Minimum Registration Prices relevant again!

Yes, for all the wrong reasons, following months of being out of the limelight Minimum Registration Prices (set weekly by the Coffee & Tea Authority) once again become relevant and will act as an impediment to trade unless revised to reflect the sharp decline in the terminal market in past the 2 weeks. Tuesday’s (25th October) published minimum prices FOB Djibouti:

  • Yirgacheffe 2 268 usc/lb
  • Sidamo 2 260 usc/lb
  • Limu 2 203 usc/lb
  • Sidamo 4 197 usc/lb
  • Lekempti 5 180 usc/lb
  • Djimmah 5 179 usc/lb

Needless to say trading is at a standstill (particularly Grade 5) at a point where the Government is pressurising shippers to export the remaining volumes of the 21/22 Crop since the 22/23 Crop is upon us. Meanwhile cherry prices paid by agrabes in the areas where the crop is currently under harvest range between 51 and 63 Birr per kg, this translates into a price above 300 usc/lb at farmgate level. It is difficult to see how the crop can be marketed profitably unless a significant devaluation occurs between now and when the crop is commercialised. The context we are faced with this season contrasts with last, the coming crop is much larger and additionally there is a worldwide economic crisis looming, therefore the prospects for buoyant demand are dim. From the perspective of an agrabe, you would rather have coffee than cash, coffee has increased in value over the past 2 crops; it can also be turned into USD which is a hedge against any potential devaluation of the local currency. The only spanner in the works would be a declining coffee market, which is what we have at the moment (the NY market has lost 40 cents in three weeks). Ethiopian stakeholders need to be cautious, the export price for Ethiopian coffee in 6 months’ time may not meet current expectations. Furthermore, if the Birr does not devalue substantially the expected returns will not materialise.

Following reports of increased fighting in Tigray region and Government troop advances in that part of the country, some hopeful news of peace talks emerged this week: https://www.bbc.com/news/world-africa-63384278 and for more commentary: https://www.bbc.com/news/av/world-africa-63406979

Birr 52.86 = USD 1

Have a great weekend.

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Looking at export figures

Shipments reached 190 k MT for the period March to September 2022 vs. 213 k MT for the same period, March to September, in 2021. The 4 year average (18 to 21) for the same period is 179 k MT. It is positive that the current off-cycle year exports is above the 4 year average and a clear indication that Ethiopia production is increasing.

Cherry prices are between 50 Birr/kg in Limu and 63 Birr/kg in Yirgacheffe. It is becoming increasingly clear that agrabes are banking on a devaluation of the currency to generate a positive return on their trade. With NY crashing through the 2 USD level last week and continuing southwards this week this is the only way we see a positive return. The crop is expected larger is the more traditional washed coffee producing regions (Sidamo, Guhi, Yirgacheffe) so differentials should soften in 2022/23 viz-a-viz 2021/22.

Meanwhile current crop availability in Naturals is tight, we are struggling to get pre-shipment samples despite the lower replacement levels afforded by the lower terminal market. This is a clear indication that the crop is well sold and shipments will continue to be lower than in 2021.

In a bid to further control inflation and keep a tight grip on the economy, the Government has forbidden the importation of 38 different goods, including cars!

Birr 52.78 = USD 1

Have a good weekend.

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September exports less than half than a year ago!

Exports for the month of September will not reach 10,000 MT, a far cry from the Sep 21 exports which totalled 23 K MT. The Coffee & Tea Authority is so incredulous of the figure that they have decided to double check Bills of Lading records before publishing their findings! We were expecting a reduction in the export figure, but less than half of the 2021 exports is quite a drop!

The 2022/23 crop continues to develop well under sunny dry conditions. Stakeholders are optimistic of a good quality crop and with 2022/23 being an on-cycle crop, volumes will also be good. Harvesting as now started in Limu areas and with good weather conditions we expect the harvest to progress well.

Logistics continue to be very difficult, empty containers are very hard to come by so loading is slow.

The BBC published a 2 minute video which succinctly explains where the Tigray situation is at present: https://www.bbc.com/news/av/world-africa-63193772

Birr 52.73 = USD 1

Have a good weekend.

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Peace talks to start

African Union sponsored peace talks are to start in South Africa both sides in the Ethiopian conflict have confirmed. This after 2 years of conflict and a recent escalation of the fighting in the North of the country. This is a breakthrough that has been long in the waiting, much hope and expectation on a permanent cessation of hostilities is being placed in the AU brokered talks.

The harvest is ongoing in the lower producing areas. Weather has been conducive for good quality so we have expectations that the current 22/23 crop will be an improvement on 21/22. Cherry prices are very high 51 Birr/kg cherry, the equivalent to USD1 per kg of cherry or 270 usc/lb of green coffee equivalent at farm gate level. This is before we add all costs from farm gate to FOB. These costs are skyrocketing, the fuel price has more than doubled in the last 2 months! If stakeholders are banking on a local currency devaluation they may have to rethink, this week the black market rate has been trading in the mid-80’s having broken 100 last week. The issue is that the cost of living crisis has stifled demand of imported goods and as a consequence the country is importing less. We clearly see this in empty container availability which has decreased considerably even with lower exports. Economic activity in Ethiopia appears to be slowing down, requiring less USD to pay for imports and fewer containers coming to Addis with imported goods.

In the coming 2 weeks we expect the crop in Limu to start being harvested and higher elevations in the South also.

Birr 52.66 = USD 1

Have a good weekend.

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