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Turkey Hazelnuts: Turkish interest rate policy sends Lira on a downward slide

by | Nov 22, 2021 | Hazelnuts, Nuts

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The main impetus of this trading week came once again from politics and not from the hazelnut market itself. On Wednesday, one day before the monthly meeting of the Committee of the Central Bank, President Erdogan commented at a meeting of his party that he wanted to Companies from the interest rate plague. The market deduced from this statement that the next interest rate step would be again one downward and sends the Lira already on Wednesday on a downward slide. On Thursday, then followed the certainty. The central bank lowered the key interest rate again by one percentage point from 16 to 15 per cent.

All in all, the Turkish national currency lost more than 10 per cent of its value against the euro and the U.S. dollar this week. The problem is that many companies in Turkey have borrowed foreign currency in the past due to the high-interest rates. I have borrowed in foreign currency because of the high-interest rates. However, since the national currency has now has collapsed to such an extent, a currency loss has to be accounted for, which for many companies is now probably threatening the existence of many companies. Therefore, while it is excellent for companies to have low-interest rates, this makes the repayment of existing liabilities hardly feasible.

This is the great sword of Damocles hanging over the Turkish economy. On the other hand, a low-interest rate level would be advantageous for the hazelnut market because the high-interest rates have once again ensured that exporters had financed their stocks in foreign currencies.

Many started about a month ago to build up their reserves at about 24 TRY/kg. To do this, they have taken out foreign currency loans and exchanged them for the Turkish Lira. Exchanged. In the last month alone, the Turkish Lira has lost about 17% in value, so the exporters now have to expect a cost price of 28 TRY/kg as raw material price. The market price today, however, is about 25.5 TRY/kg.

This different calculation basis also explains the varying price level that we are currently seeing. Many exporters are also not passing on the total savings from the exchange rate to compensate for at least part of the losses. Many market participants have long been calling for the commodity price to be pegged to, for example, the U.S. dollar to the U.S. dollar, to keep the market more stable and predictable.

The collapse of the Lira immediately created a significant plus in demand because it still looked like a rising market at the beginning of the week. At the start of the week, the market leader placed a new purchase bid for 12,500 mt of natural kernels at 51.50 TRY/kg plus a quality surcharge of 0.25 TRY/kg. Accordingly, raw material prices in the free market rose quickly. By the end of the week, prices were already quoted at TRY 52.00/kg (compared to TRY 50.25/kg at the end of the previous week).

It can be assumed that due to the compensation in the exchange rate here, a further upward adjustment of raw material prices will follow, as some market participants, on the one hand, need it to need it (see above), but also from experience, a kind of Inflation compensation will take place.

Constant corrections in the offers characterized the last two days of the week. For next week, the market participants expect that the market will re-settle. In sum, it appears that the significant factor in recent years is not the price of raw materials but the development of the exchange rate. This makes a large part of the planning obsolete.

It is also eagerly awaited whether the Turkish central bank will stabilize the exchange rate again or avoid renewed price slides if further interest rate steps in the coming months. This week, we expect that the market will re-settle.

In sum, it appears that the significant factor in recent years is not the price of raw materials but the development of the exchange rate. This makes a large part of the planning obsolete. It is also eagerly awaited whether the Turkish central bank will stabilize the exchange rate again or avoid renewed price slides if further interest rate steps in the coming months.

  • Turkish central bank cuts the key interest rate again by 1%. As a result, the Turkish Lira loses more than
    10% of its value and reaches a new historic low.
  • Export prices drop massively due to the exchange rate. This noticeably stimulates demand.
    noticeably.
  • The market leader placed a new purchase bid for 12,500 mt of natural kernels at TRY 51.50/kg
    (plus 0.25 TRY/kg quality surcharge) Raw material prices then rose to 52.00 TRY/kg.
  • The TMO has so far purchased approximately 85,000 of the planned 100,000 mt.
  • Price levels are becoming more and more inhomogeneous between the different suppliers, as now also financing is playing an increasingly important role.

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