Spend Matters welcomes this guest post from Jara Zicha of Mintec.
The hazelnut market has gone through a turbulent time in the past 18 months. We saw hazelnut prices surge by 65% in the spring of 2014, followed by a period of uncertainty and higher prices as a result of the poor harvest in August 2014. In 2015, prices continued their upward trajectory, reaching a record price in May, up 160% since the start of 2014. We are now in a period of dramatic price erosion and prices have halved in recent months.
What is the cause of this extreme volatility? The simple answer is Turkish weather patterns.
Turkey produces on average 550,000 tonnes of hazelnuts every year, accounting for 70-75% of global output. Italy is the second largest producer with around 100,000 tonnes (13%), and the US produces around 35,000 tonnes (4%).
Hazelnut production in Turkey is primarily concentrated along the northern Black Sea coast. This region was affected by adverse cold weather during the winter of 2013 and frosts during spring months of 2014. Subsequent drought further harmed nut development. As a result, the nut crop in 2014 was reduced by around 25% to just 412,000 tonnes. That was the start of the price rises, with uncertainty over supplies keeping prices high until April 2015.
This year there were more frosts along the north Turkish coast in April, causing chaotic market sentiment and prices rising to an all-time high in May. However, the impact of the frost was not as severe as estimated, only affecting orchards at higher altitudes. Ideal rainfall and sunshine followed in spring and early summer resulting in larger-than-expected crop for 2015, which is currently estimated at around 800,000 tonnes. Suddenly, prices are back to where they were in April 2014.
While all that was happening, the Turkish lira was depreciating — by 28% against the U.S. dollar since the beginning of the year and by 16% against the euro since mid-June. This makes Turkish exports cheaper.
Will the volatility in the hazelnut market lessen? I doubt it as long as the dependence on the Turkish nut production remains. As it stands, stability might become a term only heard when referring to past years.