Let’s discuss inflation

After a delay in publishing, official inflation data shows that December inflation climbed again to 35.1% (Nov 21 annualised rate was 33%). The statistics office blamed seasonal festivities for the recent spike in prices but the roots go deeper. Firstly, price increases in recent months have not been confined to Ethiopia, all economies around the globe are experiencing inflationary pressures. And then of course there is the war which has had an impact on the economy, including slowing down growth. The economy is not in a good place, Inflation has accelerated from 20% to 35%, the growth in the inflation rate was 75% in 2021.

The Birr has devalued by a more “usual” 20% during 2021. Normally we expect currency devaluation and inflation to track each other more closely, but 2021 due to the upheaval of war, a spanner was thrown in the works, resulting in runaway inflationary pressures. The black market forex rate is very different to official rate, where hard currency is traded at around 1/3 more than the official rate.

Not much news lately from the front, it would seem that there is a hiatus at present, with the TPLF back in Tigray and the Ethiopian Army happy to sit in Amhara region. Maybe this is an opportunity for looking at resolving the conflict in a more peaceful manner? Let’s hope so.

Meanwhile the harvest in winding down. The reduce production of Washed coffees in the South that translated to high differentials is also likely to have a negative effect on the quality of exported Sidamo 2 and Yirgacheffe 2, as more unscrupulous shippers mix in lower grades of washed coffees (Limu 2, Tepi 2, etc.) to bulk up their genuine Sidamo/Yirgacheffe beans. Buyers will need to be vigilant when cupping!

Birr 49.73 = USD 1

Have a good weekend.

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Slow start to the New Year

As a consequence of last week’s Central Bank decision to reduce the proportion of USD that shippers can utilise from their coffees export earnings to pay for imported goods and services, shippers are less ready to reduce margins on coffee sales and have increased prices to better reflect the high prices being paid to farmers for cherries. So it will come as no surprise to know that trading has been slow, slower than expected for this time of the year. The trade is struggling to book Sidamo 2 at replacement differentials, having to heavily discount the price to get anything sold to roasters. This could prove to be costly as we are seeing more and more evidence that Washed coffee production in the South will be significantly lower in 21/22 than in 20/21.

In 2 weeks’ time agrabes will be able to start the trade in Natural Coffees and all stakeholders will have a clearer picture of where we can expect grade 4 and 5 coffees to trade. For now shippers are reluctant to offer aggressively fearful that the high price Washed coffee scenario will be repeated when the Natural coffee trading really gets going in earnest. There is demand for Ethiopia coffee but the price has to be inline with coffees from other origins of similar quality. Since we are expecting a higher production of Naturals this year it is more likely that the price for Ethiopian Naturals adjusts more readily to the international market than what we have been experiencing in Washed coffees so far this season, which have, so far, consistently been offered at high differentials.

The United Nations Secretary-General gave an interview to the BBC expressing hope for dialogue between the waring parties in Ethiopia, pls follow the link to watch: https://www.bbc.com/news/av-embeds/60076161

The local currency is still below 50 to the greenback, but only just! Birr 49.60 = USD 1

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Washed Coffee Prices trend higher amid decreased production

New Crop offers is well and truly here, shippers are now aggressive sellers in all qualities. What is noticeable is the very firm price for all Washed Coffee qualities, which is a direct consequence of the reduced availability viz a viz last year’s production. Washed Sidamo 2 is offered at 310 to 350 usc/lb FOB and Yirgacheffe 2 is a few cents higher. Even Limu 2 is under pressure offered at 270 c/lb FOB. There is clear resistance from roasters to pay the asking prices so something will have to give. 2021/22’s lower production could eventually lead to higher traded differentials which seems hard to justify when we consider the terminal market has doubled in value during 2021. Natural prices are within expectation, with Djimmah 5 trading at 30 under FOB with Lekempti 5 a few cents higher and Sidamo 4 currently at around -15 FOB.

December shipments came in at a tad shy of 16 k MT, which is lower than previous months but still a record December, keeping us on track for a 5 Million bag Export year (March 21 to Feb 22).

Exporters got a kick in the face this week, the Central Bank has decreased the percentage of USD that Exporters can keep from export revenue from 40% to 20%, basically reducing by half the proportion of export revenue that can used for imports. The reasoning behind this move could be justified by the doubling in the unit price that coffee has had in the past 12 months, however it is a blow for shippers that rely on coffee export revenue to acquire foreign goods and services.

Birr 49.45 = USD 1

Have a good weekend.

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New Year, new crop!

It is Christmas Day in Ethiopia!

Offers for the 20/21 crop have all but dried up, we truly feel that there is nearly nothing left unsold. Shippers are only offering New Crop 2021/22. We estimate that over 70% of the crop has now been picked and in the lower lying areas there is very little left unpicked. It is more in the Southern Highland areas where there are cherries on the trees. Regions like Guji and Yirgacheffe will continue to harvest into February, whereas Benji Maji, Kaffa and other more Western areas have nearly exhausted the harvest.

Prices offered are all over the place, with Washed Grade 2 Southern Coffees offered at prices ranging from 310 and 370 usc/lb FOB. Buying interest at these elevated prices is muted, however reflect the high cherry prices paid by Washing Station owners and probably reflect more the lower production in the Southern Regions than the limited cash availability at farm gate level this buying season. Indeed, it is our understanding that banks have been less engaged in financing the crop this season than in the past. Additionally, higher prices have discouraged stakeholders fearful that selling prices will not yield a margin.

Overseas demand over the festive season and first few days on 2022 has been limited, additionally, shippers’ offers have been limited or at prices that are uncommercial, therefore trading has been slow. Coffees will soon start to arrive in Addis for processing in larger volumes and pressure to sell and ship will begin to mount, then prices will start to become more commercially viable, for now trading is a tad side-lined.

There has been very little news concerning the fighting between Government forces and Tigray rebels. With the front line having moved much further away from Addis than it was a month ago concerns that harvesting, processing and shipping could be affected by the instability have faded.

Birr 49.32 = USD 1

Have a nice weekend

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