Late Season Crop Report
With summer and fall harvest about complete, we like to summarize the market sentiments for some of our major crops harvested in China and around the world. Our quality and procurement groups have been busy, together with our raw material partners, to produce and secure quality raw material to bring to our Illinois finished goods production facility.
The red bell pepper market has already shown significant volatility. Pre-harvest market sentiments were suggesting a plentiful harvest with increased supply and declining prices. Yet, with dehydration ending a little earlier than expected and limited carry-over stocks from the previous year, the market did firm toward the end of the production season in late September. Profit seeking speculators also entered the market during the second half of October. Large quantities of dried material moved from producing origin regions in China to warehouses along the east coast, driving a sudden and sharp increase in prices for dehydrated raw material.
We estimate the total available quantity of material to be very similar compared to 2016. Yet, raw material costs are about 5-10% above 2016 crop, notably due to a lack of available supply. With speculators currently holding relatively large quantities of material, the supply has tightened and has contributed to the current higher price levels. We anticipate the 2017 season pricing to remain firm based on total quantities available with potential for marginal softening toward Q2 of 2018.
Silva works with a number of preferred raw material partners and we have secured material at fair costs. As part of our commitment to quality, we prefer not to engage in extensive open market purchases, as it has a negative effect on traceability of material as well as issues with lot homogeneity. Please reach out to your sales representative to discuss your needs. Our robust supply chain combined with our state-of-the-art processing and full testing at our U.S. production facilities ensures you will receive the quality you need and expect from Silva.
The green bell pepper market is rather short, largely due to limited production at the end of the harvest. Typically, green peppers are dehydrated first and also at the end of the season as fruits are no longer maturing. With a limited production at the end of the season, green bell pepper material is limited. It should also be noted that a majority of green bell peppers in China are produced with adding sugar (glucose). It is quite common that the addition of sugar is not declared on labels or on the specification. Silva is delivering a product free of sugar through controlled production with our various partners in China and other producing countries. Bulk density and simple taste testing can be used to distinguish between product with or without added glucose. We expect pricing to remain stable with a slightly increasing trend.
One of the more positive highlights from the fall crops is tomatoes. Qualities are better than what has been seen in recent years. This is a result of healthy fruits at the time of harvest not affected by excess rain at time of harvest. It improves process conditions, reducing seeds sticking to the flesh/meat of the tomato, as well as reduced clumping during the dehydration process. We see a softening market with prices slightly lower than last year.
Other fall crops in China such as sweet potatoes and pumpkin have seen normal harvest conditions. Nominal increases are to be expected due to increased costs from continued environmental regulation, as was already mentioned in our early season market report. Continued uncertainty with respect to currency exists. This is more notable in product coming from Europe where the decline of the USD has contributed to higher prices. In close cooperation with our European producing partners, we are keeping any increases to a minimum. We do, however, expect to see continued pressure for increased pricing in 2018 if the current exchange rate tendencies hold.
Silva’s raw material budget will continue to be a balanced approach of ensuring quality control and economical cost, using our deep experience in this market to secure raw material at optimal timing.