All

Let’s discuss 20/21 Crop Development.

Southern Region

Sidama: we are indeed expecting a good crop and harvesting started early October.

Yirgacheffe: as in Sidama we are expecting greatly improved crop in 20/21 vs 19/20, harvesting will start later in November/December.

Guji: Harvesting has also started here, and Vertical Integration is very intense in this region leading to increased price competition and substantial investments in Washing Stations and processing capacity in general.

South Western Region

In Kaffa, Bench Maji and Tepi farmers have been harvesting since September and the crop is down as much as 40% in some areas. The crop has been affected by CBD by as much as 8% in Tepi. In the South West this is an off-cycle year so a decline in production is expected.

Western Region

Jimma: The crop is expected a tad higher to 19/20, with some parts of the region slowing a substantial increase in production. There has been very little crop expansion in Jimma in the past 12 months.

Ilubablor: we are expecting a higher crop in 2020 vs 2019, the crop will only start to be picked in November.

Wellega: A sharp increase in production expected in 2020 vs 2019, as a consequence of good weather conditions and a more peaceful circumstances in this region. Harvesting will only commence in December and farmers are still holding some stocks from the 2019 crop.

Generally speaking there is little to no coffee in the hands of farmers and even agrabes are well sold as a consequence of the lower 19/20 harvest and good prices at ECX.

Current cherry prices are very high, a reflection of internal competition, as follows (kg cherry):

Sidamo :  18 to 20 Birr

Guji:  25 Birr

Limu: 21 Birr

Forex rate: 37.34 Birr to the USD

Have a good weekend!

The crop has started to be picked and collected in nearly all producing areas of the country, only the higher growing areas like Yrgacheffe are yet to start. Our initial thoughts of decent quantity and quality remain unchanged, below we list the cherry prices that we have heard are being paid by washing station owners in Birr per kg cherry:

Guji 18-19

Sidamo 15-16

Limu 15

Kaffa 13

These prices are in line with prices paid to farmers last season, however as mentioned the crop is expected larger so it would not be unreasonable to have expected lower prices to reflect the larger crop, however the flow is small presently and only a few Washing Stations are working; as the flow increases and supply increases, if it outstrips Washing capacity we could see prices stabilise or even drop; on the other hand if demand from Washing Stations increases and competition to attract cherry intensifies then the price will go up. It is still a little early to get a realistic picture and we shall monitor the price and flow evolution.

There is very high percentage of Vertical Integration between Exporters and Washing Station owners this season. Offtake and pre-finance agreements are in place allowing exporters to access coffee at farmgate level and bypassing the ECX altogether. Expectation are that an even smaller proportion of this crop will find its way to ECX compared to last season.

Focusing on exports, below we compare Export figures for the current crop vs past 2 crops. We have started the “year” in May to try to outstrip the overlap between one crop and another, we could have started 2 month earlier at the start of the seasonal increase in shipments, however we believe that March and April shipments usually include a high proportion of previous crop Naturals…

What we can derive from the last 2 years is that we should see a drop in shipment over the period September to December/January followed by an increase from February 21 onwards as New Crop starts to be exported. Whatever the case (and confirmed by ECX figures) the 19/20 crop is a very disappointing crop and even if ECX volumes pick up the coming weeks, export quantities are likely to remain on the lower side.

Birr 37.00 per USD

Have a good weekend.

The weather has changed for the better in Ethiopia in recent days. It is drier and these conditions are more favourable for ripening and drying after picking. Additionally, roads that were impassable for weeks because of wet weather conditions  have now become operational; we expect more coffee to move from upcountry to ECX warehouses, increasing the volumes available to exporters. Export business continues subdued and below last year’s volumes and we believe that this trend will continue for the remainder of the crop. Our initial thoughts on the size of the 2020/21 Djimmah Crop are positive, conditions have been favourable and we are expecting a good crop, higher than last year and, importantly, better quality.

Saudi Arabia which is the single largest buyer of Naturals from Ethiopia (Grades 4 and 5) have decreed that the maximum allowable number of defects that can be imported to Saudi is 26 defects, i.e. grade 3 quality; if this regulation is enforced it would have a big impact on the Ethiopia Natural Supply Chain, since the competition for better quality coffees would intensify. Furthermore much more raw coffee would be needed to achieve Grade 3 quality squeezing the price for grade 4 and 5 coffees, particularly in a year where quality is below average. Some exporters have told us that a few Saudi buyers have requested contracts to be changed from Grade 4 and 5 to 3. The price difference between a grade 3 and a grade 4 is much more significant than a 4 to a 5. It remains to be seen if this regulation is enforced in the coming weeks and months.

Daily positive Covid tests are just under 1,000 for the past few days. The total number of positive cases has reached 82 k.

Forex 36.90 to the USD

Have a good weekend.

The postponed 2020 Presidential Elections are now widely believed to be happening in May of 2021; a couple of procedural hurdles have been overcome and 8 months gives everyone enough time to prepare. The Government is yet to officially announce a date but May 2021 is what most people seem to believe as likely.

The changing of bank notes exercise that is currently underway is forcing the population to bring to commercial banks old notes to be exchanged by new currency. We are unsure of what will be the implications for the wider economy, on the one hand currency that was outside of the formal economy is forced back to it; on the other hand, could result in inflation as people change currency for goods and assets faster than they normally would, pushing up prices. Conversely the price of the locally produced cereal, Teff increased by 25% in the last 2 weeks. As a large percentage of income for most of the population goes on food, a sharp increase in the price of stable foodstuffs has a big impact on the population.

In some lower areas of Sidamo B washing stations have started buying cherries, the price is 15 Birr per kg of cherry, this equates to approximately 160 C/LB FOB.

Below we chart the ECX FOB Equivalent and NBE Minimum Registration Prices for Lekempti and Djimmah alongside KC2; Our conclusions:

  1. The main aim of introducing a Minimum Price was to stop shippers selling below ECX levels has failed completely; ECX prices continue to be much higher than Export prices.
  2. Lekempti coffee has more or less tracked Djimmah until July, when Lekempti prices increased sharply in line with KC2 increase whereas Djimmah remained stable until September when these also increased sharply as a consequence of increased export sales when KC2 traded into the 130’s.
  3. There have been 2 occasions that have allowed shippers to record good volumes of sales: back in the End of March when NY rallied as a consequence of the potential negative impact of Covid on origin shipments ; and more recently in late August and early September, when the difference between Registration prices and KC2 reached 30 c/lb. This recent spike in NY coincided with low Djimmah prices at ECX encouraging shippers to sell.
  4. The recent divergence in ECX prices between Djimmah and Lekempti is a consequence of the volumes being offered at ECX, whereas Djimmah volumes are up 6% on last year’s volumes, Lekempti is down 18%. We need to be particularly vigilant on the quality of Lekempti as shippers will try to mix in coffee from other regions to avoid using comparatively much higher priced Lekempti to fulfil their commitments.

Current Forex rate 36.72 o the USD

Have a good weekend.

Heavy rains are disrupting the transport of coffee from growing areas to ECX warehouses and therefore limiting the supply of coffee to exporters and pushing up prices. Exporters are reluctant to cover shorts at ECX and requesting for delayed shipment to allow for more time to purchase coffee to fulfil commitments. Heavy rain at this time of the year are unseasonal and if it does not stop in the next few weeks could affect the imminent harvest by delaying the ripening of cherries. We are also very conscious of the quality problems last year’s wet weather caused during the post-harvest processing period. Drying coffee in wet conditions is rather difficult! The result is a high percentage of defective beans and increased instances of mouldy/phenolic/earthy cups. In terms of export volumes some of our partners are expecting that these are currently down by as much as 40% viz-a-viz a year ago, without export stats to corroborate it is hard to know, however we believe that exports are down compared to this time last year.

The Minimum Prices have remained stable for the past few weeks however with the terminal market hovering around 110-115 c/lb differentials are uncompetitive.

Forex, the Birr is at 36.68 to the USD.

Have a good weekend.

Following some very decent volume of business enabled by the recent rally in NY, business has come to an abrupt halt as ECX and Exporter offering prices have risen and the terminal market price declined. Volumes at ECX continue to disappoint and shippers in need to cover recently established shorts scramble for the reduced volumes on offer. Below the current sales at ECX at 15th September and the volumes at the same time in 2019 and 2018:

In addition to the lower traded volumes, the quality of the lots sold is much poorer than in previous years, meaning that shippers are ending up with a higher percentage of local market products and less exportable quality from what is purchased. We have not seen recent official export figures but we suspect that these will also be down on last year’s. 

Daily Covid cases and casualties have declined in Ethiopia in last 2 weeks, the country is seemingly moving in the right direction. 

Slow but sure devaluation of the local currency, currently 36.54 vs the USD.

Have a good weekend.

By Charles Seara Cardoso

It is the New Year in the Gregorian Calendar, the past 12 months have been interesting, I am sure we all agree! But we do not want to go over the problems of the past, let’s take a look at our first impressions of the New Crop. Coffee is just about starting to mature in the lower coffee growing areas. Things are looking peachy! We are looking to a better crop both in terms of quality and quantity, truth be told this current crop is pretty disappointing on both counts; our initial projections are for a better crop in 20/21. Particularly in the Southern coffee growing regions, Sidamo, Yirgacheffe and Guji we are expecting a marked increase in production this coming season. Some of the people we have had conversations with in the last few days are expecting the best output in the South in the last 3 years, a relief to many stakeholders that have viewed the decline in volumes from these areas with concern.

On the other hand news about current crop output is much less encouraging. ECX warehouse stocks are at very low levels, seemingly the lowest ever and exporters continue to worry about their commitments. Once again the prospect of further defaults and postponements lingers…

Covid continues to be of concern, a further 100 deaths this week and around 10,000 positive tests.

Internal prices remain very high, internal consumption and the lack of coffee for this segment of the market is the main driver of prices. Export offer prices have tightened along with differentials, so export business has not been as brisk this week.

Forex: 36.46 Birr to the USD.

Have a good weekend.

Again this week’s NY action has allowed shippers to sell more; those that held out for better prices over the past weeks are finally being able to move their stocks. Many of the larger shippers are in dire straits having sold larger volumes at prices below 100 c/lb find themselves unable to cover due to low volumes on offer at ECX and very high prices bid as there are many buyers for the reduced volumes. We are hearing that washouts and defaults are rife; shippers have meet government officials to voice their problems and ask for help in sourcing coffee. A major concern is the quality of coffee that shippers are receiving from ECX warehouses; exporters are eager to stamp out corrupt practices at ECX warehouses, where lots destined to be sold at ECX are being granted certificates of quality much higher than they deserve, leading to exporters paying high prices for low quality.  

Covid rages on with a further 10,000 cases in the last week and a further >100 deaths attributed to the disease.

Birr is at 36.38 to the USD.

The number of COVID related deaths in Ethiopia has passed 700 worryingly, over 50% of these registered in August, which indicates that the disease is accelerating in the country. Conversely, shipments in August are reported sharply down to 1 year ago, we have told that whereas in August 2019 shipments were over 30 K MT, this August they are around 15 K MT, 50% lower. Prices at ECX remain high and volumes offered disappointing, leaving shippers short of what they need to cover commitments.

Quality concerns surrounding the current crop are ongoing, particularly for Naturals, this crop cup quality and green appearance is, very much, on the low side. Looking forward to the next crop things are more encouraging, the rainy season has been good and the crop is developing well. We are in the preparatory phase of our crop tour however anecdotal commentary from our partners in Ethiopia is that we should expect increased volume and better quality for 20/21. 

Birr is at 36.10 to the USD, losing nearly 3% during the month of August.

by Charles Seara Cardoso

The recent NY rally gave shippers an opportunity to sell to the trade which booked some decent differentials. Now, these commitments need to be covered at ECX which have pushed the prices at the Addis Ababa Exchange through the roof to levels way above where shippers sold, Lekempti traded at ECX this week at levels up to 140 c/lb FOB equivalent! Djimmah 5 FOB equivalent was also higher, etc…

Volumes traded at ECX last 3 years at 19th August:

19-20 CHANGE
MT @ 19 AUGUST201820192020MT%
LIMU/OTHER WASHED               17,600                 14,175                 15,002             827 6%
YIRGACHEFFE                 4,916                   6,059                   3,262 –       2,797 -46%
SIDAMO/GUJI               19,076                 20,639                   8,496 –     12,143 -59%
Total Washed               41,592                 40,873                 26,760 –     14,113 -35%
 
MT @ 19 AUGUST201820192020MT%
SIDAMO               14,409                 18,808                   8,720 –     10,088 -54%
LEKEMPTI               35,245                 36,042                 30,253 –       5,789 -16%
DJIMMAH               36,874                 30,501                 33,457          2,956 10%
OTHER NATURAL               34,322                 39,421                 33,548 –       5,873 -15%
Total Natural             120,850               124,772              105,978 –     18,794 -15%
Total             162,442               165,645              132,738 –     32,907 -20%

Forex is also devaluating steadily, 1.5% since the beginning of August, now at 35.85 to the USD.

by Charles Seara Cardoso