Garlic Update - May 4th 2010
Sensient Dehydrated Flavors LLC is a leading global producer of dehydrated vegetable products, offering the broadest range in the industry. Over the past several years we've made every effort to accurately and effectively communicate the changing environment of the dehydration industry to our customers.
Our industry, along with the rest of the food and ingredient sectors faced many challenges over the past decade. Mother Nature has presented many of these challenges in the way of untimely and adverse weather events impacting crop yields, and crop displacement stemming from ethanol production. Input costs such as fertilizer, natural gas and diesel fuel have also shown great volatility over this period. Although, these costs have appeared to have stabilized, they remain at elevated historic levels.
California, much like the rest of the world, remains concerned about its water supply. This concern along with 3+ years of near drought conditions contributed to higher grower costs based on a reduced availability of water. The impact of low water availability has resulted in thousands of acres laying fallow.
This period also included the continued consolidation of the US onion and garlic industry as well as growth and volatility of the Chinese garlic imports. China has had its share of challenges with reduced crop yields, poor weather, and availability that were present in 2005. During that year, both US and Chinese producers of dehydrated garlic suffered short crops.
The Chinese garlic industry experienced significantly reduced flake availability for dehydration in 2009, based largely on low returns to the farmers from the 2008 crop year and completion by higher value crops. As a result, plantings fell approximately 30% in 2009. It is important to remember that the Chinese dehydration season, typically starts in June and runs for 100 days. However, elevated flake pricing at levels 2-3 times that of 2008 delayed the start of the 2009 dehydration season by 30 days.
Simply stated, 1/3 of the 2009 dehydration season was lost. Pricing remained strong in 2009 and as the year drew to a close, it was apparent that both the quality and availability of Chinese garlic was on the decline. Late in 2009 and early this year, traders and lack of available supply began influencing the market and price. It appears that traders began driving increased pricing on the limited quantities of available poor quality material held in storage from the 2008 crop.
We now enter 2010, and although the first acre of US garlic has yet to be harvested, garlic availability is a major concern. Pricing pressure over the last couple of years has reshaped the US industry and led to an approximate 35% reduction of planted garlic acres in 2009 for the 2010 crop. The decision for acreage reduction was an attempt to balance inventory in the face of heavy pricing pressure from Chinese garlic imports over the past couple of years. Because of decisions made in 2009, it was also impossible to predict the effect of recent weather events that have adversely impacted the Chinese garlic crop. Plantings for the 2010 Chinese garlic crop appear to be settling out at levels equal to those of the aforementioned 2009 crop. The primary difference being that yields are down due to severe cold weather and there is virtually no carryover of quality garlic in China.
The expectation is that Chinese garlic availability will be low with prices increasing on the order of 25-30% above those of 2009, with suspect quality. This, coupled with reduced US plantings has lead to the expectation that US garlic prices will increase by the same percentage as that of Chinese material. Chinese garlic is expected to be in short supply and the US industry will struggle to fill the gap in supply.
Sensient Dehydrated Flavors will continue to monitor this situation and update you as there is new information to report. Should you have any questions, please feel free to contact your Sensient Dehydrated Flavors sales representative.
