In the past few days, we have discussed with a few of our customers their quality concerns for more commercial qualities such as Lekempti, Djimmah and Sidamo and the increasing stocks at a destination of low quality coffee rejected by roasters; Indeed the current crop quality is disappointing, the quality of Commercial Natural grades such as Djimmah and Lekempti 5 have been negatively impacted by the instability in Wellega region during the harvesting period in 2019; farmers were cowed into staying away from their farms by anti-government forces, cherries were not picked and fell on the ground where they dried in unattended conditions if cherries were picked from the tree, harvesting, and drying was not properly done; furthermore, there was a lot of rain during the harvest which also made cherry drying difficult; all this resulted in high proportions of mouldy beans and consequent earthy and phenolic cups.

We also believe that shippers are being less diligent in processing and preparing coffee for export and the most likely explanation for this is to minimise their loses; import businesses that run parallel to coffee export have become less profitable due to the economy decelerating over the past 12 months or so.

Southern coffee export quality (Sidamo, Guji and Yrgacheffe) is also lower than expected as low carry-in stocks, rolled over contracts from the previous season, lower production and the disruption to the normal flow of coffee caused by vertical integration have put shippers on a defensive footing this season; many shippers are increasingly turning to mix washed coffees from other regions such as Limu, Tepi with Southern coffees to meet their commitments of commercial Sidamo 2. As a consequence we are having to be very vigilant prior to shipment to ensure that what is shipped is what is contracted, which is resulting in delayed shipments and a lot of running around on the part of our colleagues in Addis.

We believe that currently shipments and registrations are below what we would normally expect as a result of the minimum price regulations (grade 5 coffees have minimum prices that equate to plus differentials FOB); with quality issues mounting, lower demand from overseas, and internal prices way above tradable levels, we can see a situation where shipments slow down to a trickle and these qualities end up being consumed in the local market or accumulate in warehouses in-country.

COVID cases continue to increase although remain at proportionally low levels when compared to other countries around the world. Disruption to the supply chain from the pandemic continues to be minimal.

by Charles Seara Cardoso

COVID continues to spread in Addis and the number of recorded cases is increasing, now over 4,000 cases and sadly 72 deaths. Some shippers are complaining of canceled and postponed shipments of better quality coffees as a consequence of the restrictions imposed in recent months in consuming countries.

Meanwhile, everyone (except shippers) is complaining about the quality of this year’s offerings, the question is this season’s quality that much poorer or are shippers trying to get away with shipping coffee that is less onerous to prepare?

We fear that there will be a higher than usual proportion of the crop stuck at destination ports without any buyers as a consequence of poor quality shipments. Registered sales continue at a diminished pace due to the high minimum prices and a depressed terminal market.

The graph below tracks weekly Minimum Registration Prices vs NY, with NY below 100 cents differentials for Naturals have become uncompetitive; not since early April have Djimmahs and Lekemptis been attractive:

USD 1 = Birr 34.50

by Charles Seara Cardoso

There are in Ethiopia increased fears that Covid 19 will have a very negative impact on the economy pushing millions of people into poverty.

Meanwhile, the cases and deaths are increasing in Addis and there is heightened fear around the city. The government has stated that things will most likely get worse before they get better.

Politically the status quo continues, elections have been postponed indefinitely. Coffee wise things are slow with minimum registration prices for lower Naturals around parity and scarcity of Washed coffee offered at the ECX pushing prices to very high differentials, making new business difficult to conclude.

Birr vs USD practically unchanged at 34.34

by Charles Seara Cardoso

We have received some data regarding shipments for the 10 month period up to the beginning of May 2020, which makes for interesting reading. Total exports reached 219 K MT (173 K MT same period 18/19) so 27% up on the previous year. If shipments continue at this pace in May and June, the 12 month period will be the highest export figure for Ethiopia ever and will surely exceed 4 M bags. We do not have the split between crops but the majority of these exports will be from the 18/19 crop rather than the current crop. Although the pace of sales at ECX has picked up a little during the month of May particularly for Lekempti, ECX sales remain very much behind the pace of sales of last year as in evident below tables that show ECX sales as of 29th May for 2020, 2019 and 2018:

Washed Coffee

19-20 CHANGE
MT @ 29 MAY201820192020MT%
LIMU/OTHER WASHED               15,850                11,812                14,313         2,50121%
YIRGACHEFFE                 4,112                  4,821                  2,652–       2,169-45%
SIDAMO/GUJI               16,794                16,528                  6,961–       9,567-58%
Total Washed               36,756                33,161                23,926–       9,235-28%

Natural Coffee

19-20 CHANGE
MT @ 29 MAY201820192020MT%
SIDAMO               10,146                13,893                  5,913–       7,980-57%
LEKEMPTI               23,338                23,836                20,462–       3,374-14%
DJIMMAH               26,710                18,909                23,786         4,87726%
OTHER NATURAL               25,639                26,466                24,053–       2,413-9%
Total Natural               85,833                83,104                74,214–       8,890-11%

We expect that the crop is lower in the Southern Region and these ECX figures reflect that, however, we also believe that a much larger proportion of the crop from this region has been bought through vertical integration so will get exported having by-passed the Exchange.

Birr 34.24 to the USD

by Charles Seara Cardoso