Vanilla market mostly unmoved by recent spate of stormy weather in Madagascar
– Traders are warily watching future weather developments
– Demand is running strongly
– Madagascar’s 2022 crop expected to be substantially smaller than that of 2021
– Indonesian crop will be a poor one
– The international vanilla market appears to be largely stable for the time being despite recent cyclones and tropical storms in key origin Madagascar. However, there is still underlying concern that there might be damage due to the excess moisture that was the inevitable result of the adverse weather.
– Douglas Daugherty, president of the Vanilla Corporation of America, told IHS Markit: “The last cyclone and tropical storm to hit Madagascar missed the main vanilla bean growing areas of the country. However, some of these vanilla growing areas did receive a lot of rain from these storms. So, in the short term, the main vanilla growing areas were not too adversely effected. But, in the longer term, water logged soils in the vanilla plantations can help to form and spread fusarium disease to the vanilla vines. Time will tell.”
– Similarly, Fanny Grymonprez, marketing manager of Eurovanille, reported that Eurovanille suppliers confirmed there was no rain in Sava or the Maroantsetra district. “The south of the county was affected by floods,” she observed. Grymonprez noted that for the time being there should be no impact on the vanilla price, “but the cyclone season isn’t over”.
“The vanilla market remains calm at the beginning of this year,” she added.
– Emmanuel Nee, head of the ingredients department at French trader Touton, remarked that the latest cyclone hit the south part of the east coast of Madagascar and therefore missed the main vanilla growing area which so far “is very safe”. However, a “huge cyclone” is forecast in Madagascar for the middle of next week. As of Wednesday the direction of this was unknown although some industry sources were indicating it would hit the northeast of the island “which would be a disaster”, Nee noted.
– The current (2021-22) crop is available in good volume, being estimated at 2,200-2,300 tonnes of cured beans.
The view from Indonesia
– Indonesia has very little carry-over inventory available and some areas of the country have started to process immature beans. Francois Bernard of Indonesian supplier Tripper said international buyers are still looking at Indonesia to lower their cost with Madagascar origin.
“We’ve had a lot of heavy rain for the past three months in all growing areas in Indonesia. We are expecting a crop of around 300 tonnes this year,” he explained. Because prices have been good for a few years farmers in Indonesia have been motivated to plant more.
– Indonesia’s harvest of vanilla planifolia runs from March-end October, depending on the altitude of the plantation. Vanilla tahitensis from Jayapura is harvested throughout the year as there are so many plantations for this variety. Bernard observed that due to poor agricultural practice (weak support trees, vines planted too close to each other) the vines come to maturity after three years but produce less than 1 kilogram and die after two years of producing. This is clearly not very sustainable. A lot of effort has to be made on the farmer side for Indonesia to produce more than 500 tonnes of vanilla per year as it used to.
– Frisca Maya Tamara, director of Indonesian supplier Madame Export Indonesia told IHS Markit: “The demand is very strong now, especially locally. I closed my export order for grade A or gourmet vanilla until the end of this month. All was sold out because I have only a small quantity this month for mature vanilla. But locally I have contracts for tahitensis vanilla.”
– Daugherty observed that so far, the demand for vanilla beans seems to be healthy this year.
“Madagascar had a bumper crop last year and produced between 2,300-2,500 tonnes of cured vanilla beans. Quite a few of the extraction companies thought vanilla bean pricing would decrease this year due to Madagascar’s bumper vanilla bean crop last year. But that has not happened. This has buyers in the US somewhat confused and many are buying their requirements on a ‘hand to mouth’ basis,” he explained.
– Daugherty recalled that the vanilla vine flowering was poor in the Sava, Madagascar’s main vanilla growing region, last year. However, the vanilla vine flowering was better in other vanilla growing regions of the country. So, this will lead to a smaller vanilla bean crop in 2022 which might be why vanilla bean prices are not decreasing as many expected, he noted.
– Nee recalled that early in the season when the vanilla beans were being cured (July-October 2021) some were expecting prices to ease due to increased output but this has not really been the case. The flowering for the 2022 crop was poor during October-December with a drop of around 30%. Even if it is too early to predict, it is feasible to expect a global production of 1,500-2,300 tonnes in 2022-23. This would be substantially short of the estimated annual demand requirement of about 3,000 tonnes. Nee suggested that Madagascar’s 2022 crop this July is likely to be in a range of 1,600-1,700 tonnes. Late flowering might also impact quality (lower yields and reduced vanillin content). Moreover, almost half of the crop has been exported already (1,100 tonnes at the end of January).
Further coverage is required
– Nee observed that demand is not covered enough for 2022 as most customers still need to purchase for Q2, Q3 and Q4, possibly even further.
“Last year the global demand was strong enough to absorb the totality of the crop at about 1,800 tonnes and we believe there is still enough demand to absorb up to 2,200 tonnes. Covid has a positive impact for consumption of vanilla products with more people cooking at home in Europe and the US,” he added.
– Nee confirmed that current demand is running well both in terms of speculators covering as well as industry buyers. Some are covering potential needs to the end of the year. Hence, even though the cyclone risk should be over by the end of March or early April, there remain plenty of bullish factors. Some suppliers at origin decided to build stock with current crop in view of the potential bullishness ahead and the bad crop expected this July. In addition, there are potential political actions in terms of minimum pricing and quality control which Nee predicted might give a speculative trend to the market this year and into 2023. “That is why we advise our customers to cover their needs for 2022 and maybe even more,” he added.
Minimum price remains in force
– For the time being the Madagascar government set minimum official price remains at $250 per kilogramme fob. Nee expects this to be raised to $300-350/kg in 2023. In addition, at the end of May 2022 the Madagascar government will impose its ban on exports, as it usually does at that time of year. Buyers are looking for extraction grades around $175/kg fob and gourmet grades around $195-200/kg fob. Some of these bids are proving successful. Already it is difficult to find quantities on the market and most of the largest exporters are speculating and waiting for the next wave of demand.
– As noted recently with cloves from Madagascar, logistics is a nightmare. Transporting goods by plane from the Sava region of Madagascar to France averages around $7-8/kg “so it is even worse to the US, where the big consumption is,” Nee observed.
– Although costly, sea freight is the lower cost option of these two. The cost of shipping by sea freight to Europe has not been increasing as much as it has for shipments to Asian destinations, but the worst thing is the transit time, Nee remarked. For example, it can take as much as three months to ship from Madagascar to France. In normal times, this was usually achieved in less than one month, or at worst, one month. The cargo goes from Madagascar to Mauritius, from the latter to Singapore, and then from there to Europe.
– Singapore port is prioritising the more expensive containers coming from elsewhere in Asia before moving on to the lower cost ones from other global destinations. Nee explained that Touton is resorting to air freight only when moving gourmet vanilla beans or if the containers are stuck somewhere in the Far East. “We always prefer to ship by boat because of carbon footprint etc.,” he added. The upward pricing potential looks strong for the coming months based on the supply and demand fundamentals and high freight costs.