As reported in May, Mandarin Oranges continue to be very difficult, with supply almost nonexistent in China. Prices rose drastically from April-July with increases as high as 25-30%. Some believe that there may be a few available stocks come September when the suppliers take a good look at what is left in the warehouse vs. what is expected to ship on contracts. We expect prices to hold firm until the new crop. New harvest normally begins at the end of October to early November, with shipments of canned mandarin oranges arriving at the end of December or early January. There will be little to no carryover going into the new crop that is expected to be better than last year’s. We should see some relief in prices heading into the New Year.
It has been reported that during the early days of April, freezing temperatures have affected the north and western regions of China and could have affected part of this years’ apple supply. However, this region only accounts for a small percentage of the total production and if there are no further surprises, the apple raw material market for canning should be similar to last year.
While the fruit raw material market should remain similar to last year, we are expecting a slight increase in prices to the final products due to the FX rate (a decline of the USD, from 6.60 to 6.33 RMB/$1.00, about a 5% decline) and higher prices on tinplate and cardboard.
2017/2018 proves to be another tough season for mandarin oranges in China. Since the previous season was short, partially because the Chinese New Year started relatively early (January 28, 2017), and partially because of a short fruit crop, there was practically no carryover before the new season and buyers could hardly wait for the fresh production to begin.
If we thought that the situation could not be any worse than last year, we were wrong as this season seems to be quite a disaster. Raw material supply is short and a decrease in available labor in all packing areas, when compared to the previous year, forced factories to firm up their quotes to compensate for the decrease in production.
Packing mandarin orange segments is very labor intensive since every single fruit has to be peeled and segmented by hand and factories are unable to fill all shifts and all production lines with workers. It has been reported that the price of the raw material is still on the upward trend and offers for finished product, both retail and foodservice, are following the same path.
For this reason, many factories are reluctant to speculate and they only produce for firm orders that reflect the day’s raw material price and have prompt shipping dates. Even though Chinese New year is late this year (February 16, 2018), factories aren’t planning to pack mandarin oranges until that date like they used to because of the above reasons.
In addition, the Chinese currency (RMB or Yuan) has been steadily gaining value against the USD and reached its highest level since end 2015. The weak dollar, together with the higher cost of labor, sugar, tin plate and cardboard are all adding to the already firm market prices of canned mandarin oranges.
Water Chestnuts (Eleocharis dulcis), most commonly known as Chinese water chestnuts, are often used in Chinese cooking: they have a crunchy texture, a mild flavor and add freshness to a dish. Water chestnuts are perennials from a family of plants called sedge, a type of marshy grass with the edible part appearing at the bottom, very much like a real chestnut in shape and color. However, they aren’t actually nuts but an aquatic vegetable since they grow under water, in the mud. Each water chestnut has a similar size and mildly sweet apple-coconut flavor.
Water chestnuts are typically collected in the winter months because they prefer cool waters. Growers in China, Vietnam and Thailand often rotate water chestnuts with rice in paddy fields since the two crops conveniently complement each other as far as the growing season is concerned.
The bad news is that this past winter was unusually warm in the South of China and the crop turned out to be extremely poor. The peak of the harvest is typically in January/February; Chinese New Year fell on end January this year and the fresh local markets pretty much took up the entire harvest, as people were preparing for the 2-week holiday. Raw material prices were very high and water chestnut packers were hoping that the fresh market would come down after the holiday. However, this never happened and with the season winding down this month, there is no chance for the prices to improve. Canneries are currently competing for whatever meager supply there is, just to be able to cover their contracts. Canned water chestnut prices have increased sharply, by as much as 30-40%, compared to last year’s prices. We expect the market to stay very firm and high, with possible shortages later this year.
As reported early January, Chinese Mandarin Orange packers finished production early this year because of a shorter than usual crop and because of labor shortages.
According to our sources, most processors have packed product for firm orders only, and hardly any packer has surplus inventory for future sales, especially in Foodservice can sizes. U.S. importers that didn’t cover their requirements for the entire season are finding out now that the prices are up by about 10%.
We expect the mandarin orange market to remain firm throughout the year.
Mandarin Orange production to finish early in China due to poor crop.
Our buyers have recently traveled to China and visited several mandarin orange packers in Zhejiang province (Ningbo area).
There are several growing areas in China, like Hunan, Hubei, and Zhejiang Provinces. According to packers, the crop in Zhejiang is some 40% shorter than in a regular year, while the crop is decent in the other provinces in terms of volume but poor in quality as fruit is small due to lack of rain. These other growing areas are in the middle of the country and domestic freight from Hunan and Hubei Provinces to ocean ports or to other factories in Zhejiang or Shandong Provinces makes the raw material very expensive.
Also, it may be hard to believe, but factories are having a hard time hiring workers. Processing mandarin orange segments requires a lot of manual labor and it’s a seasonal job. Some large factories pack nothing but mandarin oranges and they are only open for 2-3 months per year, so a temporary and tough job is not very appealing to workers.
China is facing challenges regarding environmental issues. The country is very polluted and the air quality is bad; as we can all see on the news and on the internet. The government is taking tough measures in order to “clean up” the air and the land; these clean-up efforts affect the food processing factories as well: they must contain and clean their waste and that costs a lot on money. Higher fruit prices, rising labor cost and expenses related to environmental clean-up contribute to higher production costs.
On the other hand, China’s largest competition in this business, Spain, is experiencing a good season, with expectations to exceed normal production volume due to strong demand. Chinese mandarins are subject to anti-dumping duties in Europe that can make their product hardly competitive when the crop is abundant in Spain.
The USA remains China’s main export market and even though the cost of production seems to have increased we expect the prices to remain around last year’s levels because of the decreased demand from Europe. Chinese packers traditionally continue processing mandarin oranges through Chinese New Year that falls on January 28th this year but we are hearing that production will be completed by end December or early January in most factories.
THE BIGGEST EFFECT ON CHINESE FRUITS THIS YEAR WILL BE OCEAN FREIGHT!
One of the larger cargo steamship lines, Hanjin, has filed for bankruptcy. It is estimated that Hanjin carries 7% of the world’s ocean cargo, which includes 30,000 TEU’s (twenty foot equivalent units -truckloads) from Asia to the USA weekly!
Ocean freight rates are at all-time lows, and this recent bankruptcy has given the other carriers opportunity to immediately raise their rates. We are expecting to see short term increases on Asia origin freight; between $0.50 – $1.00/case. Perhaps this will decrease to some degree come November.
To simplify the current situation, all the cargo on the Hanjin vessels around the world (about 90 vessels), is in limbo, as the Suez Canal operator will not allow Hanjin vessels in due to unpaid fees. This is the same reason why the Hanjin vessels are not being unloaded at destination ports around the world.
There are bankruptcy laws, international maritime laws, and local laws all in play here, making for a very complicated situation. Many USA importers have cargo on Hanjin vessels right now with no timeframe for delivery.
Please be understanding as there is nothing an importer can do! We are hoping the Hanjin situation is resolved soon and that the other ocean carriers can pick up the capacity. Higher ocean freight rates however, will remain in effect until at least November when the bulk of holiday shipments have passed.
Peaches: There was a very good crop in China this current season, which is concluding now. However, the consumption in China has been growing, putting a dent in the quantities available for export. The prices have softened a bit for the 2015 crop. Greece had some real quality problems this year due to some excessive rain and very hot weather. A lot of their raw material went to peach pulp, for industrial use. Also, the Brexit issue has now made exported Greek Peaches to Great Britain a dutiable item!
Pears: The harvest of Pears in China will now begin, and all indications point to another good crop season. First, Pears are harvested, and then fruit cocktail is made, followed by fruit mix. Pears have a long shelf life and when they are stored in refrigerated warehouses, they can be processed well into the spring!
Fruits; Apricots, Peaches, Pears, Fruit Cocktail/Fruit Mix
The dominant producing countries (USA:California, China, and Greece) all begin the season around May with apricots being the first crop to be harvested. For the Chinese fruit, the general trend is for downward pricing due to the recently devalued Chinese RMB (Chinese currency) and a general oversupply of fruit worldwide.
Apricots: This year’s apricot harvest will be delayed until the end of May due to low temperatures experienced in Northern China. The price of the new crop is expected to be lower than last season due to the devaluation of the RMB. The US demand for apricots is not great, but many other countries have a demand primarily for apricot pulp for drinks. On a positive note, there should be no supply issues heading into the new season.
Peaches: Peaches are the next fruit to be harvested. For China and Greece, there is good carry over which puts a downward pressure on prices. Another contributing factor on softer prices is the ocean freight rates, which have been the lowest we’ve seen in years. It costs considerably less to ship a container from China to New York than from New York to Florida! This will most likely change early this fall when holiday goods start shipping to the USA.
Pears: In China, canneries pack pears when they are harvested in September/October and will store additional fresh pears in refrigerated storage where they will keep for up to 8 months! Large quantities of fresh pears still remain, which must be canned before they begin to go soft and before the new season begins for all canned fruit.
Fruit Cocktail/Fruit Mix: Fruit Cocktail has 5 fruits; peaches, pears, pineapple, cherries, and grapes. Fruit Mix has 3 fruits: peaches, pears and pineapple. Two of the main ingredients in these products, peaches and pears, continue to have soft prices and have no shortage of product.
Chunk Light Tuna: The chunk light tuna market is at the bottom. Since raw material is at a very low price, it is not profitable for fisherman to sell their catch to packers who are unwilling to process and pack it at the current market prices. There are two prominent species of tuna being used for Chunk Light Tuna. Over the past few years, Skipjack has been the traditional species and now Bonito is being processed in China and Vietnam, where labor rates are lower than Thailand. From certain factories, the quality of Bonito is much lighter in color than Skipjack (and at a lower cost), making it a very good value!
Tongol Tuna: Tongol is lightest in color of the light meat tunas, but is used as an alternative to the higher priced Albacore. Tongol is packed in all of the traditional tuna producing countries: Thailand, Indonesia, and Vietnam. Vietnam has a very short fishing season, which is in the fall, but they do receive limited quantities of raw material during the rest of the year. When raw material is available, the quality of fish from Vietnam is preferable. Indonesia is also a quality packer of Tongol and typically their prices are more competitive than Thailand. The market for Tongol tuna has been fairly stable the past few months with fluctuations of about +6%.
Albacore Tuna: The heaviest fishing season for Albacore is in April. Raw material has been in steady supply, but as of recently, it is a bit tight with prices firming. Fishing boats are coming in from the sea now for the upcoming Chinese New Year on February 8 (which lasts for about 10 days). Prices are firm and will continue to be so until at least April when the new season begins.