Walnut oil

26. September 2014

The harvest is underway and the first reports we have received, state that the first outturn of arrivals meets with expectations. However, we also learned and advise in this walnut crop report that although the crop forecasts are in line, we are faced with a highly complex supply chain situation. Irrespective of a very substantial new crop volume of walnuts, the outlook for walnut oil is less rosy… The global market for walnut and walnut oil: The worldwide demand for whole walnuts (in-shell and out of shell) and the continuously growing interest in high quality walnut oil has led to a very precarious situation. During the past two years, global demand for nuts and oil has consistently been greater than what the supply side can offer. On account of the current availability an easing of this situation can be excluded, especially in the absence of sufficient carry in stocks. The stocks are sufficient to meet existing contract, but for SPOT requirements, volumes are very scarce indeed. Seasonally driven, the market simply does not get into swing. In our key walnut growing regions in California and Italy, new crop volumes are only trickling into the market. This important information was collected directly during recent meetings in the growing regions. There is high probability that the current price levels will no longer fall in line with the prices which we witnessed in the past years. Our forecast: „the prices for walnut oil will be substantially higher and are likely to rise further!“ Like we outlined in earlier market reports, we will continue to provide the backgrounds in a transparent and timely manner so that our customers will be able to appreciate the dynamics of the supply side better and make a more informed and better purchasing decision. Especially in the early phase of the new crop the farmers, cooperatives and the resellers in the growing regions are holding back. This reluctance is especially noticeable in the current situation, which we believe is based on the following grounds: Firstly, within the early phase of the harvest period only the really good and freshest of nuts are making it to the market yards. The „oil-stock“ volumes (i.e. the broken remains) which are made available by the walnut (nut) processing and packing plants are still nonexistent. This is the leading feedstock which is required for walnut oil crushing. What we have noticed: increasingly this oil-stock is taking a back-seat and as a result there is no real market movement which we can witness. Secondly, various market participants are taking a very observant position. A typical „wait ´n see“ … scenario governs the market sentiment. The question we hear repeatedly: „first let’s see,… how will the demand side develop, post October?“… Thirdly, we have spoken with one the largest suppliers in California about their basic anxiety and apprehension on the past seasons and current weather scenario. For this please also visit our extensive report dated 18th September 2014. Also visit: USDA 2014 California Walnut Objective Measurement report. A short recap of the above report and our discussions in the origin: The long and ongoing drought in California did not do the 2014 crop the damage, which many had feared. The crop volumes for this year are not adversely affected. In fact, the walnut yields and outturn weight are up by a good 11% vs. previous year. [caption id="attachment_714" align="alignnone" width="545"]california walnuts sept. Quelle: OM survey report 5/9/2014[/caption]   The CDFA (California Department of Food and Agriculture) currently reckons that a volume of a good 545.000 tonnes will be harvested and processed during the 4th Qtr. 2014 / and the 1st half year 2015. Eventhough the rains were missing altogether, many growers have actually reported that they were able to irrigate and water the trees sufficiently. On account of good temperatures the current harvesting progress is good. The yields and the quality of the nuts are also reported to be good. The mild weather is considered positive for the final quality. Samples received, have shown little damage and few signs of illnesses. This results that this year’s crop will be of a good quality with good volumes. Walnut oil outlook: What makes the past year and the upcoming season so complex? The answer to this question will be addressed in this section of our walnut oil and walnut report. In particular we will outline, why a record walnut crop can actually lead to bottle-necks and ultimately to a short supply in Walnut oil? Firstly,we are confronted with the fundamental situation of lower closing stocks and a short supply at the tail end of the old crop in anticipation of the new crop. Secondly, the sellers in the origin and traders in the market are expecting higher returns and much better prospects on higher sales revenues when the current volumes and new crop quality will be brought onto the market at a later time. This is also called a “deferred sales / market scenario”! Thirdly, there is the broad knowledge and general raised awareness, to support a healthy diet, which has had a positive effect on the consumption of walnuts and walnut oil. The background behind these positive developments has its roots in the positive health effects of consuming walnuts and walnut oil, which are primarily cholesterol lowering and the improvements in the cardiovascular system which have been reported extensively during recent years. Please also visit our BLOG on this specific topic (link is listed below) Fourthly, the exports of walnuts to China have increased phenomenally, year after year. The CWC (California Walnut Council) reported on their website, that there has been a seismic shift in the consumer patters in China in recent years. Walnuts are nowadays used in Chinese bakeries, breakfast cereals, in the home-kitchen also readily and increasingly consumed as “in-between-meals” snacks. For your information: in the past 3-5 years the consumption in China, in terms of volume, has increased by as much as >50%. The root cause lies in the continuous expansion of the well-to do middle classes in China. The expectation is, that these specific layers of the Chinese population will more than double, from 300mn to well over 700mn by the year 2020. Where China today is already a net-importer, it doesn’t take a genius to forecast their own domestic production of >700.200tonnes will not be sufficient, when already today more than 200.000tonnes are being imported, on top! The conclusions, from the various respectable industry and agricultural organizations with who we are in regular contact, summarize the trend-line as follows: „China is a dead certainty for a substantial increase in import demand for walnuts in the foreseeable future“… A fifth and extremely significant reason lies in the outlook on the availability of oilstock walnuts. Since these a.m. enormous volumes are mainly exported as „in-shell“ walnuts the sales and marketing and particularly the consumption and the processing of walnuts is no longer in the origin but in China and other export domains. As a direct result the volume of oilstock will be drastically reduced and is no longer available for the crush / processing of crude walnut oil. We anticipate that this will lead to a long term sustained shortage in availability of high quality walnut oilstock. Last but not least we would like to highlight the circumstances which troubled the walnut oil market in parts of Europe in the past 6-12 months, where various end markets were confronted with severe hydrocarbon mineral oil contaminations. Following these cases the quality controls have been sharpened and the customers have been forewarned. This situation has led to some substantial market adjustments which resulted in an unprecedented pressure on availability for high quality and uncritical walnut oil as well as the required feedstock which OPW buys to produce a top quality final product. Where some less discerning and even unscrupulous processors had used oilstock of any origin and processed this questionable feedstock, the recent and very serious contaminations have put an end to that! Independent laboratories have uncovered and monitored these inferior qualities. Food safety and consumer interest groups have made various publications, naming and shaming those who supplied out of spec. material. National oil federations and FEDIOL have also reported on a European level and are strictly following this situation. On that point we make a clear statement: “OPW Ingredients GmbH and our dedicated strategic supply chain partners FRATELLI PARODI, PARODI NUTRA and our wider group of loyal and reliable suppliers in the origin ensure total quality, anytime – at all times!”Conclusion: Neither in California nor in the Mediterranean countries the OPW TEAM can source sufficient walnuts and crude walnut oil today, to satisfy domestic and international demand entirely. The supply situation will very probably remain extremely tight for the duration of the 4th quarter 2014. We are also not getting firm indications that this situation will change, in at least the near and foreseeable future. How sustained this situation is, and here we mean the 12 months ahead of us, is not 100% clear yet, but we caution that this could turn into a long-lasting scenario. Fundamentally we are also of the opinion, that we will more likely be faced with an under-supply rather than that we will have a surplus in the second half of 2015. OPW has covered sufficient market volumes to keep the existing contract customers in supply. We request all contract customers, spot buyers and our prospective customers to plan and advise their Q4 2014 and 2015 requirements to the OPW sales team timely. In line with our corporate slogan „Simple things done well …“ the OPW Team will continue to report extensively and regularly on the current and future trends in this important market segment. This time-around with one specific subtitle … „difficult things equally so!“ And finally, … a silver lining on the horizon! OPW is pleased to report the availability of the first new volumes from our Italian production. Exceptional gourmet quality of cold pressed, refined and also our roasted and toasted oil is available from our warehouse in Viersen. This is the absolute premium quality from Piemonte and Sorrento feedstock and is readily available in various packaging sizes. Please feel free to read more about our extensive range of oil in the OPW BLOG and NEWS sections. More will be featured on the theme of walnut oil and our wider range of nut oils: almond oil, hazelnut oil, macadamia nut oil, pistachio nut oil, pecan nut oil and our unique range of apricot kernel oil and peach kernel oil. Further links are below for your reference. For any questions we will be ready to take your call, anytime. https://blog.opw-ingredients.com/en/tag/walnut-oil/ https://blog.opw-ingredients.com/en/almond-and-walnut-blog/ http://www.walnuts.org/health-and-walnuts/ https://blog.opw-ingredients.com/en/wp-content/uploads/2014/09/September-2014-Objective-Measurement-report-USDA-Walnut.pdf

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