Vanilla Market Report 33
As the 2008 Madagascar crop slowly starts being exported, once again worldwide vanilla markets are in a state of flux as prices fall and inventories bulge. Despite a slight up turn in prices over the past 12 months, the next 12 hold little promise for vendors at origin. This, in spite of robust consumption that seems to have recovered from the pricing crisis early in the decade. However, looking beyond the next 12 months we believe a very good argument can be made for tightening supplies and higher prices. Nothing to be overly concerned about at this stage, but many indicators are pointing towards the potential for some significant changes that could adversely affect market sentiments by the end of 2009 or early into 2010. Such a scenario of course depends on the outcome of the vanilla crops in Madagascar where we begin our analysis.
Having just returned last week from a field trip to Madagascar and Uganda we are able to make the following observations. In our opinion the 2008 Madagascar vanilla crop will yield between 1100 – 1300 mt of cured vanilla beans as exports begin in earnest. This is well below the 2007 crop which more than likely yielded well over 2200 mt.
The 2008 crop will show a significant increase in quality over 2007 as the majority of vanilla was left to full maturity before harvest and for the most part growing and curing conditions were good. In fact, we are expecting over 60% of the crop to consist of split extraction grade beans commonly known as Red Foxies.
As recently as a few months ago the market seemed more bullish on prices and pessimistic about the 2009 crop yields. Today that sentiment seems to have changed. Worries about the possibilities of wide spread vine disease (Fusarium) have abated, but not disappeared from the market. We do not dismiss the Fusarium issue but up until now the impact on the over all market has been marginal.
As for a potentially short crop in 2009, these fears have been erased by unusually early and prolific flowering. Exporters in Madagascar with over 30 years experience told us they had never seen such a thing. Furthermore, a much higher amount of flowers per vanilla vine appeared. Since the market was quite bullish at this time farmers pollinated heavily. Ideally, some flowers are not pollinated as to not stress the vines to much. The fact that so many flowers appeared so early is clear indication that the vines, for reasons we are still trying to comprehend are already under a significant amount of duress.
It is still very early to pronounce on the 2009 crop in Madagascar as flowering is still underway.
Furthermore, recent weather conditions have not been ideal in the Sava region of Madagascar. Lack of rain and excessive heat are already having a negative affect and may contribute to some losses in production. There is also a general consensus developing that due to the higher than normal amount of flowers per vine having been pollinated, the crop will be inferior in quality when compared to 2008. It is almost certain that there will be a larger than normal percentage of short beans as the vines react to the burden of carrying too many green beans to maturity.
In Uganda we also observed a trend of diminishing crop yields. In the case of the 2nd harvest of 2008, it will probably yield no more than 80 mt of cured beans, meaning a total for both crops in Uganda for 2008 around 150 mt, well below 2007 totals of over 225 mt. Rumor mongering in Uganda resulted in some early harvesting in April and May and as a result, contrary to Madagascar, the quality in Uganda will not be as high as the previous harvest. Heavy rains during curing did not help. As a result we will see shorter and drier beans, phenol notes, and generally lower vanillin yields from the 2nd Ugandan crop. We are expecting quality to rebound in the December/January harvest as current market conditions discourage any early picking. Crop sizes should be about average for 2009.
Production in Papua New Guinea has fallen dramatically in 2008, probably below 150 mt, as farmers have little incentives with world prices for extraction grade beans still mired well below 20.00/kg. If not for the strong and growing demand for gourmet grade PNG vanilla, which commands more than double the extraction grade price, we doubt PNG could have survived thus far. Having said that we do believe that extraction grade PNG vanilla will continue to establish itself within the flavor and fragrance industry and expect 2009 production in PNG to creep back up slightly.
With most PNG vanilla being exported through Indonesia it is very difficult to say how much real Indonesian vanilla production still exists. It seems that the industrial demand for the traditional smoky Java beans and EP cuts has diminished and without this “niche” quality Indonesia may find the future difficult. There is heavy speculation within this market and we believe this has seriously undermined recovery possibilities. We doubt actual production is over 200 mt for real Indonesian for 2008.
We are not active within the Indian market but our contacts within the industry tell us that production has fallen there as well further supporting the overall trend. Production for 2009 should not exceed 250 mt.
It would be foolish in our opinion, not to acknowledge the impact the recent run the U.S. dollar has had on vanilla prices. In the case of exporters who are stockpiling vanilla the effect is less pronounced as the carrying costs negates their ability to compete with exporter who simply work the market on a spot basis carrying little or no inventory. Just a month ago the local exchange rate on the ground versus the dollar in Madagascar was about 15% lower than it is today. That gives a very big advantage to vendors who are not encumbered with older more expensive inventory as long as currency rates remain favorable. We believe that foreign exchange rates, given the extreme volatility of recent weeks, are the single most influential factor on vanilla prices in the short term.
In summary, it is easy to see why even just a few months ago, there were many who believed a firming of the vanilla market was imminent. After all crop sizes are down in all regions by significant margins and demand is strong and continues to grow. However , we believe there is very large carryover inventory which continues to support the market.
We guesstimate the carryover from 2007 vanilla crops, to be at least 1200 mt. This will plug any holes in the market over the short term. However, with diminishing crop sizes on the horizon it is difficult to see how these carry over inventories will be sustained. We are also somewhat concerned with the health of the vanilla vines in Madagascar. Although most are quite young in age, they do seem to be many sure signs of stress. There is no other explanation for exceptionally early and profuse flowering. The vines may be giving one last push before a phase of fatigue sets in.
AUST & HACHMANN (CANADA) LTD/LTEE
October 30, 2008
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