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Date: 06/04/2010
18 May 2010 - Crop crisis in Vietnam

Today the following numbers came over the wire (we believe from an extremely reliable source within the VPA itself): 

New crop 2010 approx max


March/April exports


Border Trade


Exports for month of May (expected)


Stocks with farmers/speculators


Balance available until 2011 crop


10 months until next crop means availability per month of


The report then went on to state that due to the complete crop failure in Brazil there will be insufficient pepper for world consumption. These hard facts are strongly re-confirmed by the latest reports from the commodity analysts on the Indian Commodity Exchange which are reporting that the pepper market is both going up and down at the same time.

The latest reports from USA brokers suggest that the Indonesian crop will be between 15,000 mt and 38,000 mt.

Whether these reports are actually true seem to be largely immaterial. Indeed, whether these reports are even remotely accurate seem to be incidental to the sentiment they are trying to project. Suffice to say that Vietnamese, Indonesian and Brazilian shippers are apparently convinced of these report’s veracity, and prices continue to rise at origin. Indeed, there is some follow through from buyers in the USA and the Middle East, and ASTA grade is trading in limited quantities at the US$ 3450 to 3550 FOB Belem basis – albeit for nearby shipments. Buyers are also expressing considerable interest for end of year shipments, and appear frustrated by the (unsurprising) lack of offers from origin for late positions. The lack of offers (in our opinion) has little to do with any specific fears of the crop, and everything to do with nervousness due to the extreme volatility of the Indian Commodity Exchange, which seems to surpass itself on a daily basis with movements completely unrelated to the world pepper market, but entirely related to “commodity analysts” proselytizing over their charts and graphs.

Since we are sitting in Brazil it would be extremely presumptuous of us to make assertions about the Vietnamese crop – indeed it would be extremely presumptuous of us to make assertions about the Brazilian crop – particularly since it hasn’t even started yet, and so reports that the Brazilian crop is already a complete disaster should really be considered a little premature.

If markets were based on sentiment alone, we could be facing a US$ 5000/mt to US$ 6000/mt market this year - however, we must also be aware that ultimately supply and demand factors must at some point come into play. If there are some vestiges of truth to the latest (and consistent) reports of a total crop failure in Vietnam there is little holding the present market back. Stocks in Europe and the USA are particularly low at the moment, and most manufacturers seem to continue the policy of just in time purchasing, which at this moment is playing into the hands of those exporters who are holding stocks. Reports from the USA continue to suggest that the pipeline is empty, implying that buyers have been waiting for the market to correct itself.

In the last few days there has been a lot of interest for new crop MLSVB with prices trading upwards rapidly from US$ 3300 to 3750 FOB basis. The probable reason for the extremely fast rise in price was probably due to the difficulty in pitching a market value for this position by the traders. Since these positions are not being offered from origin the traders making this market are adopting a highly dangerous and speculative position.

For those for whom English is not their first language kindly note that there is an element of cynicism in the above report!

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