It’s late 2022, and we are living in a world that has profoundly changed over the last three years. In 2019, the world had no idea what was to come and how it would change our everyday lives. Then, in early 2020, Covid struck, and lockdowns spread around the globe. Each country dealt with Covid in their own way, but in all countries, it changed the economic balance. Things that we took for granted, such as the availability of toilet paper, were suddenly no longer a certainty. We could no longer travel to other countries or to our neighbouring states.

Initially, macadamia sales continued as usual, with consumers treating themselves to some luxury whilst sitting at home awaiting freedom. The first signs of problems appeared when ingredient sales in the USA began to slow as cafes, restaurants, bars and convenience stores closed. And by the end of 2020, these closures created a small worldwide stockpile of styles 4, 5 and 6.

Through 2021 the Covid pandemic continued to heavily impact our ability to travel, as countries continued to move in and out of lockdown. The 2021 crop was not substantially larger than previous years, but China changed the way it purchased Nut in Shell (NIS) and started consuming more 22mm+ sized NIS, with sales of 20-22mm NIS significantly decreasing. Processors in most origins cracked this smaller NIS instead of selling it as in shell. Unfortunately, smaller NIS produces a larger proportion of styles 4, 5 and 6, adding to the stockpile still on hand from 2020. The drought-affected Australian crop produced a much larger proportion of halves and chips than normal in 2021, further exacerbating the problem. It wasn’t easy to grow the market for these styles when manufacturers and retailers were not investing in product development.

Late in 2021, processors worldwide started dropping prices on these smaller styles to reduce stock and increase cash flow. From December 2021 to March 2022, the price of ingredients styles fell steeply. When prices fall, our customers are less inclined to sign forward contracts because they are not sure how low the price may go, and they are aware that they may lose money if they hold expensive stock.

As we commenced the 2022 selling season, there was a lot of hesitation in the market and contracting. Thus cash flow was slow, which resulted in some processors dropping prices even further, which in turn created more uncertainty amongst our customers.

The NIS buyers in China were very slow to contract in 2022. Typically, most NIS contracts with processors around the world would be executed by May. This year, only a small percentage was contracted by this time. The threat of not being able to sell crop as NIS and instead having to process it, resulted in some processors dropping prices further. Kernel customers were aware of the situation in China, and this made them even more hesitant to contract forward due to the possibility of a large amount of kernel entering the market later in the year.

At the beginning of the year, the China crop was forecast to grow from 30,000t in 2021 to 50,000t in 2022. The crop is now predicted to be slightly bigger than that. The increasing macadamia crop in China has allowed Chinese buyers to wait longer to contract in 2022 than in previous years. The China crop harvest commences around September each year which better aligns with the major consumption times, which are from November through to Chinese New Year in January or February.  By using the China crop, customers avoid buying stock early in the year and storing it until it is used late in the year.

Ongoing lockdowns throughout China have continued to create logistics and economic issues resulting in reduced sales of many products, including macadamias.  The good news is that Chinese customers eventually started buying, but at prices that were approximately 20% lower than in 2021. At the time of writing this article, NIS prices are still falling.

Compounding the problem, in 2021 world shipping became very expensive, and it was challenging to secure shipping space. The cost of getting product to market increased dramatically and shipping delays resulted in customers receiving stock months later than when they required it. A lack of stock in some markets, like the USA,

 slowed demand as our customers concentrated on products they could obtain and sell.

During 2022, it has gradually become easier to travel and many aspects of life seem to be back to normal. Still, we are starting to see the longer term effect of the Covid pandemic on the Australian and world economy. Shipping remains expensive and difficult to obtain, the war in Ukraine is adding to the post covid problems as Europe enters hard economic times. We have seen rapidly rising fuel costs and central banks trying to slow inflation by raising interest rates worldwide. As a result, the cost of almost all inputs at our factories and within our customer’s supply chains have increased. The Central banks aim to slow consumer spending, ultimately slowing macadamia consumption to some degree.

Adding to the already difficult situation, South Africa recently released a revised crop forecast announcing that their crop is 19% larger than they had previously forecast. This has further pushed supply ahead of demand, and now the pricing of whole kernel is also being impacted.

Until recently, whole kernel prices had been relatively stable, but over the last two months, we have seen significant price reductions in some markets. The combination of slower NIS sales, and a larger crop in South Africa, has resulted in processors from that origin offering lower prices for whole kernel to customers around the world.

Falling prices in all styles are putting pressure on contracts signed earlier in the year at higher prices, threatening to further reduce our income.

The cost of operating our factories is also increasing particularly the costs of many essential supplies including gas, electricity, labour and transport. In addition, it has proven to be very difficult to get a full complement of staff to run our Lismore factory this year with the floods forcing many people to leave the area and a general labour shortage across Australia.

Factory costs are also influenced by seasonal events.  In 2022, the heavy rain and flooding in our Southern growing regions have resulted in a higher than usual percentage of commercial grade kernel, which increases sorting costs and reduces the sales value of the crop.

The current situation sees the sales value of the crop decreasing, while processing costs are increasing. This is against a background where Grower input costs are also rising with prices for items such as fertiliser and fuel prices increasing steeply along with most other input costs.

Macadamias are not alone in this perfect storm. The price of other nuts, such as almonds and cashews have also fallen as similar pressures affect their industry. Although the price of macadamias is not tightly linked to other nuts, many of our customers also use these other nuts, and if the price differential between macadamias and other nuts becomes too large, customers move to use more of the other nuts. This is particularly evident in mixed nuts. In China, macadamias compete against other in shell nuts such as almonds and pecans. Low almond prices encourage our customers to buy and sell more of them rather than take a risk on macadamias.