COCONUT MARKET REPORT 26th July 2023

Mother nature is showing her power! The world is now seeing the effects of El Nino with high temperatures that have been endured so far in the Asia Pacific region and now being witnessed in Southern Europe. Weather and temperatures are anything but normal.

We will (if we haven’t already) extreme heat and dry weather and drought, during El Nino. This will certainly have an adverse effect on agricultural crops, and we can expect to see the effects of this to crop by the end of 2023 or Q1 2024 which will result in crop shortages.

However, there are other risks with this weather pattern such as forest fires taking place as has happened before in places like Indonesia. Indeed, we can expect a serious threat to crop across Asia because of El Nino

More information on this can be found in the articles below:

Meantime the palm oil market has been firming up on the back of increased demand and higher export nos and we expect that other oil seeds will move in sympathy with the palm oil market, this would include coconut as well. The 1-month chart for Palm Oil is illustrated below:

Additionally, the price of crude petroleum is firming as well per illustrated chart below. Why is this of consequence? The reason to consider petroleum is that as the market firms up and prices increase, the possibility of using agricultural crops such as oil seeds as a biofuel becomes more viable, and this too will fuel the prices of oil seeds which include coconut.

We would keep a firm eye on both above

Another threat to the coconut supply dynamic is the fact that we are soon entering the dreaded Philippine Typhoon season which typically would begin in Sept. However as of writing this report, the island of Luzon is experiencing Typhoon Doksuri. One needs to consider that with the change in the weather pattern, we could see typhoons happening earlier this year and one does wonder if we could also see more powerful typhoons. From past experienced we will know that a powerful typhoon can totally disrupt the supply out of the Philippines (a major coconut producer) and cause chaos to the entire coconut supply dynamic. More on Typhoondoksuri in the article below:

We are also seeing freights to key European ports rise for the month of August. Is this a sustainable rise being initiated by shipping lines? We all know how unpredictable freights can be and how liners can suddenly change freights without much prior notice. Once does need to factor freight increase possibilities in your risk calculations as well.

In so far as crop and prices are concerned, we would say that prices are stable in all origins. However, we would caution buyers into not thinking that prices will drop further. Our opinion is that we have seen the bottom of the market. Producers have their backs against the wall today wherein they cannot afford any further reduction on prices, and neither can farmers. Additionally, unlike 2022 where we saw demand nosedive around the world on the backs of importers being overstocked with expensive inventory in a market where demand plummeted, the situation today is quite different. Inventory levels have reduced in major markets, warehouses are no longer full, and product is being bought up by wholesalers within their respective markets.

Major buyers have begun to consider that prices would not go lower and that in fact there is more of an upside to pricing. Demand has returned from all markets; factories are now quite fat with orders many of whom are already sold out for August and looking to sell Sept/Oct positions onwards. Major buyers also realize the looming risk to crop on account of the weather risks above and are anticipating for a lower level of supply going forward but with a higher demand merging side by side. Many are now wanting to cover purchases well into 2024 from any seller willing to risk taking a position that far ahead.

We would think that it is better to be prudent and anticipate all the above and make your purchases sooner rather than later to avoid either supply delays or shortages and certainly avoid paying higher prices which almost certainly will happen.
We would be keen to hear from you as to how we might serve you.