Vanilla report 26
Eighteen months after the International prices for vanilla began an unprecedented free fall from prices well in excess of US$500.00/kg, the market still remains very soft and very skeptical. Despite a 90% drop in the prices for extraction grade vanilla beans and almost 75% for gourmet and prime vanilla, usage remains sluggish at best despite the prospects for even lower prices over the long term. Although world wide consumption will inevitably rise, exploding production numbers from almost all regions combined with the carry over of stocks unsold will most certainly continue to push prices downward. Buyers will rejoice at prices they have not seen since the late nineties for first grade extraction beans and they will also benefit from much improved qualities which will only get better in 2005 – 2006, weather conditions permitting.
One only has to look at the events unfolding in Madagascar to fully realize that the declining market has a long way to go before any type of upward trend can be justified. It is difficult to determine exactly how much Vanilla Madagascar produced in 2004 as exporters are very coy about wanting to reveal numbers detrimental to their obtaining the best possible price in a falling market. In our opinion, the 2004 crop yielded at least 1100 – 1200 mt of vanilla beans in Madagascar with over 400 mt still unsold. As the vanilla vines were over pollinated in 2004 there will be some vine fatigue resulting in a smaller crop in 2005, about 900 mt. However traditionally vanilla vines recover strongly from vine fatigue and all indications are for a monster 2006 crop in excess of 1500 mt.
In Madagascar every attempt is being made to try and establish a floor price of $30.00/kg for the 2005 crop but previous attempts to control pricing, regardless of the direction of the market, have failed miserably. On the plus side, qualities for 2005 will be much improved over 2004 with average vanillin contents for the first grade material moving back up to the traditional 1.7 – 1.8% range. As the 2005 crop was picked very mature there will be few short beans and cuts and a larger than normal percentage of split beans.
Other regions of the world will also see increased production and we believe that from the present through the end of 2006 countries like Indonesia, Uganda, Papua New Guinea, Comoros. India etc. will add well over 1000 mt of vanilla beans to the market. This does not bode well for vendors as the current surplus of vanilla beans on the world market will only grow in the years to come barring a major natural catastrophe and/or political insurrection in Madagascar.
As prices continue to fall it remains to be seen how quickly consumption can pick up and start to erode the surplus. In the meantime, it is obvious to any buyers that there are too many vanilla vendors on the market selling too many vanilla beans. We believe that many of these entities, especially those that have only entered the market in the last 5-6 years will disappear in the near future. We are also of the opinion that sustained lower prices for vanilla beans will allow for the development of new products and markets which over time will increase consumption.
The question on most people’s mind in the industry is how low will vanilla bean prices go? History tells us the answer is usually much lower than one can guess. At the end of the nineties just before prices started to rise it was possible to buy first grade Madagascar extraction beans for under $20.0/kg….no one…not even the most seasoned veterans of the vanilla trade ever imagined that first Grade Madagascar Vanilla would sell for over $500.00/kg by 2003. The gourmet market, which normally sells at a premium to extraction was totally pushed aside in favor of extraction grades as major industrial users had no choice but to push the market up. Thankfully it was these same industrial users who put a stop to the madness by simply saying “no” as many vendors felt there was still plenty of upside to prices given how far they had already come.
Today the vanilla industry is a paying a steep price for this reckless abandon. So steep in fact that in our opinion we are only at the beginning of a long-term glut in the vanilla and natural vanilla flavor markets. Prices will continue to fall, probably going well below the lows of the late nineties when vanilla prices for first grade beans were as low as $16.00/kg. Than there will probably be a long period of stagnant prices extending over several years, with many origins cutting back production. Some vendors and suppliers at origin will disappear as quickly has they appeared during the 1999-2003 period. The length of the recovery in the vanilla market could easily take us into the next decade in our opinion.
On the plus side, for vendors, is that natural vanilla has already become an attractive and competitive alternative to synthetic and natural substitutes. Small cap manufacturers can easily afford natural vanilla flavors once again and International markets outside of North American and Europe are ripe to be assaulted with a vast array of traditional and newly developed natural vanilla products and flavors. Although vendors will be under pressure, the world will enjoy a bountiful supply of very high quality and very affordable vanilla for many years to come. In the long run, this can only be beneficial for all, at least those who survive.
AUST & HACHMANN (CANADA) LTD/LTEE
August 5, 2005
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