All

The higher market has allowed for some more business this week. Differentials eased as NY May gallivanted through the 130 level allowing shippers that are not overly focused on covering shorts, to sell; Minimum registration prices for lower grade Naturals have remained in a very narrow range of 3 cents since February so those with some stocks have sold into this week’s rally. Larger shippers were quieter abstaining from offering since they have previous shorts to cover and complain that they do not have access to as much coffee at ECX as they would like. However ECX volumes have improved and coffee is flowing from the interior to Djibouti. Quality wise we have no problems, the expected larger and better crop 2020/2021 crop is in full swing. Logistics are the weak link here, delays in vessels, cancellations and lack of containers of some shipping lines have not improved but this is nothing new…

The Covid situation improved slightly in the past week, we shall have to wait for confirmation of a trend in the coming weeks, for now we are keeping our fingers crossed that the pandemic gets under control.

Birr 40.60 = USD 1

Have a good weekend.

All

We have finally started to see the increased crop be reflected in Export volumes; March 21 exports exceed March 20 by 700 MT and reverse the picture of the past 10 months, where the monthly exports fell short of the corresponding month of the year before. We now expect this trend to continue in April and so on as the higher 20/21 crop is shipped.

News of the pandemic in East Africa continues to be very worrisome, the Tanzania President having succumbed to the disease, Kenya once again in lockdown and the numbers in Ethiopia reaching new highs. What the implication of souring covid cases will be, we do not know, however we are mindful that the initial postponement of the 2020 elections was due to the pandemic.

Source: World Health Organisation – weekly figures from 1st week in January 2020 to last week in March 2021

Forex 41.50

Have a good weekend.

All

With so much talk this week on forex rates of the currencies of the world’s largest Producer and Consumer countries and how these affect coffee prices, it might be a welcome distraction to look at how the birr has been behaving in the last few months. No surprises, the birr has steadily devalued 30% between January 2020 and the 1st of April 2021. A year ago we speculated whether the local currency would have reached 40 to the greenback by mid 2020, alas this milestone was only reached in March 2021.

Source: National Bank of Ethiopia

Birr 41.34 = USD 1

With Elections due 5th June, simmering tensions between ethnic groups are coming to the surface. For now the central Government is in control, let’s hope that things stay this way to insure a peaceful poll.

Shippers’ prices remain firm, as do Minimum Registration Prices, making sales difficult in a declining terminal market. In any event shippers are focusing on fulfilling previous commitments in a challenging logistics scenario, empty containers continue to be hard to find. Volumes of Naturals reaching ECX continue to disappoint and frustrate shippers.

Have a good (long) weekend

We mentioned last week that container availability in Addis was a concern, disrupting planned shipments. This week, most of us have seen pictures of a huge 400 metre long container vessel stuck across the Suez Canal this week, blocking vessels from entering (in case you haven’t below is what it looks like). Shipping lines have been quick to inform customers of the situation and warning of delays. So here we go, expect delays, on top of the usual delays and most likely increased costs…

ECX Sales January to December were down from 240 k MT in 2019 to 171 k MT in 2020 a drop of nearly 30%; the graph below shows this broken down in Naturals and Washed coffees (for the 3 year 2018, 2019 and last year 2020):

Export figures support a drop in availability of coffee between 2019 and 2020; July to Feb (8 months) exports 19/20 = 167 k MT and 20/21 = 119 k MT a drop of nearly 30%. Of course we would need to consider variations in stocks and volumes traded outside ECX (Vertical Integration, Farm Exports and Coop Exports) however it is uncanny that the decrease in numbers of ECX sales and Exports are by the same proportion. If we take this extrapolation a little further we can state that the crop decreased by around 25-30% from 18/19 to 19/20 !?!

Forex Birr 41.06 = USD 1

Have a good weekend.

All

We have not mentioned the pandemic and what is happening in this regard in Ethiopia for a number of weeks now. With elections scheduled to take place in a few weeks time it seems appropriate to take a closer look at what has been happening in the country with regards to Covid. The number of cases is once again increasing having initially had a peak last summer. From the following chart it is clear that cases have been growing since the start of 2021. Sadly, anecdotal evidence (i.e. conversations with our partners in country) also suggest that the death rate is increasing. For now, it does not appear that the increase in cases is having an impact on coffee flows; in fact the lack of availability of some shipping line containers in Addis is of more concern and the main reason why shipments are delayed.

Source: World Health Organisation (WHO)

Having described the violence in Tigray region as ethnic cleansing last week, the USA is now planning to send a US Senator to the country to convey the concerns of the US Government to the Ethiopian PM.

On the coffee front, trading has been subdued this week, with the market in NY rather choppy not helping local exporters get any sense of direction as to where prices are heading. The Coffee and Tea Authority appears bullish having increased registration prices on Tuesday by a couple of cents/lb.

Birr 40.20 = USD

Have a good weekend.

All

The Government remains concerned about the slow pace of exports; the export figures for February, continue to perpetuate the slow-paced trend of the last 8 months and confirm the lower production in 2019/20. The higher crop figure 2020/21 still not being translated into higher exports. For now we remain at 75% of the previous year’s exports (for the 10 Months May to Feb), however 20/21 pace is starting to accelerate, in Feb 2021 exports were 80% of the 2020 Feb exports. We expect that this will continue, and by May 21 monthly exports should be above the 2020 monthly figures. For this to materialise we need the authorities to reduce Minimum Export Prices for registration purposes for Washed coffees, particularly for Sidamo 2. However, we are not going to reach 4 M bags exports during the May 20/April 21 period and will record around a 20-25% drop in exports vs the previous 12 month period 19/20. In fact we are looking at the lowest export figures in the last 5 years!

(Exports in MT)

Registered Sales’ volumes for the last week in February and 1st week in March were very high, particularly Naturals (grades 4 and 5); since then shippers have been focusing on buying grade 4 and 5 coffee to fulfil these commitments. Volumes at ECX are increasing as a consequence of prices having been allowed to increase. Quality wise, our expectations for improvements versus the previous crop are materialising. We look forward to better quality, less defects in the green and cup, as the season moves on.

On the political front things are a little complicated for the country’s leadership. Following a visit to the Tigray region, the US Ambassador to the country called for an independent investigation to verify the genocide allegations being levied on the Government and its allied forces. This is a developing story and could have more far fetching implications for the Government and the country.

Birr 40.20 = USD 1

Have a good weekend.

All

All in all a quieter week on the coffee trading front. Shippers are focusing on executing their increasing commitments. Higher Minimum Registration Prices and a decreasing terminal market in NY taking the wind out of “selling” sails! New crop quality is generally good. In the South we are expecting a higher proportion of Naturals to be produced vs last crop due to larger crop that exceeded washing capacity. So expect more Sidamo 4 and even high grade Naturals, than last year.

We have discussed the struggle that shippers are having in acquiring Grade 4 and 5 coffees at ECX at the moment, because:

  1. Following a smaller crop in 19/20, carry-over stocks are low;
  2. New Crop is just now starting to flow from farmgate to warehouse
  3. ECX Maximum price policy has discouraged Agrabes to commercialise their produce through ECX
  4. New regulations that allow for Vertical Integration of lower quality coffees
  5. Increase in the number of companies interested in shipping coffee

As Vertical Integration takes hold less coffee will come to ECX and shippers will increasingly struggle to acquire coffee in the volumes they were accustomed to in the past. There are some big changes taking place in the ranking and positioning of stakeholders in the coffee value chain, adapting to this changing environment is key t o succeed!

On the political front, Ethiopia came in for a lot of criticism over reported atrocities carried out in Tigray by Eritrean soldiers that are moving around the region since the conflict there in late 2020. It will be critical for Ethiopia to have a “good” election in the middle of the year to reinstall  confidence in the eyes of international partners.

In other news, Egypt and Sudan are discussing a defence alliance clearly designed to square off any Ethiopian moves that could be construed as hostile to the 2 countries.

Birr 40.15 = USD 1

Have a good weekend.

All

The recent upwards swing in NY has allowed for much selling activity in Addis. It started last week and really took off this week! Some shippers are now well sold and not so eager to offer. We expect that Minimum Registration Prices for Naturals to increase over the weekend. It would seem that we may be in for a more subdued couple of weeks ahead after the recent frenzy of activity. This surge in export registrations has come to the aid of Coffee and Tea Authority officials who were under pressure from Central Government to increase registrations. The World Bank has painted a rather gloomy economic picture for 2021 with a paltry 2% growth forecast, which if it comes to being, will be the lowest growth in recent years.

Meanwhile at ECX volumes on offer of lower grades (Grade 5) continue to frustrate shippers. As a consequence, the Vertical Integration craze previously limited to Washed Coffees has spread to Natural supply chains, as larger shippers see too much competition at ECX from small (sometimes tiny) shippers which have mushroomed in the last few months. Likewise overseas buyers are having to expand their supplier network to find the volumes they want to contract.

Below we compare some data about the current crop from different sources, interesting to see how some of the figures vary so much:

Birr 39.97 = USD 1

Have a great weekend.

Regards.

It happens every few years, in adverse conditions, some shippers get it wrong and struggle to stay afloat in a sea of adversity! In 2020 internal and external factors, some coffee related and others not, some new and some never experienced before, combined, resulting in some of the top shippers in Ethiopia struggling to cope. The table below ranks the shippers´ volumes for the six month period July to Dec 2019 vs July to Dec 2020, the conclusions are clear to see. Since overall exports July to Dec 2020 are down to 70% of the volume same period in 2019, any shipper above that 70% figure is doing well. Some, unfortunately, are clearly not!

Exporter volumes in MT

We have been here before, this is not new, shippers that are doing well seem to nearly disappear from one year to the next; while others clearly flourish in generally difficult times.

Birr 39.80 to the USD

Have a good weekend.

The trend continues, total shipments for 9 month period, May 2020 to January 2021, 155 K MT which is 25% lower viz a viz the previous year. By all accounts February shipments are also progressing at a reduced pace. We are coming to conclusion that by April shipments will be 1 M bags lower than the previous 12 months.

(Ethiopia Exports in MT)

In other news there were some worrying headlines regarding a possible restructuring of Government Debt held in Private hands. This news comes as the Government is reworking its debts to the Paris Club. After these negotiations are finalised it is expected that the Government will seeks similar arrangements with Private creditors. The effects of the pandemic on the economy have been further exacerbated by the conflict in Tigray leaving the Ethiopian Treasury in a pickle.

At ECX washed coffees are selling well, with agrabes happy to accept exporter bid levels as volumes offered increase weekly; the inverse is true for Naturals, where agrabes are reluctant to accept bids, as exporters vie for the reduced volumes available. Most of the “new” licensed exporters are active in lower qualities market (Grade 5) and there are so many competing for what is offered that agrabes believe they could be achieving higher prices than the Maximum Prices set by ECX. Meanwhile, we believe that larger exporters continue to rollover contracts as buying to cover old commitments is nearly impossible.

Birr 39.65 to the greenback

Have a good weekend.