Monday, September 23, 2013
"A great civilization is not conquered from without until it has destroyed itself from within." W. Durant.
Once too many times has this publication used the movies Armaggedon, Apocalipsys Now, The Perfect Storm, Dr. Strangelove and many other titles that reflect a pending doom on our industry and the chaos that anticipates the end of days. Well, once again we have found that this is the best way to illustrate our readers on the reality of our business today and the difficulties to forecast the future of bananas.
As the Mayan Kingdom faces its decline, villagers are been rounded up to be offered as sacrifices to the mighty Gods. If we look ate the banana business today, the Mayan Kingdom would be the industry of bananas as we know it, the villagers been sacrificed are the operators on both ends (exporters and importers) and the mighty gods is the market, which is selfish and self serving.
The operators that are going to be sacrificed have failed to understand the will of the gods, in this case the market, the supply and demand of bananas. Ecuadorian production is at a record low, just between 2012 and 2013 Ecuador has decreased its exports in 50 million boxes so far. But prices have failed to pick up. Are we facing a downward trend of consumption in the world? Colombia and Costa Rica, have had more fruit that they have been able to sell.
If we compare Ecuador´s production with last year same week, there were approximately 1 million boxes more been shipped, and the spot price was above the official price compared with the way below the official been paid today. We have yet to see how the Ecuadorian Government, will react to this harsh reality. So far no fruit was been left behind, but this will surely change for the worst at least for the next 6 weeks until central American and Colombian surplus of fruit runs out.
Markets like the Russian and the Mediterranean have more fruit that they can handle, as a source stated: we have fruit coming out of our ears! In the warehouse, in containers at the port, and more on the way on the water. Russian operators have big shipping commitments and even though they are sourcing from Colombia at $5,50 FOB it is still too high for the market, and reportedly with lower quality standards, that would just further their losses. The losses are massive. Let´s not forget what Russian banana history has taught us during the last 20 years, the biggest operator is just the next one to fall!
Multis are shipping all their surplus to be literally liquidated on the Med, in order to try an maintain the prices in USA and Europe from collapsing. There are losers on all sides! In Ecuador producers are been paid nuts per stem to simply chopped them down.
When will the markets recuperate? When will the market demand more that is actually been supplied? Will the bounce back be aggressive or will it be conservative? We do not know yet, but we are sure that for the first quarter of 2014, fruit will be demanded, especially by the operators with big shipping commitments and there will not be enough fruit for everybody. The eternal reality of the pendulum. As Ecuador is the last place to load bananas during these weeks, due to controls of the government, high exit price and higher freight rates, it will also be the main supplier during the high season for spot bananas.
For sure there will be a new dawn on our business, with the sacrifice of many operators and to the benefit of the Conquistadores (the multis) that are the only ones with the strength to withstand the losses been faced.
Care to give us your thoughts?.