US Onion

The 2019 onion crop harvest is about 30% complete in the desert region of Southern, CA. The crop is slightly late in maturing, due to the cooler and wetter spring this season. However, crop yields are normal.

The organic harvest was completed in mid-May. Crop yields have been normal till date. Due to wet weather, the Tulelake planting started late resulting in a slightly reduced crop.

Late May saw a series of thunderstorms over most of Central California and Westside regions. The unseasonal showers and hail adversely impacted the crop in some areas, especially in the Westside of the San Joaquin Valley. The weather has since stabilized by the end of May. The overall US onion crop for dehydration is now expected to come in ~3-5% below plan, assuming no more unfavorable weather events. Market demand, which began on a soft note in Q1, has seen a pickup in April and May. Pricing has largely been stable.

Egyptian Onion

Egypt’s CY 18-19 winter yellow onion crop is now fully harvested and mostly sold/committed at this time. The summer crop planted acreage is reportedly up 15-20% over last year and harvest will commence shortly. Fresh onion demand saw a spike towards the end of Q1, 2019 primarily from Turkey and Europe and caused Egyptian fresh onion prices to move up sharply for some time. This was driven mainly by the 40% reduction in the fresh onion crop in Europe late last winter. This sentiment has now returned to normal for the time. Olam Egypt’s white onion harvest has also commenced and is proceeding normally.

Other Origins

India’s 2018-19 Kharif (winter) white onion crop planted acreage is reportedly down ~30-40% over last year. This is a direct result of high carryover inventories and extremely low prices for fresh onion in the last season. Both fresh and dehydrated onion prices have seen a sharp increase in the last 2-3 months leading to some shipment delays and more quality related rejections.

Future Outlook

USA

Current inventories of US onion are adequate to service market demand for most fractions through the middle of the year. New crop arrivals will extend this availability as the harvest progresses, despite the reduction to the crop. However, specialty piece fractions and low and extra low micro products remain in tight supply and have begun to experience stronger premiums than in the past. This trend is expected to continue.

Irradiation costs have also increased sharply along with longer leads times, owing to cobalt related cost increases and high demand for irradiation services. Going forward, US onion prices are also expected to correct upwards by 7-15% driven primarily by higher labor and energy costs, higher transport and fuel costs and reduced crop related absorption impacts.

Egypt

Winter crop availability is limited, and this has caused prices to firm up since Q1.

Increased demand from fresh-onion-export is also likely in the coming months, due to crop shortages in EU and India. This could cause some volatility in summer crop pricing in the medium term. Egypt White onion pricing however is expected to remain stable for the season.

Other Origins

Indian dehydrated onion prices are significantly elevated from levels prevailing last year and are expected to remain firm for the rest of the season, with potential quality concerns.

Chinese pricing is likely to mimic Indian pricing for most markets.

California Garlic

The 2019 California garlic crop plantings were completed last fall at planned levels. Planting was carried out smoothly and the crop was progressing normally till late May. The second half of May however saw unseasonal thunderstorms and hail which impacted Central California and struck a portion of the garlic crop. Growers are actively managing the fields to minimize any potential damage caused by water or hail. As the crop is still at an intermediate stage, the full extent of the adverse weather will only be known towards the end of June. At this time, crop estimates remain unchanged. The harvest is still scheduled to start by early July.

Most destination markets have adequate coverage through end of Q2/Q3 2019 and buyer interest is currently lukewarm. Destination market prices have remained range-bound and are not fully reflecting the increased CY19 crop pricing at the moment.

Chinese Garlic

China’s CY19 crop harvest has commenced in regions which have planted early variety garlic. Overall yields are reportedly better than last season, but planted acreage is clearly down by ~30%. Fresh garlic prices have doubled over CY18 levels and open market flake prices are up over 60% from 2018 levels. Carry forward flake inventory from CY18 is estimated at ~0.5M MT and the likelihood of new crop flake production is extremely remote given the elevated fresh garlic prices. Chinese market sentiment is extremely bullish, and speculators are actively covering of open market flake at the moment.

Most destination markets have adequate coverage through end of Q2/Q3 2019 and buyer interest is currently lukewarm. Destination market prices have remained range-bound and are not fully reflecting the increased CY19 crop pricing at the moment.

Future Outlook

California

The US market is largely contracted through Mid-2019. Inventory coverage is adequate across all micro buckets. The US market is however witnessing increasing demand for CA economy garlic powder as well as Premium CA garlic since Q2.

CA economy garlic demand is being driven by improved pricing arbitrage favoring CA economy garlic versus Chinese premium powder. CA premium garlic demand has been finding higher traction due to its superior cost-in-use benefits ** (see note at end of summary) relative to Chinese garlic across a wide range of applications.

If Chinese CY19 prices remain buoyant – we expect demand for CA garlic to strengthen in the 2019-2020 re-contract cycle at prevailing price levels.

While availability of CA premium garlic is adequate and pricing stable, CA economy garlic is in limited supply, and prices could rise quickly. Early contracting is recommended while the pricing arbitrage is still favorable.

China

In early May, the United States Trade Representative (USTR) – announced increases in Section 310 import tariffs on ~$200 B worth of Chinese imports into USA, from 10% to 25%. Chinese dehydrated garlic imports have been adversely impacted as a result and landed costs into USA are higher by ~15%.

The enhanced import duties coupled with the sharp increase in open market flake prices (>60%) will sharply raise landed prices of Chinese dehydrated garlic in USA and reduce price differentials between Chinese and US garlic. While some of the duty increase could get offset through weakness in the Chinese RMB, overall flake prices are expected to remain buoyant for the remainder of 2019.

Elevated garlic pricing from China is unlikely to weaken in the long term and could extend into the 2021 season as well.

Please reach out to your Olam Spices Sales Managers to understand more about how CA premium garlic as well as CA Economy garlic can help you reduce costs and help you secure coverage.

** Olam CA Premium garlic has ~3 times higher sulfurous aroma compounds than Chinese premium garlic. This enables Olam CA premium garlic to deliver superior flavor, stronger aroma and better roasted and caramelized notes, than Chinese garlic. Olam CA premium garlic can therefore generate significant cost-in-use savings through ~25-50% reduction in inclusion rates relative to Chinese premium garlic across a wide range of applications (sauces, dairy, topical and meat seasoning).