ECX Sale Volumes Drop Like a Stone!

ECX sales volumes are a fraction of what they were 12 months ago. If this trend continues the output for 20/21 is going to see a sharp decline vs 19/20, which saw record exports as reported last week. Below we compare the ECX sales between the 23rd  June and 21stJuly for 2020, 2019 and 2018; at present sales are greatly reduced, Washed coffee sales in the last month equate to 14% of the sales of Washed Coffee same period in 2019. Only 11 containers of Sidamo were sold! The picture in Naturals is better but still only 31% of the sales in 2019; even compared to 2018 the current year figures are pitiful! It is possible that the pace of sales picks up again but we believe that they will stay low.

Prices at ECX continue high, boosted by reduced availability. On the other hand, there still seem to be some parcels in the hands of shippers that were thought sold but have not been shipped as some buyers/roasters have asked for contract cancelations. So we have a mixed picture! However, it is a sad reality that this is a difficult year for the Ethiopia coffee industry. The weather has raved havoc, lower crop, and lower quality (mostly caused by difficulties in post-harvest drying in unseasonal wet conditions); unrest in parts of the Wellega region played a hand in poor handling during the post-harvest period. More recently more unrest and the current pandemic have not helped processing and logistics. 

by Charles Seara Cardoso

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Annual Exports Top 4.5 Million Bags, a New Record!

We received the official Export figure for the 19/20 Ethiopia Calendar year (July/June) and below compare these to the previous 12 months:

The total exports for 19/20 reached 271 K MT (4.5 M bags), this is 17% more than in 18/19 and reflects the large crop of 18/19 and the drawdown on stocks that we have previously mentioned. Interestingly when we compare and breakdown shipments for the May/June 2020 vs May/June 2019, these are lower by 10% and reflect the lower 19/20 crop. We expect this trend to continue, as we move forward during the 20/21 shipment cycle, shipments should stay below 19/20; this is a reflection of:

  1. Lower Crop (particularly in the South) 
  2. Minimum Price limiting export sales 
  3. reduced demand for Forex by importers as a consequence of declining economic growth
  4. Poor quality of this crop
  5. Lower differentials for Brazil coffees

As mentioned, registrations have been low and shippers are getting desperate to sell. Some have come up with ingenious plans to circumvent the Minimum price restrictions. Meanwhile, ECX prices remain high on strong demand from the local market which has been starved of coffee as a consequence of the high exports up until April. High internal prices and high number of defects that have to be removed from the raw product to prepare export quality coffee (quality this season is very bad as previously discussed) means that the local market will get well supplied; 

Regarding quality problems this year, some shippers have mentioned sorting out 40% of the coffee bought at ECX to prepare export quality coffee. Since internal market (mercato) prices are high (higher than ECX prices) shippers are OK with selling into the internal market the coffee removed during processing for export, however internal prices can very quickly drop and with export sales low there is a risk that the internal market gets flooded before exports pick up.

Something is going to have to give, it is hard for us to see Export Sales picking up while Djimmah and Lekempti Minimum Price is 98 c/lb, NY stays between 95 at 115 and Brazil GC is trading at -20 or lower, in addition, demand for Ethiopia coffee from overseas buyers is subdued and the Birr is stable. The only factor keeping ECX prices from dropping is the current internal market price, but for how long! What is manageable by Ethiopian Authorities is the Minimum Price, maybe something will change here?

by Charles Seara Cardoso

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Internet Reconnected

Internet was reconnected to businesses and households this week; data services on mobile phones still not working as the government continues to manage a restless population in the wake of the recent political upheaval. Three weeks without the internet has further exasperated an already difficult season, at least we can communicate with our suppliers and colleagues now. The business has been very slow, even if you wanted to buy how do you get your contract sent to your Ethiopian counterparty without internet? How does he/she send the confirmation back to you? Some of my colleagues do not even know what a fax machine is, I can’t remember the last time I used one, but when there is no internet for 3 weeks, they come in handy!

The Ethiopian coffee (and otherwise) year ended and many shippers/processors are busy with stock takes which has slowed the pace of processing and shipments this week. Quality concerns regarding the current crop continue to be abundant and are likely to continue for the remainder of the crop cycle. Many shippers are in a pickle with their commitments and struggling to meet quality requirements, this is resulting in delayed shipments (more delayed than the usual delays!). Although security and normality have been restored in Addis Ababa some shippers remain wary of moving coffee from upcountry warehouses to Addis for processing because of simmering tension in Oromia Region. Minimum prices have not changed much in the last couple of weeks and with the terminal market reluctant to make any decisive move, buying opportunities are non-existent.

Demand also remains subdued, this is the quiet season with many people on holiday and lower consumption due to warmer weather.  In addition, roasters are still trying to figure out what the impact of the pandemic and subsequent easing of restrictions will have on future demand.

Birr 35.07 = USD 1

by Charles Seara Cardoso

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Still No Internet

Following a complicated few days, last week businesses and life, in general, returned to somewhere close to normality in Ethiopia this week, however, internet access is still very restricted; only a few organizations have been switched on; so imagine how much your daily work life would be disrupted if you did not have email or could not go online!

Everyone is at work but they cannot function properly without the internet, some activities have been completely shut down like courier companies that stopped dispatching documents and samples until yesterday when they figured out a way to work without having internet access. On the other hand ECX, transport and milling have continued this week more or less unaffected. It seems that companies can request to the government to have their internet access switching back on; some exporters and shipping lines have managed this successfully; there does not seem to be a date when the authorities will allow everyone to go back online so many companies have started applying for this permission, including ourselves. Having a very restricted information flow means that we do know what the forex is doing, what export prices are being registered at NBE, or what volumes are trading at ECX. It also means that pre-shipment sample dispatch has been delayed by nearly 2 weeks and documents have been stuck for the same period of time. Inevitably this will bring some disruption to our already complicated “modus operandi”!

Trading has been very subdued, on the origin side, poor quality and minimum prices are restricting buying opportunities, whereas buyers remain unsure of future demand and cyclical summer doldrums have set in.

by Charles Seara Cardoso

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Declining Washed ECX Sales

Earlier this week we wrote about the unrest and lockdown that followed the murder on Monday night of Hachalu Hundessa a prominent Oromo activist. Hundessa was buried yesterday and today Addis is starting to re-open for business; our office is opened as are many shops and other businesses. Internet connectivity is still patchy but we believe that in the coming days things will return to normal. 

We have updated our ECX tracking data and the pattern that we have been reporting for the last few months continues, Southern coffees are very much reduced vs a vis the previous 2 years:

Volumes have more than halved for Yirgacheffe and Sidamo/Guji between last year and 2020; even if production is down this season we do not believe that the reduction is of this magnitude, stocks are mostly somewhere along Vertical Integration supply chains and in the hands of agrabes that remain disappointed with current price levels having paid high cherry prices in late 2019 added to a firm Birr and low terminal market.

Forex data has not been published so no update this week.

by Charles Seara Cardoso

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Unrest Following Murder

There has been some unrest in Ethiopia since Monday night, we thought it would be of interest to write a few lines on these events.

BACKGROUND

Hachalu Hundessa, a 34 year Oromo Activist and Musician was murdered on Monday evening; He was known as a defender of the rights of the Oromo people, he counted with many supporters among the Oromo youth; arrested and imprisoned as a teenager for protesting against the government and an organizer of the protests in 2018 that led to the fall of the previous regime that saw a rise to power of the current Prime Minister Abiy Ahmed, a fellow Oromo. Abiy Ahmed has embarked on a series of reforms dismantling the previously oppressive regime giving more freedom to the people to protest and allowing dissent to be more freely expressed by the people. Abiy’s efforts to build a freer and more cohesive society were internationally recognized in 2019 when he was given that year’s Nobel Peace Prize. More recently the government postponed this year’s General Election indefinitely due to the ongoing Covid 19 pandemic.

WHAT IS THE CURRENT SITUATION

Following the announcement of Hachalu Hundessa’s death many of his fans and sympathisers started gathering and protesting in Addis and other Oromia Region towns (Harar, Chiro, Adama and Ambo – Hachalu’s home town) showing their anger by burning tyres and toppling statues; The protests have been violently broken up by police and the army resulting in some deaths and injuries to protesters. The internet and power have been cut off in many areas and phone communication is difficult. The Government is not condoning the protests and the police say they are investigating the murder. The BBC is reporting that fellow activist Jawar Mohammed has been arrested, Jawar has been a frequent critic of the Government and strong promoter of Oromo causes. 

sourced by BBC

OUR VIEW ON THE SITUATION

There is undoubtedly much frustration with the Government, delayed elections, loss of power by the supporters of the previous regime, perceptions that reforms are too slow, economic slowdown added to the effects of the pandemic on the population. In addition, Egypt and Ethiopia are at odds due to the latter’s damning of the Nile, which is at a critical stage since Ethiopia says that it will start filling the damn this month of July. We hope that the Government will be able to manage the current unrest with care and that things do not spin out of control. Yesterday Addis was closed for business, residents stayed at home avoiding any chance of getting caught up in trouble. Likewise, all shippers and our own office were closed for business on Tuesday and today remain closed. We shall monitor the situation and advise on developments over the coming days.

by Charles Seara Cardoso

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