Hazelnuts: Erdoğan causes confusion

Price dilemma

While Erdoğan declared a bid of TRY 54/kg for inshell Levant and Giresun hazelnuts on Saturday, the TMO issued lower prices on Monday. The bid for Giresun quality hazelnuts is TRY 53/kg, for Levant quality TRY 52/kg and for Sivri quality TRY 51/kg. Producers will also receive area-based support payments for diesel and fertilisers meaning that the average price will, indeed, range at TRY 54/kg. They can book appointments with the TMO as of 15 August and buying will start on 22 August.

While growers are heavily disappointed with these prices, the bids fail to credit supply and demand. Although the TMO bids have nearly doubled on last year when the sate-run organisation offered TRY 27/kg for Giresun quality and TRY 26.5/kg for Levant quality, the perception changes when inflation is considered. Prices in fact ranged at USD 3.15/kg last year and have now dropped to USD 3.00/kg. Growers are also complaining bitterly that the TMO offers by no means compensate for the surge in living and production costs. On top of this, they feel betrayed by the TMO, which sold their hazelnuts at a much higher rate of TRY 44/kg in the current season. Problem, however, is that supplies far outstrip demand and it is highly improbable that the market will play along with the TMO.

Supply vs demand

Suppliers, in fact, state that demand has hit a record low and supplies a record high. Unofficial inshell production estimates have climbed to 830,000 mt as weather conditions continue to be ideal and reports from the orchards are highly encouraging in Turkey. Italy’s crop will also be much bigger in size than last year, although reports are emerging that the drought has impacted quality and that the kernels may be smaller. While supplies are on the rise, global demand is, by contrast, declining. Buyers in Europe, for instance, still hold supplies obtained in winter and caution prevails with surging energy costs and the continuing war in Ukraine. Traders reckon that the market will undercut the TMO bid by TRY 5-7/kg for inshell hazelnuts.

Although exports are performing well, demand is dismal at present. Turkey’s inshell exports reached 321,549 mt on 28 July. As weekly exports range firm at 4,000-5,000 mt the country may well finish the season with exports ranging at 330,000-350,000 mt. Before the TMO issued its bids the raw kernel prices for Levant quality, size 11-13 mm and size 13-15 mm, ranged at TRY 83-84/kg and for Giresun quality at TRY 88-90/kg. Manufacturers are now, however, requesting prices of TRY 88-90/kg for Levant quality kernels, which buyers refuse to pay. They are at the very most prepared to go as far as TRY 85/kg, if at all.

Ferrero and Olam to crush local businesses

Apart from this, the prices for the current crop have remained firm as the market is still adjusting to the TMO bids. Offers for the new crop range as low as EUR 5.00-5.30/kg (USD 5.12-5.43/kg) DAP Europe. Most suppliers, however, prefer to wait as the tide can easily turn. Not only is the Turkish lira performing at its worst but sudden changes in regulations may well put manufacturers at a disadvantage. Inflation and rising utility costs are also adding to the uncertain economic situation.

Bank loans may, however, become the most pressing issue as interest rates, which currently range at 40%-55%, and limited availability may cause cash flow problems for local manufacturers and prompt prices to go down at the start of the season. With assets in Turkish lira melting away smaller companies have good reason to believe that big international businesses with seemingly unlimited US dollar supplies, such as Olam or Ferrero, will easily crush them in the new season. Rumour has it that Ferrero has advised its customers to postpone purchases.

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