Monday, December 23, 2013

Sesame Seed Market Report 8th Nov 2013

So finally the wolf has arrived. All these years we've had the same stories from India about short crop , no raw material , no carry over stocks but this year it looks like the story is finally true.
Ohh...My God , Are you guys Crazy...etc etc , some of the very common phrases we have been hearing everytime over the past few weeks and to a certain extent I agree with the clients that Indians have indeed gone crazy. Yes the markets are short but the kind of daily/weekly movement we have seen in the recent past are just plain crazy.

Like I have been saying for the last few months that the market remains bullish despite the prices which fell periodically from time to time , the reason being more currency driven rather than an excess supply or a lack of demand.

Let us look what happened first :-
1:- We all knew that India had a good monsoon but we failed to recognize the fact that a good monsoon   does not always mean a good crop specially when the crop is sesame . I had specifically mentioned this point in my september report before the crop even arrived.
2:- Carry over stocks were depleting quickly and we thought we can live without them as soon as the new crop would come in.
3:- The currency movements were so sharp in the past few months that it made the markets almost directionless .Everyone was playing more with the currency rather than the actual commodity prices.

Current Situation :-
1:- Despite the initial losses due to heavy rains in India and the losses in the northern states of UP/MP the growth figures coming from Rajastan and Gujrat made everyone believe that the overall numbers of total crop would be more or less same as last year , however the late rains changed all that.
2:- The numbers put forward by various agencies/associations/trade estimates say the total crop is around 200,000 - 220,000 Mt. I would say these numbers are more or less correct looking at the average arrivals in the local markets over the past 30 days.
3:- I have no doubts that the export numbers from India will fall dramatically this year however from now until October 2014 the majority of global Hulled Sesame demand will still have to catered by India which means we will still easily export about 200,000 MT in the coming 10 months.
4:- Korean Tenders have shown an affinity towards the Indian suppliers and even the last tender was a testimonial of the fact that a major share of the Korean Tender will still be catered by India despite the high prices here. In a previous report I have explained how the complications with documents , the finances involved , the complicated Bid bonds etc ,the consistency in Quality and transit/delivery period all put together give an advantage to India for the Tenders.
5:- Last year we had carry over stocks at the start of the season , Indian's entered African market early and got some really really nice bargains for Importing the sesame into india which helped keep the market under control , this year however the Africans are in no mood to sell cheap to India. With prices already very high the risk factor has gone up so much that the handful of people who really do Import and reexport from India are also in a wait zone.
6:- The supply continues to remain weak  , the quality coming into the markets is 90% rain damage which means although it can be used for hulling the yields will be much lower compared to previous years which would mean higher pricing for Hulled. Sometimes for the factories it takes a little longer to realize the losses/cost increase due to yields and lower sales but I am sure eventually everyone will realize these finer points and costings for hulling units will have to be revised.
7:- The 99/1 grade is in very very short supply , the arrival overall are not even 100 mt /day for good quality which means that the prices for good quality Natural are almost at par with those of low quality hulled.
8:- At the moment there are only 3 kinds of buyers in the market
     a:- Exporters who sold forward and are short.
     b:- Buyer's who sold forward and did not cover.
     c:- Domestic demand which despite high prices is very strong atleast till dec.

So even though a lot of buyers who say they have enough in their books and are well covered for the next few months  have not been covering more at higher levels , I am afraid suddenly everyone will realize their warehouses are empty and will jump back into the market at high levels asking for spot shipments creating a bigger ripple than there already is.

What can happen over the next few months :-
1:- Diwali festival is over , everyone in India waiting in anticipation that the arrivals will increase after diwali and a correction will happen. I have a feeling it might be correct, however we have time and again told our buyer that the window will be very small . Anyone waiting to catch the bottom might just miss the train altogether.
2:- If the arrivals do pick up we might see a correction of about 5-6 % , I am not expecting a big fall right away as the supply chain is still empty. A supply based bullishness can only be countered by excess supply and unfortunately we do not see any big supplies coming in and pulling the markets down.
3:- If the arrivals do not pick up everyone should be ready to pay a further premium of about 10% . We are already at all time high levels in terms on pricing in Indian rupee but there is always scope of some further upward movement.
4:- I remember a few yrs ago when Hulled Sesame crossed Rs 100 everyone said its just not sustainable and prices will crash , I explained the phenomenon in a previous report about new market benchmarks which are bound to happen every few yrs , I guess the next target would be Rs 200 , I doubt that atleast for this year it will be breached or can be sustained even if we do manage to touch it but I am sure that the current prices are fair  enough to be workable over the new few months.
5:- Africa as we all know holds the key to the markets , if the big boys there start manipulating the markets , which is very much possible looking at the global situation right now we are in for a tough year ahead.
6: -The news from Africa is not very promising either , none of the destinations are reported to have a bumper crop , at least not to the extent that they can cover the losses in number's we've had in India and China. BTW China crop was reported short as well and by estimates is only around 250,000 Mt.

Ofcourse the demand will fall this year and maybe to a certain extent some institutional buying from big bakers and confectionary makers will be less. However like in the past we still firmly believe that price is not a deterrent atleast for food products. A company may think that since their sales are down people are eating less , the fact in most case is just that one of your competitor is now cheaper or has ready cargo to offer and your buyer has merely shifted their demand to someone else to average out their costs and to sustain their demands because you didn't have enough to offer.

Some of my friends tell me..Ahh you can live without sesame , who's gonna pay such high prices.
But I tell them we can live without a lot of things we don't really need  yet people pay loads of money to eat them.

I do believe a good chunk of sesame application will be shifted towards other seeds but as the wheels turn everyone will notice that the retailers over a period of time have revised their prices and when prices of sesame do fall these people will make a killer profits as retail prices hardly ever get revised downwards and the one's who sat back will regret not being among them.But thats for long term , just a thought :)

I've heard numerous arguments of Africa emerging as a competitor and taking over the market share of India. The reports are absolutely 100% correct , did'nt India do the same taking over the market share of South America and china. The fact is we dont have enough seeds in India so naturally we are more expensive than Africa is at the moment . Africa also has the advantage of heavy export subsidies , currency valuations against USD and duty benefits in China but all these factors put together do not make a stable and a long term growth story. Its all about which country has a better and bigger crop , so atleast for the next few years the global markets cannot ignore the India story. Once India gets back its big crop that would be the time for a fair comparison.

As always our suggestions this year would be:
1:- Stick to your reliable suppliers. A regular and old supplier is more likely to help you make a good average over long term rather than any flash supplier who is offering 4-5% cheaper right now.
I would not  suggest gambling away $60,000 for a $1000-1500 saving on a container.
2:- Stick to Quality , in short term switching to cheaper grade of sesame might look like a good decision but in longer run you risk loosing your potential clients when problems start and you unknowingly enter into a price war market where the competition is that much tougher. If you loose a business because a client wanted lower quality because it works for him there is a chance he will come back to you when he has problems or when he wants to move up in terms of quality segment but when a client moves away because he's looking for the cheapest price of the lowest quality where do you go.
Everyone in commodity market knows the china story , they captured every segment of business with cheaper prices but the party didn't last long. Would you today buy a cheap chinese product or a slightly expensive one made elsewhere ? BTW both sell, its just a matter of prospective.
3:- Like always please do not be tempted to catch the bottom , the best way forward is working on a average and atleast for hulled I would say an average price of USD 2800-2850 over the next few months should be a good buy this time. You might not get the volumes every-time so its important to be active in the markets at all levels and keep shopping/selling at all levels.

Sesame is no longer a cheap commodity and it sure is a very volatile one , in the next few years the competition is bound to get smaller because the smaller players will be pushed aside as the profit margins will be far less than the proportionate prices of investments and the risks involved , the one's who will survive will be the one's who stuck to the basics of business.

Right Quality - Right Price.
Once again we thank you for all the support and look forward to you comments.



Sesame seeds have a thin shell or husk which needs to be removed and this process is known as dehulling. The weight of hull is about 17% of total weight of sesame seed. The hull contains a great deal of oxalic acid and indigestive fibre. Oxalic acid can reduce biological utilization ratio of Ca in Food and influence taste. After sesame hulling, oxalic acid can reduce from 3% to 0.25% in sesame seeds, which improve the protein digestibility greatly. 

De-hulled sesame seed is mainly used to add texture, taste and aesthetic value to a variety of bakery products like bread, bread sticks, cookies, sesame bars etc; and also as an additive to cereal mixes and crackers. The whole seed is most important ingredient while preparing confectionery tahini (a halvah made from crushed, roasted and sweetened seeds) in the Gulf countries. The seed is rich in protein, carbohydrates, fibre, fat and some minerals content. 

Dehulled sesame has uniform white colour and is ready for use in cookery and confectionery. It is rich in protein (22%) and oil (60%). It has a large demand in domestic as well as export markets particularly for use in the confectionery industry.

International demand for sesame continues to increase every year. The worlds traded sesame seed recently surpassed one million tons per year and was valued at roughly $850 million. In the last 15 years, world trade in sesame has increased by nearly 80 percent. 

The total global harvest was about 3.84 million metric tonnes of sesame seeds in 2010. The largest producer in 2010 was Burma (Myanmar), and the top three producers, Burma, India, and China, accounted for 50 percent of global production. 

Twenty-five percent of world sesame hectarage is planted in Africa. The crop, which is one of the oldest cash crops in Nigeria, is produced in about 21 states of the federation but it is predominantly found in Benue and Jigawa states. Sesame production increased from 15,000 mt in 1980 to 56,000 mt in 1994. Available data from FAO shows that Sesame production in Nigeria further increased from 60,000 tons in 1995 to 75,000 tons in 2005. An estimated 334,685 ha of the 3.5 m ha arable land suitable for its production is currently under sesame production in Nigeria.

In terms of export value, sesame seed ranks second to cocoa in the volume of export and foreign exchange earnings. Nigeria is currently among the top five largest producers and exporters of the commodity in the world with an estimated production of over 120,000 metric tonnes annually. The major market destinations for Nigeria's sesame seed are Japan, Korea, China, Turkey and the Middle East.

Sesame can be processed to several different stages, such as simply cleaning, or cleaning and dehulling, cleaning/dehulling/drying,cleaning/dehulling/drying/crushing for oil, etc. In Nigeria, the primary processing facilities focus almostexclusively on cleaning. There are a few commercial cleaning facilities, and they are all privately held. Two are in Kano with a cleaning capacity of about 100 tonnes a day, and one is in Lagos with a cleaning capacity also of about100 tonnes a day.
There are also dehulling/cleaning/color-sorting facilities in Lagos, but most of the sorting is done manually by women, some located at storage facilities in Lafia and Makurdi. There are no commercial crushing plants for sesame seed oil.

A commercial cleaning facility is about to be installed in Nassarawa State, with a capacity to handle about 200 tonnes a day. 

The above situation presents an opportunity for savvy investors to engage in the cleaning and dehulling of sesame seed in Nigeria.

Olam to set up N3bn sesame seeds plant in Nigeria

OLAM Nigeria Limited has made its intention to set up a N3 billion sesame processing plant in Shagamu, Ogun State.

Olam Nigeria is the subsidiary of Olam International Limited (“Olam”), a leading global, integrated supply chain manager and processor of agricultural products and food ingredients.

Speaking in Lagos when the management team of the Nigerian Export Promotion council (NEPC) were on a tour of the company’s Sesame Seed Factory, the country Head of Olam, Mr. Mukul Mathur explained that the exportation of sesame seeds from Nigeria to Europe and Asia has increased over the years.

“Every home in Europe and Asia eat oil made from sesame seed exported from Nigeria to those countries,” he added.

He listed some challenges faced as those from cultivation to processing, as well as delays at the seaport, high cost of transportation and electricity, saying that they are major constraints confronting the growth of the industry.

He said it is cheaper to produce sesame seeds from cultivation to exportation in Sudan and Ethiopia even though the one from Nigeria has been adjudged better.
He said the new plant would be built on 25 hectares of land already acquired by the company in Shagamu, Ogun State.

In 1989 Nigeria was the launch-pad for Olam’s global business endeavours, and the company had featured prominently in the country’s economy ever since.

With an initial focus on the procurement of primary commodities like cashews, cocoa and sheanut, Olam gradually refined its operational scope and expanded operations into three major business streams, namely: exports, imports, and branded packaged food products under Caraway Foods.
Today, the company has  approximately 1,380 staff spread throughout the country, engaged in helping to manage the value chain activities of origination, processing, marketing and distribution.

Olam also continue to reinforce its operations through both organic and inorganic expansion, expecting to shortly commence production in its mechanical cashew processing facility at Ilorin in Kwara, and recently acquiring both the Crown Flour Mills and the De Rica brand of tomato paste.

Olam’s efforts in Nigeria have been recognised with several prestigious awards, including the 2011 Africa Business Award for Corporate Social Responsibility to recognise our highly-acclaimed extension programme for rice farmers in Benue and Kwara, and the 2010 award for Overall Best Exporter of the Year.

Wednesday, December 4, 2013