This week the terminal market helped shippers book some business at attractive prices, above 200 c/lb for Grade 5 and above 320 c/lb for Sidamo 2 and yirgacheffes. Offers were easy to comeby, however the quality on offer is a different story, buyers have to be careful and discretionary when buying or they can end up “buying a problem” which is never good and much worse when the market does is not trading in carry! All in all, a good week of trading, helping shippers liquidate stale Washed coffee longs and achieve better prices for lower grade Naturals. Quality of arrivals in Addis Ababa of Grade 5 is generally poor but this should improve and we approach the last quarter of 2022 and local players start to come under pressure to ship current crop and start buying from farmers the new crop which will be ready from September onwards.

Logistics are difficult but stable, no noticeable change from recent weeks, shippers struggle but eventually find containers and space on vessels is available.

The World Health Organization (WHO) Director General Tedros Ghebreyesus has commented on the situation in Tigray, pls follow the link to hear his comments made earlier this week in NY:

Birr 52.41 = USD 1

Have a restful weekend

We have commented in the past weeks that the forex rate has been stable in 2022, however the official rate hides problems that underlie the Ethiopian economy. Below we track the Black Market exchange rate USD/Birr and it is clear to see that the Central Bank official rate is not reflecting the real value of the local currency. The graph below shows that while the the official forex rate has declined by 4% since January, the Black Market rate has moved by 10 times that, 42%!

Farmers and Agrabes are holding coffee, only selling piecemeal, as goods (such as coffee) are believed to be of more value than Birr! The Inflation rate is dangerously high, hovering around the mid 30’s percentage points, another reflection on the low value of the local currency. Are we about to see a big adjustment of the official forex rate?

In other news the BBC is reporting that ethnic Tigrayans are being taken back to their homes giving rise to hopes for a permanent peaceful settlement to the conflict in Northern Ethiopia:

Business activity remains slow and sporadic. Quality continues to be of concern and coffee arrivals in Addis are not as plentiful as hoped for. Empty containers are still hard to comeby, all in all shipment delays persist.

Birr 52.34 = USD 1

Have a good weekend.

Although accumulated export figures from March to July 2022 are lagging behind the same period in 2021 by 13 K MT, there still is a good chance that by the time we reach Feb 2023 this gap will have narrowed. The only month where shipments between the 2 years was large was April (2022 21 K MT and 2021 29 K MT). Why we believe this? Washed coffee availability is lower this year than last due to a 20% reduction in production y-o-y in the South (Sidamo) region. Washed coffee shipments are skewed to the first half of the shipment year (March to August) and Natural shipments more to the second half (September to February). We believe that despite the high prices traded for Grade 5 coffees, farmers are holding these in their farms and homes as a hedge against inflation and a devaluating local currency. There is a sense that there is a much higher proportion of Natural coffee being retained upcountry this season than last. This is also due to the heavy rain and insecurity that has made transportation to Addis Ababa harder in recent weeks. However, this coffee will eventually flow to Addis for processing and shipment, before the new crop arrives.

Currently, quality of Grade 5 arrivals in Addis is very poor and shippers are accumulating increasing volumes of low quality coffee which they struggle to sell. We expect that from October onwards volumes arriving in Addis will be greater and therefore finding better quality coffees will be easier. Washed coffee longs are beginning to lower their price expectations as they have been holding on to stocks for many months now.

In a world of increasing energy uncertainty the news that a second turbine will start producing electricity at Ethiopia’s new dam will bring some peace of mind to the country’s growing population, for more on this:

Birr 52.21 = USD 1

Have a good weekend.