Blue Nile Research – Sesame 28-08-17

Sesame Market Update: 28/08/17

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1. Ethiopian sesame prices have been stable as we approach the end of the wet season

Since the c. 20% rally in price at the beginning of July, Ethiopian sesame have been stable for the last month, sitting at the top of significant 2-year resistance level. Breakeven prices have rarely traded above 1,400 USD per MT FOB for Humera grade 1 as prices lose competitiveness when compared to other sesame origins (Exhibit 3).

As we approach the end of the wet season, Ethiopian sesame prices will start to pick up volatility as yield expectations begin to feed into the price. With the poor sesame trading volumes this year (Exhibit 4), the current high prices and large supply of stocks, we believe the trend is downwards as we approach October and November when the new crop enters the market.

Exhibit 1: Sesame FOB break-even export prices

As of 25 August 2017, one-month date range

* did not trade in previous session
Source: Blue Nile Trading Ltd., Ethiopian Commodity Exchange

Exhibit 2: Six-month Humera FOB price trends

Source: Blue Nile Trading Ltd., Ethiopian Commodity Exchange

Exhibit 3: Long-term sesame FOB price trends

Source: Blue Nile Trading Ltd., Ethiopian Commodity Exchang

2. Humera grade 3 has dominated sesame trading at the ECX this year

This current marketing year (MY16/17) has seen ECX sesame trading volumes fall compared to previous crop years. The current weekly ECX sesame trading volumes have fallen to nearly 2,000 MT per week and for MY 16/17 the total sesame traded has been c. 240,000 MT. Since the ECX represents c. 70% of all sesame trading, we can see these low trading volumes reflected in the weak export data generated by less international demand.

This season has seen Humera dominate export volumes with over 70% of trading being Humera grades (usually Humera / Wollega ratio is 60:40). Humera grade 3 (95% purity) has been the most traded contract with exporters subsequently cleaning and processing these lower grades before exporting.

Exhibit 4: ECX sesame weekly trading volume by type

Source: Blue Nile Trading Ltd., Ethiopian Commodity Exchange

3. Sesame price behaviour is unpredictable during harvest time

Markets are generally efficient and only move when new information becomes available which is different to the consensus market view. Clear examples of this occur in various agricultural commodity markets during crop report data releases. These reports provide accurate crop yields and volumes and, when different to market expectations, can cause volatile price swings.

Ethiopia sesame market acts in a similar way. In the last four harvest seasons (Exhibit 5), there has been three large price moves where actual yields have differed to expected, often moving the market +/- 20% in a couple of months. These two months tend to be the most volatile parts of the sesame calendar which means fast execution of trades need to take place to avoid defaults from suppliers.

Exhibit 5: Ethiopian sesame price analysis during harvest time from 2012 to 2016

Source: Blue Nile Trading Ltd., Ethiopian Commodity Exchange

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