The trading week in the Turkish hazelnut market got off to a generally quiet start. There were relatively few concrete inquiries from Europe and buyers in the Turkish domestic market are also waiting for the start of the coming season. However, Chinese buyers were active this week and generated some good business from a few suppliers, but this is not significant for the market development.

However, the calm came to an end on Friday when the TMO announced its purchase price for the coming season. At 130 TRY/kg for goods in the Levantine category and 132 TRY/kg for goods in the Giresunder category, a price was given with which the farmers are satisfied as things stand today. In addition to the price, they will each receive an extra TRY 3/kg to cover the increased production costs. However, all farmers with registered land will receive this, which is why we expect TRY 130/kg and not TRY 133/kg compared to the free market.

How should the amount of the purchase offer be assessed?

With the level of the bid, the TMO is breaking with the trend of consistency that it has stood for up to now. It is probably no longer a question of bringing a certain price stability to the market, but of maximizing the result for the export value. Over the last 7 years, the buying bid has generally been around 3 USD/kg for 1 kg of raw product in the shell. The current bid is now close to 4 USD/kg. The question we are now asking ourselves is whether this price level represents the new "normal". This question has certain implications, especially as the market leader, which is responsible for almost a third of exports, is tied to the TMO's bid. The big question is whether this is in its interests.

A quandary?

The increase must also be discussed critically in the context of the global market. The increase comes at a time when the global hazelnut harvest is good. Other nut kernels are still significantly cheaper than hazelnut kernels and the confectionery industry is struggling with an uncertain sales market due to high cocoa prices. However, Türkiye is in something of a quandary. Despite being the market leader in terms of volume, production costs are significantly higher than in other countries. A certain price level is therefore necessary for Türkiye , but the high prices make cultivation in alternative origins much more attractive, so the presumably long-term orientation towards USD 4/kg is, in our view, an invitation to the other origins, but also against the background of the threat of oversupply.

Reactions to the bid

Reactions to the TMO's bid have been received quite differently by exporters. The group of conservative suppliers feel vindicated and have reacted quite calmly. However, the group of offensive suppliers is not in a bad mood either. The main reason for the different prices in recent weeks were options on the development of the exchange rate and are therefore hedged by the respective banks. The losses are likely to be limited despite favorable forward contracts and then it remains to be seen how the price will develop on the free market. We see the following scenario as likely.

Acceptable price level?

We do not expect the farmers to withhold the goods. In general, the price level seems to be acceptable. A certain amount will probably come onto the market right from the start, as the harvest is large and farmers need liquidity right at the beginning of the harvest due to the massive increase in labor costs for harvest workers. The TMO only pays after 20 days. In the free market, payment is normally made immediately in cash.

Quality of the harvest

Demand should also be good at the beginning, so prices on the free market are not expected to fall, at least in the first two to three weeks. However, the factors of quality and core size distribution will still have a major influence. There is still no certainty as to how good the quality of the new harvest will be. The first farmers in coastal regions started picking this week. After a few days of drying, the surrounding leaves will be removed. Only then it will be possible to say how many kernels are empty and whether there will be many small kernels. Rumors are currently circulating that a correction of around 20% is imminent due to empty kernels and small size.

Distorted statistics

The consequences of these assumptions are that we expect higher prices for natural kernels in the coming weeks. For example, local cracker prices for natural kernels of the 11-13 mm calibration have risen from 230 to 245 TRY/kg. However, this also has to do with the fact that we now also have the statistical changeover from the 2023 harvest to the 2024 harvest. Therefore, all other statistics are also distorted this week. This must be taken into account. However, we also expect that we will probably see few upward corrections due to the large number of small kernels in the processed product. We therefore expect different developments in the market for natural kernels and processed goods.

Basically, however, we will have to wait for the coming week(s) to see how the individual market participants react. In particular, whether the market leader will remain calm and act prudently. It also remains to be seen how the market leader will deal with the "rejects" from its factories. This is still a big unknown for the coming season.

With regard to the exchange rate, we continue to see little movement. According to some bankers, a devaluation of the Turkish lira is imminent, hence the options mentioned above, but none of this has yet been felt on the market, which is why we continue to expect a certain degree of stability.

Other origins

• A brief look at the other origins. We are hearing very positive forecasts from Azerbaijan. There is talk of an increase of around 25% compared to the previous year.
• We are also hearing a 10% increase from Georgia compared to the previous year and, above all, significantly better expectations regarding the quality of the kernels. However, the expectations of the farmers here are also relatively high, which is why one should not necessarily expect this origin to be the cheapest.
• While these origins report positively, we are hearing rather bad news from Italy. Due to the hot spell, the harvest there has been revised downwards from the original approx. 130,000 mt to approx. 90,000 mt and the kernel size distribution is also said to be such that predominantly small kernels are expected.

We expect activity to increase in the coming week as many market participants want to reassess the situation. However, we also think that buying behavior will not change and that buyers will continue to focus on the short end in anticipation of a falling market.

Bullet points

• The TMO publishes its purchasing bid at TRY 130/kg for kernels (Levantine). The consequences could be far-reaching in the long term.
• Sellers will now have to reorient themselves, as no price has yet formed on the free market. However, a plus can be expected for natural kernels.
• Statistical changeover from harvest 2023 to harvest 2024, so this week's statistics are distorted.
• Harvesting has begun in the coastal regions. However, there is still no information on quality, empty kernels or kernel size distribution.
• There is still little movement in the exchange rate. However, some banks are expecting changes here shortly.