COCONUT MARKET REPORT 6th November 2023

Dear Friends
 
El Nino continues to threaten Southeast Asian agriculture with a US National Oceanic and Atmospheric Administration (NOAA) report citing a 73 percent likelihood of it reaching historic in December. Indonesia and the Philippines are historically susceptible to the effects of El Nino wherein we will see irregular rainfall patterns, dry conditions, possibilities for draught amongst other weather problems. In addition, the Philippines will be at a heightened risk of more cyclones because of El Nino as well.

More information in the article below:

releifweb - Asia and the Pacific: El Niño Humanitarian Snapshot - Focus on Timor-Leste, Indonesia, Papua New Guinea, and the Philippines

From past El Nino’s, we have seen that the effect to crop happens a few months after El Nino occurs and therefore it’s entirely possible to see a reduction in crop such as Coconut and Palm within 2024 and if this occurs (as it has in the past El Nino’s) we can expect an upward trajectory on commodity prices

The United Coconut Association of the Philippines is projecting that the country’s output may reduce by 6.9% which is significant.

Whilst agricultural authorities around the region take steps to mitigate the effects of El Nino such as irrigation, water pumping etc., there is the expectation that the effort will not be enough to combat the effect to crop in 2024.

According to a report by ReportLinker – the coconut oil market is projected to grow from $4.48 billion in 2023 to 6.48 billion in 2027. This shows that there will be growth in consumption and demand that can be expected in the coconut space in the years to come.

Meantime Palm Oil continues to trade firm and other oil seeds such as Coconut will move in tandem and as long as edible oil prices firm, raw material costs will increase with demand and that will impact prices for other coconut related products such as desiccated coconut.

Analysts are forecasting petroleum prices to be higher in 2024 on account of lower inventory for petroleum. Also, Saudi Arabia is curtailing its production of oil as well and this is a contributory factor.

More in the attached article:

Oil & Gas Journal - EIA raises 2024 oil price forecast on lower inventory

However aside from the above, geopolitical risks have heightened around the world with multiple conflicts that are happening i.e. in Europe and now the Middle East. Both have and continue to have the potential to impact global petroleum prices. The concern is that if the conflict in the Middle East expands, what effect will it have to global petroleum supply? These are uncertain times where one simply cannot anticipate fully what is to happen.

Petroleum prices pervades everything in our lives. If petrol continues to surge, costs of production would be impacted and certainly the biofuel industry which uses the same raw materials will get a second wind – this will create further demand for raw material and cause prices to surge.

Meantime we are now seeing increases in freight rates out of Asia to all parts of the world. The Drewy freight index is reporting an increase of 5% per 40ft this week. Additionally other extenuating factors:

a.      There is a rise in cost of transit via the Suez Canal

b.      There are delays at the Panama Canal due to elevated temperatures and limited rainfall which has let to a drop in water levels which supply to water to the canal’s locks. This is important to note because the Panama Canal handles 7% of all global seaborne trade. There may be rising costs passed by liners to shippers on account of this as well.

c.       If the cost of fuel continues to rise, we can expect liners to pass this cost onto shippers.

Meantime on the desiccated coconut front – we are seeing lower arrivals of raw material at origin and certainly cost of raw nuts increasing. We can say that this is across the board in all the origins for the reasons mentioned above.

The buying for western markets such as Europe, Latin America and North America will be winding down soon as we draw closer to Christmas and the year end. However, the massive demand for coconut out of the Middle East for their upcoming Ramadhan requirements has now just begun in earnest. This demand is surfacing at a time when crop supply is leaning and where we have other extenuating risks.

Major traders around the world are already seeking offers for desiccated coconut for shipments up to Dec 2024. Most sellers would be cautious to go too far forward on account of the mentioned risks and expectation of price inclines. It’s noteworthy that physical inventory levels in major markets have now come down to normal levels and we understand warehouses are also not full, which means that there are supply gaps that would need filling.

To surmise:

a.      El Nino continues to threaten agriculture and we expect a decline in crop output as a result.

b.      There will be continued growth in coconut consumption going forward and therefore we expect healthy and sustained demand in 2024.

c.       Petroleum prices are forecasted to increase based on fundamentals, however there are incalculable risks such as the flashpoints in Europe and Middle East where we cannot see what further impact it may have on global petrol prices which would invariably impact costs.

d.      Freight costs are rising for the reasons explained above and we may yet see further inclines.

e.      Raw material supplies are leaning, inventory levels are lowish at destination markets and demand will increase with the upcoming Ramadhan season and 2024 requirements from buyers in all markets. Coconut consumption is expected to grow.

We therefore urge you to calculate your purchase plans carefully in view of these compelling factors going forward.

Please feel free to contact us to discuss your requirements and how we may serve you.

Disclaimer: The information provided in this report in an expression of our considered opinion and in for informational purposes only. Trading agricultural commodities involves risks and readers should do their own research before making purchase decision.