Interest and overseas business picked up considerably in the last week; with Year-End reports finalised and with New Crop requirements yet to be purchased buyers started showing interest in Ethiopia both Washed and more noticeably Naturals. New business interest for long strings, up until the end of 2020. At origin, shippers starting to take notice of the relentless decline in the C market and particularly those that are long through washing station ownership or vertical integration scratch their heads. Offers for Sidamo 2 are now well over +100 FOB and with the premium for Sidamo over Limu now at around 50 cents it is clear that Southern coffees will be pricey this season. Origin offers for Naturals are also trading at well above normal levels however ECX flows remain low (as is expected this time of the year).

Rumours of Locusts eating coffee cherries and trees in Sidamo, Guji and Yirgacheffe have been surfacing in the last few days, this is no more than scare mongering of behalf of those choosing to spread them! Locusts have been plaguing Ethiopia in recent weeks but alas they do not like coffee!

Weather is normal for this time of the year sunny and hot.

At ECX prices are firm Naturals trading at FOB + double digit differentials and Sidamo 2 at > +100 FOB equivalent.

Next week there is a coffee conference in Addis, a good forum for industry stakeholders to discuss their current issues, i.e. Minimum Price Regulation, C market decline and Slow Flow of coffee to ECX. We shall keep our ears to the ground and report any interesting views and news.

by Charles Seara Cardoso

Forex continues stable at a whisker below 32 Birr to the USD.

Our FOB Price ideas for forward shipments:

Yirgacheffe 2N+90
Sidamo 2  N+80
Limu 2 N+35
Sidamo 4N Level
Lekempti 5N-15
Djimmah 5N-20

Prices at ECX has eased a tad this week for Limu and even Southern Washed coffee although differently they remain very dear.

Below graph shows the extent of the shortage of Southern Washed coffee arriving at ECX,  between 2019 and 2020 the volume traded reduced by 6,200 MT or 73%, whereas Limu coffees (and other washed) increased by 2,200 MT or 39%, there is an overall decrease in Washed coffee availability by 4,000 MT or 29%. The reasons for this shortage were discussed last week, the consequences are high differentials for Sidamo, Guji and Yirgacheffe Washed coffees.

by Charles Seara Cardoso

A week with a few surprises, it’s Ethiopia after all! Firstly, the much anticipated minimum price regulations were meant to come into practice this week, alas nothing happened, registrations continued as normal with contract levels registered at very different levels, the C&T Authority is meeting in Awassa to discuss this issue again so let’s see what comes out of this meeting; then on Wednesday the government announced that the May Elections would now be held in August and we all sighed in relief, by August a fair volume of the New Crop will have been shipped and existing commitments will be in warehouses in consuming countries, if not roasted and consumed!

The Birr has barely moved vs the USD since the start of the year, devaluing 0.03% only, whereas during the first 15 days of December the local currency had lost 2% of its value vs. the greenback.

Only the very highest regions of the South (Guji) will remain with coffees on the trees beyond January, the crop is mostly picked; In the southern coffee growing areas agrabes will start buying dried cherries (for Sidamo 4) in February; in Djimmah and Lekempti Natural coffee is currently offered by farmers to agrabes and trades at between 30 and 34 Birr/kg; there are some concerns about security in some areas of Wellega (Lekempti) which could complicate the flow of coffee from the interior to ECX, hopefully things will calm down in the coming weeks.

Weather continues to favour crop processing and drying. Coffee quality from the South appears to be very good (from what we have cupped so far) and limited Washed carry-in stocks should translate to good quality of shipments in 2020.

Focus on Washed Coffees:

Volumes at ECX remain disappointing and New Crop Washed prices high, way above overseas buyers’ ideas; After many conversations with Exporters this week we have the following explanations for disappointing volumes offered and high prices recorded:

  1. Agrabe expectations that the ongoing devaluation of the BIrr from the current 32 to 40 (Black Market rate) vs the USD will happen in the coming weeks; if the currency devalues a further 25% this would mean that a cherry price today of 20 will equate to a cherry price of 15 if the Birr reaches 40 to the USD;
  2. Vertical Integration (shippers accessing coffee at farmgate level through own washing stations or agreements with Washing Station owners) has removed coffee from the ECX supply chain;
  3. There have been some large volumes rolled over from 2018/19 crop to the 2019/20 crop as a consequence of the tight supply of Washed coffees in late 2019; this exacerbates current demand as shippers try to cover current and past commitments in a reduced availability scenario;
  4. Crops were delayed by wetter than usual weather;
  5. Low carry-in stocks held by Agrabes and farmers of washed coffees since demand for Washed was high in late 2019;  for the last 3 crops Washed carry-in stocks have been very large, this season carry-in stocks are very low;
  6. Lower crop in the Southern region and a shift in production from Washed to premium quality Naturals, which will decrease the availability of Washed coffees.

The Graph below charts weekly sales of Washed Coffee at ECX of New Crop, and it is evident that this season the pace of sales this season is slow.

by Charles Seara Cardoso

The week has past in expectation for what will transpire next week when the Minimum Price regulations are set to come into practice. Exporters are non-the-wiser as to how the price will be set, there does not appear to be a mechanism in place just some assurance that the terminal market will be taken into consideration when setting the levels. Hopefully next week’s report will have a little more information on how this system works!

Meanwhile trading activity has been slow with NY closing lower everyday this week; Prices for red cherry in the South vary between 15 and 20 Birr per kg depending on the area; the crop is starting to come to an end, in Limu washing stations will close next week; in Sidamo, Yirgacheffe and Guji cherries still flow to washing stations but increasingly the focus is on processing Naturals since the flow is much smaller than in December. Volumes traded at ECX continue to trail those of this time last year, it is only a question of time before more volumes arrive to the market (particularly when more Naturals are in the hands of agrabes).

Weather is favourable to drying.

The forex rate is 31.9 to the USD just a whisker away from 32; as mentioned previously, this steady decline that started to accelerate in November is likely to continue until the official rate gets close to the unofficial rate of around 40.

by Charles Seara Cardoso

Further confirmation of the low availability of Washed coffee came in the ECX December stocks which reported the lowest Washed coffee stocks in the last 4 years as follows:

This confirms our previous assertions that there was little 18/19 Washed coffee stocks in country; in addition arrivals of New Crop are also very much reduced, resulting in current ECX stocks being 3,000 MT lower than this time last year.

Meanwhile the crop in Guji area is at its peak with coffee ripe and picking heavy; there are some rumours that washing station owners are running short on cash to continue to buy at the current pace due to cash flow restrictions ( last year the price was 12 Birr/kg vs this year 20 Birr/kg) and the hording of processed stocks waiting for further devaluation of the Birr vs the USD before coffee is moved to ECX warehouses and offered for sale. Some stakeholders are expecting the price of cherry to fall next week as there will be less cash in the growing areas and fewer buyers.

Weather continues to favour a healthy development of the crop and processing.

Prices at ECX continue high due to reduced volumes on offer. We expect that at some point soon this situation will normalise and agrabes will start turning coffee into cash so that they can continue to operate at farm gate level.

by Charles Seara Cardoso