Coffee is not changing hands, stakeholders with coffee stocks, whether farmers, middlemen or exporters, are sitting on them! Why is this happening? In 2 words: Finance and Price.

Shippers that own expensive Washed parchment that has tied up their cash, cannot find an overseas buyer willing to pay 100 over plus. In an environment of high prices, restricted access to finance and stocks that are not moving, shippers are finding themselves paralysed. There will be a quantity of washed Grade 2 coffee sold above 350 c/lb FOB and this coffee is getting shipped. However, the price paid to farmer for cherries is higher than what is currently achievable in the FOB market, as a consequence trading has ceased. It is clear to us that overseas buyers of Washed qualities are looking to buy, however not ready to pay the shippers asking prices.

Shippers that are short Naturals (Grade 4 and 5) at below 200 c/lb FOB cannot cover from local middlemen without incurring substantial losses. This last point is supported by current asking prices for Grade 5 prices between 215 and 220 FOB Djibouti LC (Grade 4 at 240 c/lb). In the lower grade space (Grade 4 and 5) there are delays in shipments as exporters struggle to cover sales registered in February (at what now look like very good prices) because middlemen had got used to ever increasing coffee prices. Agrabes and farmers are in for big shocks, the market will not pay the expected prices, and as much as the Birr is expected to devalue vs the USD, the decline will most likely be slow and steady. For now stock holders of Naturals will wait to sell, time is on their side, after all we are in March and very little of this crop has been shipped so far.

There are stocks at processing mills in Addis but shipments in March and April will most likely be lower than we could otherwise have expected were it not for the scenario outlined in the previous paragraphs.

Birr 50.95 = USD 1

Have a good weekend.

Trading is slow, stock holders looking for prices similar to what they saw a month ago, however the relentless decline in the terminal markets dictate much lower bids. Shippers are starting to get worried that the gap between asking price and bid price is growing by the week. Undoubtably, the sharp and continuous lower market, came as a shock to all the stakeholders in Ethiopia that got used to selling at ever increasing prices over the past more than a year. Hopefully the sales done in February (at the start to the trading season) will keep exporters busy for the coming months.

Meanwhile Inflation seems to have settled in a range between 33 and 35%. Indeed, the monthly annual rate of inflation for the past 6 months (Sep 21 to Feb 22) has fluctuate within this narrow range. During the previous 6 months (Mar 21 to Sep 21) inflation had risen from 20% to 35%!

Forex 50.90 = USD 1

Have a good weekend.

That’s right, the 12 month period March 21 to Feb 22 accumulated 5.18 Million bags in Exports! Exports to Saudi Arabia and Europe in February flushed out the remaining Grade 5s from the 20/21 crop as Brazil logistical woes and high prices were no match for Ethiopia proximity (in the case of Saudi) and very competitive prices. Exports for the period 21/22 were higher by 1.49 Million bags vs 20/21, that equates to a 40% increase year-on-year.

With the world intensely focused on the war in Ukraine, there is little coverage from media outlets on the Ethiopian internal conflict. What we can report is that the internal conflict is not impacting the coffee supply chain. While security concerns remain in some coffee growing areas, which are delaying and hampering certification inspections, the flow of coffee along the supply chain is progressing practically unaffected. Parchment and Naturals are arriving in Addis and warehouses there are full, likewise processed coffee is finding containers and transportation from Addis to Djibouti.

Export sales this week remained sporadic and spotty. Shippers continue to focus on fulfilling previously concluded contracts established when the terminal market was at much higher levels. Offered prices, which are not that easy to come by, are at very expensive levels limiting business activity. In the interior, traded prices between middlemen and shippers remain at Birr 4,000 ( 230 usc/lb FOB equivalent) for Natural Grade 5 coffees. These levels are not sustainable while future level are in the mid-230’s. Much more activity/interest in spot Europe market.

On forex markets the Birr actually appreciated vs the Euro, as the single currency took a beating vs the greenback.

Birr 50.84 = USD 1

Have a good weekend.

Arabica Coffee futures have collapsed from the the highs reached last month, the drop has been relentless and precipitous leaving us all trying to catch up! Trading in Ethiopia coffee has all but come to a standstill as stocks of parchment pile up at dry mills in Addis Ababa. The problem is that export sales of Washed coffees are well below expectations so coffee is not getting milled and shipped. Internal prices for cherries and parchment have been way above export prices and while the terminal market was rallying this mitigated (in part) the problem. However the terminal market is looking very shaky and with low export sales registered it is likely that Addis Ababa warehouses will remain full of unprocessed coffee for some time yet… if this situation is not resolved soon, processing of naturals and subsequent shipping could be affected, warehouse capacity is limited and if full of parchment the flow of naturals along the supply chain could be restricted, resulting in delayed shipments.

There is still no news of the the fighting in the North of the country, it has not stopped and the problem has not gone away, it seems to be a case of “out of sight, out of mind”!

Birr 50.80 = USD 1

Have a good weekend.