Onion and Garlic Market Report- November 2019

US Onion

The 2019 US onion crop harvest was completed by the end of October. Overall industry production is estimated 3-4% below planned thresholds. This change is a combined impact of delayed planting in some areas due to wet weather, unseasonal spring rains - adversely affecting yields in a number of regions along with sharp changes in temperature during the summer, impacting recoveries in several parts of California.

Planting for the 2020 crop has been completed in the desert region of Southern California and is now progressing into the Central Valley of California. Plantings in the Tule Lake region will begin in late winter – early spring 2020.

Customer demand in the US continues to remain sluggish as buyers reduce pipeline inventories. Imports have also declined relative to 2018 due to higher import duties on China and withdrawal of the General System of Preferences (GSP) beneﬁts to India.

Egyptian Onion

Egypt’s CY19 summer yellow onion crop inventories are dwindling steadily. Prices however, are soft as the quality of this year’s crop has been poor, with high mold and TPC – which has kept both processors and buyers cautious about participation. Meanwhile, 2019-20 winter yellow crop planting is in progress, with most of the crop already planted. Indicators point to an 18-20% reduced crop in the coming months, driven primarily by farmers shift to potato, sugarcane and cucumber, which are offering signiﬁcantly better returns than onion, combined with weak farmer sentiment due to the low prices received by them earlier this summer.

Olam Egypt’s 2019 White onion harvest was completed by mid-July. Like last year – this year’s crop quality has been very good, with over 70% of the raw material meeting low micro / extra-low-micro standards. This year’s crop also included the ﬁrst season of fully traceable AtSource compliant, Organic certiﬁed production grown over 125 acres. The 2019 crop has now been fully processed and has seen a signiﬁcant increase in acceptance with new customers on account of its unique taste, ﬂavor, color, traceability and consistent extra low and low micro proﬁles. Contracting with growers for 2020 crop is ~55% complete and is expected to be similar in size to the current season.

Other Origins

Indian dried onion markets have seen a sharp increase in market pricing both in origin as well as in destination over the last two months. This increase is the collective result of the depletion of the excess inventory from the 2017 and 2018 bumper crops and a 30-40% reduction in CY19 crop production to correct the demand-supply imbalance. Informal reports by Indian exporters put origin inventories between 7-10k MT as at end Oct 2019. With EU spot inventories estimated at only 1-1.5 months cover - and delayed planting of the 2020 spring onion crop due to unseasonal rains, it was natural for prices to ramp up sharply.

Chinese prices have remained in sync with India, but landed costs into USA have increased sharply due to the 25% increase in import duties earlier this year.

FUTURE OUTLOOK

A reduction in overall acreage in CY2020 coupled with reduced crops seen across the globe, is likely to cause dried onion prices to harden across the board in the coming season and potentially move up pricing for the more difficult / less available fractions.

Early contracting for the medium to long term coverage is strongly recommended.

USA

Preliminary indications for the 2020 crop point to a 4-5% reduction in total acreage driven by a number of factors. Increased raw material, transportation, utilities and wage cost inﬂation, coupled with higher yield/ recovery risk driven by climate change, higher inventory carrying costs from sluggish customer pulls and intense cost-cutting pressures from a large cross-section of customers have forced dried onion processors to adopt a cautious approach for the 2020 season.

US onion prices are already experiencing a 7-10% increase over last season due to the cost-push inﬂationary environment. Some processors reportedly have slow-moving stocks held over for a long period and these are potentially being offered at a discount. However, this situation is temporary. Delaying contracting in the hope of weaker prices later in the year would be very risky.

Extra-low and low-micro availability, though improved, is not excessive. Prices for these fractions will remain elevated through 2020. Organic US onion is now available in improved quantities.

EGYPT

Egyptian winter crop yellow onion prices are expected to ﬁrm up progressively over the next few weeks, driven by the smaller winter crop and will also be impacted by the weather during the winter months.

White onion prices are also expected to move up in tandem with the rest of the market.

OTHER ORIGINS

In view of the rising onion prices – the Indian Govt. recently banned export of fresh onion for an indeﬁnite period and has invited tenders for import of 100k MT fresh onion. This is likely to have cascading effects on fresh onion pricing, especially in the Middle East and South Asia – key market destinations for Indian fresh onion. Egypt/Chinese fresh onion prices could move up as a result.

Indian dried onion prices will continue to move up through Q1 2020 in the medium term as inventories deplete further. Further price movement will depend on how the 2020 spring onion crop turns out and this will be known only in early 2020. Planting has already been delayed and this typically means an increased risk of a shorter crop. At the same time – the higher prices will have attracted more farmers to plant and so the crop size should be larger than the current year.

China’s winter onion crop is reportedly up slightly from ~16k Mt to ~20k MT. This could potentially alleviate some of the shortage, but the impact will be minimal.

California Garlic

During September and October 2019, Chinese ﬂake prices remained weak in origin, moving down largely by sluggish demand in the US market and excess availability of destination inventory in USA brought in ahead of duty increases earlier in the year. Cumulative ﬂake availability in origin at end October is estimated at ~450k MT (equivalent to ~2 years’ worth of exports) and is adequate to take care of normal dried garlic export demand through next year’s crop. Meanwhile, garlic planting for the 2020 crop is in progress and will be ﬁnished at the end of November.

FUTURE OUTLOOK

USA

US dried garlic prices is likely to remain stable through the next season despite the smaller crop in 2019.

Low and extra low micro availability is stable and will be adequate for normal demand.

Organic US origin product is available for normal demand. Growth in this segment remains strong and continues to increase year over year.

CY20 garlic acreage is likely to be similar to CY19. A clearer picture will emerge by end of the year.

CHINA

Planting estimates of the 2020 crop are still being ascertained. Planted acreage estimates from Northern China shows an increase of ~20% over 2019.

Flake prices are expected to remain stable to slightly weak through December 2019.

Most US customers are well covered through Q3 & Q4 2019. New demand is likely to taper off by year end 2019. European and other markets may continue to come in periodically to cover.

The weather from November to May needs to be watched carefully as it will have a critical inﬂuence on the price scenario of next year’s crop.

Olam China will transition all manufacturing to a new plant and location in Jinxiang – closer to the main growing areas. The new plant will be fully operational by Jan 1, 2020 and will come with a number of improvements. Steps have been taken to ensure adequate availability of material to customers without any delays in supply. Please reach out to your sales account manager for details.

As a trustworthy supplier, Olam remains committed to food safety and quality. Moving into 2020, our Gilroy, CA. plant will undergo upgrades in packaging and metal detection capabilities. As we re-imagine Global Agriculture, Olam continues to drive transformation in the supply chain through our comprehensive sustainable sourcing program, known as AtSource. This program, combined with our ongoing quality guarantees for non-GMO, gluten-free and peanut allergen non-detected ingredients, meets the highest quality standards required by our customers.