buyers refuse to buy a anything at high levels even then by the wildest of calculations we shall have at beat 100,000 MT stocks split between 1000 Stockiest spread over 4 states in India for the next 9 months , good luck trying to bargain and reason with them.
African Crop/ Imports into India :-
Easily the most important factor in Sesame trade over the next 11 months. The crops coming in Ethiopia , Sudan , Nigeria , Burkina , Mali all seem good, so they say.
Ohh wait, wasn't this the exact situation last year , click on the link
https://sesameseedmarket.blogspot.com/2017/11/sesame-seed-market-report-november-30th.html
Just scroll down to
The African Story so far :-
The Sudan crop which was expected to be bigger .......... ( You can edit a few things as per the information you have)
The only thing that has changed is India's buying volumes from African and the sheer desperation of Hullers in India to look for cheap cargo's worldwide to make cheaper Hulled Sesame to supply to the most High End Quality Conscious Consumer markets across the world. Irony at its best.
Double Skin Bengal Sesame had been a bottleneck for any price rise in the past 3-4 years , everytime the markets went up a surge of supply from the Double Skin lobby pulled it down by discounting 10-15% , they did a remarkable job in turning a inferior quality seed to a pretty good one , sheer hardwork I must say, but sadly that is not the case this year. With a very small crop the Hullers have to fight it out with the Oil Industry to get access to that cargo and it certainly won't come cheap. The Oil Industry is far more cash rich and price neutral compared to the Hulled Sesame Industry.
Currency and economic situations in Africa continue to play its pivotal role , with things changing by the day it is almost impossible to predict the impact on commodities they Export. Sudan's economy is in a turmoil , you never know which sanctions may get applied tomorrow or may get relaxed day after , the daredevils who can risk thousands of dollars will continue to work and on good days make money and on bad days take it with a pinch of salt but the conservative markets will continue to look for safer options in the meantime.
Facts and Theory :-
1:- Fact is ,India has a short crop
2:- Fact is , carry over stocks worldwide are at their lowest in decades
3:- Fact is , for the first time in History Indian Exporters did not rebid for Korean Tender, they decided to stand firm and even though there was profits to be made at higher levels if they held physical stocks they decided they did not want to sell cheaper than a fair market price. All this not because they thought their stock would fetch them higher price , someone should have chickened out and Bid low but not 1 did. Why, because you only sell below market price if you think you can cover again both in terms of price and volume. Neither of the two looked easy so they stay put and decided that we shall not offer below market price.
4:- Fact is , In Rupee terms the prices are at 3 years high , with the next barrier only 10% away a breakthrough might take it to levels never seen before , a crash at best may stabilise it in the range 10-15% from the peak.
5:-Fact is , Cash flows are tight , with all 80,000 MT arrivals so far sold/bought/stocked tight the cashflows have been tight , after Diwali the cargo's will start moving into Bank financed warehouses which would free up a lot of cash for spot buying.
6:- Fact is , Low priced averages have already been rotated twice/thrice for profit bookings , the cargo are now headed out which means the bottom average of the market has moved up, with higher bottoms and even higher spot the average prices of stocks are bound to rise , for the Bears to imagine a fall it would mean that 90% of trade would make a loss , once again not a real believer of that theory. Their will be windows of exit, the smarter one's will get an opportunity, the greedy one's will get stuck.
The same goes for buyers, anyone trying to find the bottom may just fall out of breath while the one's who average out at all levels going up as well as down may float merrily the whole year.
7:- In Theory , USD to Rupee will be interesting to watch , if the Rupee falls it would make the Imports expensive which in turn will fuel the local prices to move up in tandem. Funny situation we find ourselves in this year.
8:- In Theory the African crop is huge, but thats always been the difference between India and others.While we try to push markets up telling we have less the others first cover themselves by telling you they have enough , no hard feelings , that really is the way it should be with smart business.
9:- Fact is, We still have 11 MONTHS to go.
Once again wishing everyone a Very Happy Diwali, Please feel free to contact me for Business or General discussions.
Attaching a link to a funny video one of my dearest friend in Canada sent me years ago. Before you watch just remember ,in your mind replace
Indian = Your origin ( As a Buyer )
Chinese = Your Seller ( His Origin )
Please do not get offended if you don't like the ethnic touch, its just for fun.
Mukul Gupta ( Director)
Shakumbhri Expo Impo Ltd
India.
Disclaimer : - All of above is just observations and general market news , decisions you take based on the above are entirely yours.
