Faced with very few export registrations, pressure from Government and shippers (holding unsaleable stagnant old crop stocks), the Coffee & Tea Authority (C&TA) finally relented and reduced substantially Minimum Registration Prices for past crop coffee. Will these reduced prices allow for the these stocks to finally get shipped? We shall see. New Crop prices remain untradeable for now, give it a few weeks and pressure will mount on the C&TA to set Minimum Registration Prices at realistic levels. At present, the focus is on shipping the remaining stocks of old crop in the hands of exporters, however from February onwards the C&TA will start worry about the small number of New Crop Registrations.

OLD CROP Minimum Registration Prices (usc/lb FOB Djibouti):

17th January 24th January

Yirgacheffe 2 240 228

Sidamo 2 233 221

Limu 2 182 173

Sidamo 4 169 158

Lekempti 5 152 138

Djimmah 5 152 138

NEW CROP Minimum Registration Prices (usc/lb FOB Djibouti):

17th January 24th January

Yirgacheffe 2 301 301

Sidamo 2 292 292

Limu 2 233 233

Sidamo 4 189 189

Lekempti 5 168 168

Djimmah 5 167 167

Meanwhile it seems that some importers have been very disappointed with quality of 2022 arrivals. These have resulted in quality claims and friction between seller (shippers) and buyer (trade). These problems will overhang New Crop business and considering the reduced contracts for the New crop, does not bode well for a smooth offtake of the New Crop. Buyers will be cautious when engaging with shippers, requiring more assurance that contracts will be fulfilled, i.e. correct quality shipped in a timely fashion. Continuously being let down by shippers is not the right environment for traders to commit…

Birr 53.46 = USD 1

Have a good weekend.

This week the Prime Minister appointed a new Governor for the Central Bank, we look at a couple of rates that are of particular concern for Ethiopian Coffee Stakeholders and the Government.

Much of our trading activity in Ethiopian coffee is directly influenced by 2 factors, Inflation and Forex rates. This week’s commentary will focus on these 2 rates, how they have performed, expectations for the coming months and implications for coffee prices and flow from grower to the export market. Both these rates are interconnected and it seems that Government concerns about the Inflation Rate (difficult to control with policy) is influencing the setting of the Forex Rate (controlled by the Central Bank). Firstly, Forex Rate.

2022 started with the Birr trading at 50 to the USD and ended the year at 53; a 6% devaluation over the 12 month period. On the face of it, it would appear that the Ethiopian currency fared well, however currency movements are controlled by the Central Bank and when we consider that the Black Market rate a different picture emerges. Rumours of Birr devaluation have been persistent in the past few weeks, however these have remained only rumours and some shippers have given up on waiting for the Government to adjust the value of the local currency and are basing their business decisions on current forex levels. The effect of uncertainty regarding the forex rate has kept shippers from registering export sales, coupled with unrealistically high Minimum Registration prices means that export registrations at extremely low. As mentioned last week, December shipments slumped, sharply down on November shipments and vs December 2021 exports; in January and February we also expect reduced exports.

Turning to the Inflation Rate.

The year started with an Inflation rate of 34.5% pa and ended just slightly lower at 33.8% pa. Although Inflation rate is stable in the mid-30’s, this is a fairly elevated rate and the main impediment for the Government to loosen the Forex rate. Donor government and agencies continue to pressurise the Government to take a more liberalised approach to Forex controls that would enable to official rate to get closer to black market rates, however fearful of a steep rise in Inflation the Government is resisting. Farmers rationale for demanding high prices for cherry during the recent harvest in anchored on current inflation rates, if the price for everything is going up so should coffee…18 months ago inflation was below 20% at current 34% levels farmers are feeling the pinch.

Birr 53.43 = USD 1

Have a good weekend.

As expected shipments in December tumbled (we were expecting this, so much so, that I had already decided on the headline for this post before I was informed of the figure); pressure has been mounting on shippers to export over the past few weeks, the Coffee and Tea Authority (C&TA) has seen export registrations stop and only a trickle of Bills of Lading filed. December 22 shipments are roughly half the Dec 21 shipments, and the lowest monthly shipments of the last 5 years, November shipments were also disappointing. January and February are unlikely to record much of an improvement; as reported in previous weeks the C & TA has been pressuring shippers to export 21/22 crop stocks, however there are increasing concerns that very few new crop shipments have not been registered for export so far. This week’s drop in terminal prices combined with current high minimum registration prices will result in few new registrations for the coming months. At some point (in the coming weeks) the C & TA will react to the lack of export registration by reducing minimum prices however, currently minimum prices for Grade 5 are around +20 FOB, which is completely unworkable… Southern Grade 2s are at around +150!

Terminal market prices continue to slide, however buyers are in no mood to adjust their buying differential price ideas, so trading is at a standstill. We believe that very little Ethiopia coffee has been traded outside of the internal supply chain, trade is not short to industry, Ethiopian shippers are not short to trade and have not pre-financed agrabes, therefore shippers remain uninvested in the 22/23 crop. Nearly all the crop remains in the hands of farmers and it will the farmers that will have to accept the price that the market will ultimately determine. Once Minimum Registration Prices reach a level that is “tradable” coffee will start to flow along the supply chain, until then we expect that the current standstill will continue.

High profile European visitors to Addis have been pushing for justice for civilians killed during teh 2 year conflict between Tigrayian forces and the government, the BBC reports: https://www.bbc.com/news/live/world-africa-64022866?ns_mchannel=social&ns_source=twitter&ns_campaign=bbc_live&ns_linkname=63c0d7a71e5a29791b50cc13%26France%2C%20Germany%20push%20for%20Ethiopia%20war%20crimes%20justice%262023-01-13T04%3A33%3A31.798Z&ns_fee=0&pinned_post_locator=urn:asset:7f794400-8638-4e20-b1c8-420ed800a51e&pinned_post_asset_id=63c0d7a71e5a29791b50cc13&pinned_post_type=share

Also on the conflict, the BBC reports the latest developments in the North of the country: https://www.bbc.com/news/live/world-africa-64022866?ns_mchannel=social&ns_source=twitter&ns_campaign=bbc_live&ns_linkname=63c105cd267de80d2199dafe%26Ethiopia%20says%20regional%20forces%20withdrawn%20from%20Tigray%262023-01-13T08%3A43%3A24.978Z&ns_fee=0&pinned_post_locator=urn:asset:c9d3e834-43ec-4421-bd75-e34d2f863a48&pinned_post_asset_id=63c105cd267de80d2199dafe&pinned_post_type=share

We continue to hear rumours of a potential local currency devaluation, however so far Birr remains stubbornly firm vs USD:

Birr 53.40 = USD 1

Have a good weekend.

The Coffee and Tea Authority (C&TA) is concerned about slow registrations and reduced exports. The C&TA has been pressuring shippers to sell and ship, particularly old crop stocks. Minimum registration prices for New Crop continue at very elevated levels:

Yirgacheffe 2 301 c/lb

Sidamo 2 292 c/lb

Limu 2 233 c/lb

Sidamo 4 189 c/lb

Lekempti 5 168 c/lb

Djimmah 5 167 c/lb

at these prices little is being registered for export and indeed little is available to be exported! Old crop minimum registration prices are substantially lower however they fail to attract buyers; there is little demand for tail end of the crop quality. Truth be told, demand is non existent, roasters are still hibernating. It is likely that the C&TA will remain frustrated for a few weeks longer!

Meanwhile only the upper coffee belt in harvesting cherries. Prices for cherry in the Southern regions (Guji, Bensa and Yirgacheffe) range from 80 to 90 birr/kg making FOB prices over 400 c/lb…

In other coffee growing regions (Djimmah, Limu) washing stations are closed, any coffee remaining to be harvested will be Natural.

There is increasing talk of devaluation, the government is discussing this issue with the World Bank and other bilateral organisations with a view to secure financing to rebuild the damage caused to the country’s infrastructure from 2 years of fighting with Tigray rebel forces. Furthermore, Tigray region is in dire need of humanitarian assistance as fighting and drought have pushed the region to the brink of starvation.

Coffee shippers are hopeful that the end of the fighting might bring an increase to the proportion of USD that exporters can keep to purchase imported goods, currently this proportion is 30% however if this was increased to 50 to 70% it would facilitate exports and improve shippers’ bottomline.

Birr 53.36 = USD 1

Have a good weekend.