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.

It is normal that things slow down as we approach Christmas and the end of the year, but it really is dead on the Ethiopia business side! Minimum registration prices put grade 5’s into plus differentials which holt any chance of buying whereas industry seems to be focused on everything but buying! Time to take stock, reflect on the past 12 months and what the next year will bring. 2022 was difficult for Washed coffees and 2023 is looking even harder, with reduced availability and high prices. Naturals were much easier to trade in 2022, good availability and good quality, aided by a buoyant market that peaked in February as many shippers were hoping to get short; it all worked out very nicely, for both shippers and their customers. What will 2023 bring? we expect Naturals availability to be good, however with farmer price expectations not being met we could see some resistance at farmgate level to part with produce. Upcountry stock build up is a very real possibility over the next 12 months.

Inflation soared in the first 6 months and stabilised around 35% in the second half of the year. The birr has remained very steady vs the USD losing around 6% over the 12 month period.

The 2 year conflict between Government forces and Tigray rebels has ceased and a long lasting peace deal in looking increasingly likely; this is the single most positive thing that 2022 brought Ethiopia and allows us to look at 2023 with hope that the misery of the past 2 years will give way to prosperity for all Ethiopians.

Birr 53.27 = USD 1

Happy Holidays!

Having increased in October, exports in November are drastically down, 10 K MT lower than in November 2021 and 8 K MT lower than in October 2022. It is likely that shipments going forward for the next 3 months will total less than 50 K MT. This will result is exports for the 12 month period March 22 to Feb 23 of less than 5 Million bags, however it will be the second highest annual exports figure after the 310 K MT shipped between March 21 and Feb 22.

Currently there is very little export activity as expected for this time of the year, matters are made worse by some big defaults from Saudi importers that having bought Lekempti 5 at around 200 c/lb when the NY market was above 200 are now not opening LCs leaving shippers carrying expensive coffee with nowhere to ship to.

Cherry prices are currently between 40 Birr per kg in some Limu areas to over 70 in some Yirgacheffe locations. Still very little is being bought with most washing stations either closed or operating well under capacity.

Birr 51.2 = USD 1

Have a good weekend.

Following our trip to the Southern coffee producing regions of the country last week, this week we travelled to Djimmah to asses the harvest there. The picture in Djimmah is very similar to the South, washing stations working under capacity or simply closed. Production is generally good but the proportion of the crop that is being Washed is very much reduced, we expect that as much as 50% less coffee will be washed this year compared to what we would have expected in a “normal” year. Again we saw many Washing Stations having idle drying tables, only one fermentation tank being used out of a dozen, parchment very thinly spread on drying tables. Washing station owners are buying less cherries for washing and farmers are happy to sell less, processing the crop themselves at their homesteads and producing natural coffee to sell at a later date. Weather is favourable for the harvest, some rain at night and plenty of sunshine during the day. Overall, we expect good quality for both Washed (Grade 2) and Naturals (Grade 4 and 5), our concerns are very much skewed to the reduced Washed volumes being produced. The coming few weeks will be crucial, however we have little confidence that the production of Washed Coffees will increase substantially, currently our thinking is that more washing stations will stop receiving cherries for processing and that Washed Coffee availability will become increasingly compromised.

The peace negotiations are progressing well and the prospects of Ethiopia being welcomed back into the fold of Western Governments and subsequent resuming of finance agreements is increasing. This could result in an easing on the tight forex controls that were imposed on shippers during the conflict with Tigray rebels. Currently shippers are keeping around 30% of the USD they receive from export sales, however a return to the 70% level is increasingly voiced and even expected by some exporters. This would assist shippers in importing goods and reduce coffee export loses since the margins on imported goods continue to be very healthy.

Paradoxically, in West Oromia, instances of insecurity are not abating, for more on this please follow the link: https://www.bbc.com/news/live/world-africa-62845613?ns_mchannel=social&ns_source=twitter&ns_campaign=bbc_live&ns_linkname=639193d86967ef5dc539a172%26Ethiopia%20party%20calls%20for%20arming%20of%20Oromia%20civilians%262022-12-08T08%3A26%3A25.498Z&ns_fee=0&pinned_post_locator=urn:asset:8ace0c50-356a-4554-b838-4a5a70005377&pinned_post_asset_id=639193d86967ef5dc539a172&pinned_post_type=share

Birr 53.13 = USD 1

Have a good weekend.

We are touring some of the more prominent coffee growing areas this week and next to get a feel for how the harvest is progressing. This week we were in Sidamo and Yirgacheffe, the lower lying areas have come to the end of the harvest and during December picking will peak in these 2 important growing regions. We have visited many washing stations and what has struck us most are the small volumes of parchment in the stations and small warehouses dotted around the countryside. Two main reasons explain the small production of washed coffees:

  1. Farmers perception that a price of 50 to 60 Birr per kg cherry is low!
  2. Lack of cash distributed by Exporters to their washing stations and agrabe partners to finance cherry buying

Focus is on producing high quality coffees for the specialty market that attracts higher prices and higher commercial coffees that will command a premium over normal Grade 2 coffees. There seems to be small appetite by washing station owners to produce commercial grade 2 coffee in these regions since the price that would need to be achieved to make a margin is in excess of 300 c/lb FOB (50 birr per kg cherry equates to 6 USD/kg Clean => 272 usc/lb + 30 usc/lb (Farmgate to FOB cost) = 302 usc/lb FOB).

On the other hand there will be plenty of Naturals since the crop is good (higher than 21/22) in these regions and the proportion of Naturals vs Washed will be higher, as explained above.

Next week we are in Djimmah and Limu so more to come on the harvest there!

In other news, Ethiopia is doing its bit to mitigate climate change, having banned the importation of vehicles, the country now allows the importation of electric vehicles at a much reduce import tax while maintaining the ban on importation of internal combustion cars.

Birr 53.00 = USD 1

Have a good weekend.

Since March, 2022 monthly shipments have been below 2021 monthly exports, however for October shipments in 2022 were higher (just!) than in 2021. It’s a blip, there is very little coffee around and despite the total collapse in NY over the last few weeks shippers are struggling to deliver on Grade 5 sales made a few months ago at prices around 200 c/lb. Shippers are conscious that if they do not deliver, buyers are only too happy to cancel these contracts buy from the trade of simply buy back hedges, however if the coffee does not exist it cannot be shipped! On the other hand Washed coffee longs cannot find buyers are anywhere close to the prices they want to sell Limu 2 is offered at 300 c/lb and Sidamo 2 at 315 c/lb…

Overall 2022 shipments vs 2021 are down, for the period March to October 2021 exports totalled 235 K MT (11% more than the current year’s 211 K MT) despite the higher prices. The lower exports are, of course, a direct consequence of the lower 21/22 crop, particularly lower in Sidamo region. November shipment should be lower than October, although we expect that shippers will be trying their hardest to fulfil commitments, any unshipped contract will be costly to the exporter.

Birr 53.00 = USD 1

Have a good weekend.

Out in the coffee growing areas many washing stations remain closed or only operate a few days a week. There is little cash to buy red cherries and prices are between 40 and 60 birr/kg of cherry at farm gate level. Farmers themselves are only selling small quantities of fresh cherries, larger quantities of cherries are being sundried to be sold later; we believe that the rationale is that farmers only sell to get cash for what they need to buy for their current needs. Food inflation is so high (above 40%), farmers believe that holding coffee instead of cash is a better hedge against runaway food prices. Naturals can be held by farmers in their homesteads for months and sold has they need to purchase goods, the hope is that when coffee comes to be sold the price (in local currency) will be higher than today. However, we are sceptical that the government will devalue the Birr substantially and with the C market is freefall, this strategy may not be successful.

There is a problem with current cherries prices in as much as: how much Grade 2 coffee will realistically be sold at a price that will allow the agrabe/exporter to make a return? There will not be many buyers queuing up to pay +150 FOB for their Sidamo 2! With few washing stations operating it is reasonable to expect that Grade 4 and 5 will be produced in higher proportions in 22/23. Since Naturals stay with farmers for longer before being sold to middlemen, it is feasible that farmers’ price for Naturals will be more reflective of the international market price. There is a time lag for overseas buyers’ price ideas to move back the supply chain to the farmgate, however by January the “new price reality” will have sunk in. In January a very high proportion of Naturals will still be in the hands of farmers therefore it will be the farmers that will have to accept much lower prices for the coffee they are currently picking than what they achieved last crop.

Minimum registration prices have been decreasing over the last few weeks however continue too high to attract any business:

In any event there is very little coffee around, quality of samples that we have been seeing in recent weeks is very poor, there is coffee in shippers’ warehouses however Djimmah stocks have been badly affected by humidity, furthermore, for the past few weeks insecurity has stopped movement of coffee from Wellega (Lekempti) to Addis. Washed Grade 2 coffee stocks are immobilised by the lack of interest from overseas buyers at the offered prices, over 300 c/lb…

Trading is at a complete standstill, the internal market will command the best prices for exporters’ stocks and being less quality orientated can absorb the currently available Grade 5s.

Birr 52.98 = USD 1

Have a good weekend.