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Frightening ride forecast for vanilla

  • Frightening ride forecast for vanilla

    by Market Insider

    Monday, 19 Sep. 2016

    As the green vanilla bean buying season closes in Madagascar confusion grows: where will prices open once the first cured beans come to market in October, and how long can the high prices be sustained?

    Vanilla specialist Aust and Hachmann published an extra Market Report (http://www.austhachcanada.com/interim-report-2016-english/) at the start of the month to “….try and make sense of the madness which is occurring on the ground in the world’s most important vanilla region”.
      They fear that as prices for green beans hit 240,000 ariary/kg (equiv 80USD) at the close of the purchasing season the implications for cured vanilla prices go up to around USD500/kg. Certainly the USD240/kg of a few weeks ago is now just a memory and prices are likely to open around USD400/kg.

    To cap it all, A&H expect a poor curing ratio of 6 or 7kg of green beans to 1kg of cured, on the basis that too much of the crop has been harvested immature as farmers sought to minimize theft and maximise the returns from a market that has looked precarious throughout.

    The fear that high prices might be short lived is surely justified. There are scant fundamental arguments why the market should be at these stratospheric price levels. There is no obvious shortage of vanilla in the market, and the higher the price the more likely that consumers will turn away from Madagascar as an origin or natural vanilla as a flavour.

    French trade house Eurovanille pointed out that “…..the price of green vanilla has exploded and by the end of July, has doubled. A lot of players on the global market had not been adequately prepared for the surge in this year’s prices and had therefore pushed their local suppliers in Madagascar for higher volumes.

    These demands obviously put pressure on an already tight market driving up prices further. This led to more price speculation by local intermediaries such as processors, collectors and to a lesser extent, exporters. This was in spite of actual output being higher than last year.” (http://www.eurovanille.com/en/our-mission/vanilla-market-report.html) Meanwhile the speculative rumours infest the scene.

    Some commentators predict a low outturn in Madagascar, though there is no evidence of that, and others assume that global consumption will remain unaffected although experience shows that consumers will not pay these inflated levels and ultimately turn away from vanilla.

    Ultimately, this is a bubble. Prices this high are not sustainable. But just how stable is this bubble? Will it last the season and see the whole crop sold at these levels? Or will it collapse on the way? The last bubble, 10 years ago, blew us back to USD20/kg. The whole industry suffered then, but particularly it is the poorest of the poor who depend on vanilla production for a living who are hit hardest.

    We do not make forecasts here other than to predict that for anyone with a position in this wild market it will be the scariest ride through the end of 2016 and into 2017.

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