Slow start to the New Year

As a consequence of last week’s Central Bank decision to reduce the proportion of USD that shippers can utilise from their coffees export earnings to pay for imported goods and services, shippers are less ready to reduce margins on coffee sales and have increased prices to better reflect the high prices being paid to farmers for cherries. So it will come as no surprise to know that trading has been slow, slower than expected for this time of the year. The trade is struggling to book Sidamo 2 at replacement differentials, having to heavily discount the price to get anything sold to roasters. This could prove to be costly as we are seeing more and more evidence that Washed coffee production in the South will be significantly lower in 21/22 than in 20/21.

In 2 weeks’ time agrabes will be able to start the trade in Natural Coffees and all stakeholders will have a clearer picture of where we can expect grade 4 and 5 coffees to trade. For now shippers are reluctant to offer aggressively fearful that the high price Washed coffee scenario will be repeated when the Natural coffee trading really gets going in earnest. There is demand for Ethiopia coffee but the price has to be inline with coffees from other origins of similar quality. Since we are expecting a higher production of Naturals this year it is more likely that the price for Ethiopian Naturals adjusts more readily to the international market than what we have been experiencing in Washed coffees so far this season, which have, so far, consistently been offered at high differentials.

The United Nations Secretary-General gave an interview to the BBC expressing hope for dialogue between the waring parties in Ethiopia, pls follow the link to watch: https://www.bbc.com/news/av-embeds/60076161

The local currency is still below 50 to the greenback, but only just! Birr 49.60 = USD 1

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Washed Coffee Prices trend higher amid decreased production

New Crop offers is well and truly here, shippers are now aggressive sellers in all qualities. What is noticeable is the very firm price for all Washed Coffee qualities, which is a direct consequence of the reduced availability viz a viz last year’s production. Washed Sidamo 2 is offered at 310 to 350 usc/lb FOB and Yirgacheffe 2 is a few cents higher. Even Limu 2 is under pressure offered at 270 c/lb FOB. There is clear resistance from roasters to pay the asking prices so something will have to give. 2021/22’s lower production could eventually lead to higher traded differentials which seems hard to justify when we consider the terminal market has doubled in value during 2021. Natural prices are within expectation, with Djimmah 5 trading at 30 under FOB with Lekempti 5 a few cents higher and Sidamo 4 currently at around -15 FOB.

December shipments came in at a tad shy of 16 k MT, which is lower than previous months but still a record December, keeping us on track for a 5 Million bag Export year (March 21 to Feb 22).

Exporters got a kick in the face this week, the Central Bank has decreased the percentage of USD that Exporters can keep from export revenue from 40% to 20%, basically reducing by half the proportion of export revenue that can used for imports. The reasoning behind this move could be justified by the doubling in the unit price that coffee has had in the past 12 months, however it is a blow for shippers that rely on coffee export revenue to acquire foreign goods and services.

Birr 49.45 = USD 1

Have a good weekend.

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New Year, new crop!

It is Christmas Day in Ethiopia!

Offers for the 20/21 crop have all but dried up, we truly feel that there is nearly nothing left unsold. Shippers are only offering New Crop 2021/22. We estimate that over 70% of the crop has now been picked and in the lower lying areas there is very little left unpicked. It is more in the Southern Highland areas where there are cherries on the trees. Regions like Guji and Yirgacheffe will continue to harvest into February, whereas Benji Maji, Kaffa and other more Western areas have nearly exhausted the harvest.

Prices offered are all over the place, with Washed Grade 2 Southern Coffees offered at prices ranging from 310 and 370 usc/lb FOB. Buying interest at these elevated prices is muted, however reflect the high cherry prices paid by Washing Station owners and probably reflect more the lower production in the Southern Regions than the limited cash availability at farm gate level this buying season. Indeed, it is our understanding that banks have been less engaged in financing the crop this season than in the past. Additionally, higher prices have discouraged stakeholders fearful that selling prices will not yield a margin.

Overseas demand over the festive season and first few days on 2022 has been limited, additionally, shippers’ offers have been limited or at prices that are uncommercial, therefore trading has been slow. Coffees will soon start to arrive in Addis for processing in larger volumes and pressure to sell and ship will begin to mount, then prices will start to become more commercially viable, for now trading is a tad side-lined.

There has been very little news concerning the fighting between Government forces and Tigray rebels. With the front line having moved much further away from Addis than it was a month ago concerns that harvesting, processing and shipping could be affected by the instability have faded.

Birr 49.32 = USD 1

Have a nice weekend

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November shipments do not disappoint

Once again this season Monthly Exports raise eyebrows. November shipments totalled 25 K MT a new record for the month of November, higher than the quantity shipped in October at a period when normally shipments are decreasing.

Logistics are improving this month of December, container availability seems to be easier and coffee is moving faster from the mills in Addis onto a vessel in Djibouti. We expect that current shipments are lighter than in previous months, but this year has been full of surprises.

Meanwhile the crop is progressing well. In some regions like the South West and West over 70% of the cherries have been picked. In the South (Sidamo, Guji and Yirgacheffe) approximately 50% has been picked. Cherries prices have been increasing since the crop is lower, reaching Birr 50 per kg Cherry, however, contradictorily not all washing stations are working or if open, operating at full capacity due to lack of cash to buy cherries. It does appear that this season will yield a higher proportion of Naturals due to less cash being available at farm gate level. In addition, we feel that shippers have less Washed coffee commitments with overseas buyers this season and this is decreasing the pressure to secure parchment.

The main story about the war continues to be that TPLF continues to be on the back foot since government forces pushed the front back from the doorsteps of Addis Ababa to the border of Tigray region. Rail and road links to Djibouti are no longer under threat of attack since the tide turned in favour of Government forces. Meanwhile, the humanitarian crisis continues unabated with approximately 10 Million people in need of aid, according to the U.N.

 For an explanation on the current situation please follow the link: https://www.bbc.com/news/world-africa-59552888

Birr 48.55 = USD 1

Have a good weekend.

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Focus on 20/21 review and 21/22 prospects

We have been working on our yearly review of the season (20/21) and outlook for the next (21/22) crop. Below we have highlighted our main points.

20/21 Crop review Comments:

  1. Record Monthly Exports since March 2021! Indeed March 2021 to October 2021 (8 months) stand at 235 K MT which opens the possibility to have shipments for the 12 month period March 21 to Feb 22 totalling 5 M bags. The jury is still out, but with only 4 months to go it is looking very possible.
  • There has been a shift in the Disappearance from Domestic Use (Internal Consumption + Unofficial exports) to Exports
  • Political Instability in Ethiopia (and neighbouring countries) did not hamper exports as much as would be expected. Logistics have been difficult due to: a) lack of containers (reduced in number by lower imports and a global imbalance) and b) vessel scheduling nightmare
  • High international coffee prices have acted as a magnet for Ethiopian coffee drawing coffee away from the Domestic Market to Markets overseas

21/22 Crop Expectations:

  1. The crop is expected higher than the 20/21 crop by 7%
  2. Weather during harvesting has favoured quality.
  3. Exports are likely to remain at elevated levels; 5 M bags between March 22 and Feb 23?
  4. There will be a higher proportion of Naturals vs Washed because the crop in West and South West is where the increase in production in bigger and these regions produce more Naturals than Washed; it appears that there is less cash available at farm gate level to purchase red cherry for washed processing, after all the price for cherry has doubled between 2020 and 2021!

Following on from last week’s reports of military victories by Government forces, this week there have not been scant reports on the fighting between TPLF and Government forces.

Birr 48.32 = USD 1

Have a good weekend

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Government Forces fight back

In the last few days the TPLF seems to have been pushed back having lost some of it’s more strategic towns like Shewa Robit, just outside of Addis Ababa and Lalibela, a World Heritage site. These latest victories announced by the Government follow recent gains in securing the road from Addis Ababa to Djibouti. Additionally, China has also weighed in on the Government side, verbalising their support while criticising Western Governments perceived interference in Ethiopia’s internal affairs, denouncing human rights violations. China has also been supplying Government forces with drones. It would appear that the TPLF’s objective of forcing the government to the negotiating table is now further way than it was a couple of weeks ago. Meanwhile the UN has warned that nearly 10 M people are in need of assistance in several regions of the country and that the war is not allowing for food aid to reach those in need.

Meanwhile the harvest continues, price expectations for Washed coffees are high: just below 300 c/lb for Washed Limu and above 300 for Washed Sidamo FOB Djibouti equivalent. We are expecting that the ECX will be more relevant in the coming months as a price discovery mechanism since exporters have been less carefree with their cash in the coffee growing areas and consequently there are fewer Vertical Integration deals. Furthermore, the proportion of Natural vs Washed is greater and since a higher proportion of Naturals find their way to ECX this should push more volumes to the Exchange. In Limu the price paid for cherry has actually decreased as there is less cash to buy cherries than there was a few weeks ago. In Guji and Yirgacheffe, cherry prices remain high around the 40 Birr/kg cherry

Birr 48.05 = USD 1

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War getting close to Addis

All

Accurate and reliable information about the war is difficult to find and news from reliable sources is only sporadically published. However, we understand that the front has advanced much closer to Addis following the taking of Shewa Robit town by TPLF forces, the map below clearly shows the advances that have been made by the Tigray forces in recent weeks. Many foreign governments have advised their nationals to leave the country, latest being Germany and France following the USA and UK. However, putting things into perspective, the coffee growing areas, mostly to the West, South West and South of Addis Ababa, whereas the fighting is focused to the North of the capital:

Central Government has double down, believing that the TPLF forces can be repelled militarily whereas the rebels have been emboldened by recent territorial gains and the capture of 16,000 Government soldiers. Recent moves by the African Union to mediate between the waring parties have been put on ice as the fighting intensifies. The Prime Minister has decided to lead from the Front and has been seen in military fatigues surrounded by soldiers. Meanwhile in Addis Ababa life continues more or less normally, coffee continues to get processed, stuffed in containers and transported to Djibouti for shipment. The logistics are slow, mostly because containers are hard to come by (as a consequence of low imports) but coffee is getting shipped. Our hope and expectation is that the fighting will stop before Addis Ababa comes into play avoiding needless suffering and destruction, regardless of which side claims the upper hand in the ongoing conflict.

In the growing areas the harvest continues, not all Washing Stations are operating due to a lack of funds and the high prices being paid for cherries. However the conditions for harvesting and processing are good; our expectations of a larger crop are being met, however we are expecting a higher proportion of the crop in Naturals vs Washed coffees. This will be reflected in export prices by firm differentials for Washed coffees (less of them available) and firm Natural differentials due to firm prices for Brazil Natural Arabica qualities.

Birr 47.76 = USD 1

Have a good weekend

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Lack of clarity

The Coffee harvest is progressing well. Cherry prices are all over the place, where there is more competition prices approach 40 Birr/kg cherry where there is less competition cherry prices are closer to 30 Birr/kg; this 10 birr/kg range equates to around 75 c/lb green equivalent! In Limu areas where competition is stronger prices are by and large higher than in Guji at present, where not all washing stations are operating yet. We have heard reports that a number of washing stations are not operating because the agrabe/owner is struggling to find financing or does not believe that the cherry price allows for a margin to be made. Security wise there are no major concerns at present in the coffee growing areas and both farmers and agrabes are being able to harvest and process the crop unabated.

External pressure on the waring Ethiopia parties is mounting; the US government has removed Ethiopia from the AGOA group of countries that have preferential access to US markets. While the UN has not exonerated Tigrayan Forces from human rights atrocities committed during the recent campaign in Amhara region. Behind the scenes, African and other governments are exerting increasing pressure on both sides to resolve the conflict. The overwhelming worry is that the conflict results in the disintegration of Ethiopia and further destabilises the wider Horn of Africa region.

Inflation has stopped going up, albeit stabilising at 34%! Food inflation however continues at very high levels, around 40% which is putting a lot of strains and pressures on ordinary Ethiopians already reeling from the fighting and subsequent uncertainty.

Birr 47.64 =USD 1

Have a good weekend

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Will the 20/21 crop give us 5 million bags in exports?

Exports continue to be strong, granted there is a reduction vs. September as expected, however over 22 K MT in October is a record October! March to October shipments in 2021 are 38% higher than for the same period in 2020 and 18% higher than in 2019 (which was the record export year). With 4 months to go to complete the export year (March to Feb) we are now considering that the 20/21 crop could be the first that gives rise to 5 Million bags in Exports.

Meanwhile the 21/22 crop is progressing well with the Guji area also starting to be harvested. Prices for cherries range between 28 and 37 Birr per kg (225 and 300 usc/lb FOB equivalent) .

On the political front, the latest BBC report highlights the human tragedy that shadows the fighting but also gives some hope that the African Union may be able to get the opposing sides to the negotiation table https://www.bbc.com/news/world-africa-59233516 .

Indeed the fighting does not appear to be affecting the flow of coffee from Addis to Djibouti, we loaded several trucks with stuffed containers this week and although the availability of containers continues to be limited, once they become available, they get stuffed and move to Djibouti promptly. Vessel slots are hard to come by however vessels are calling Djibouti, even if less frequently than we would wish for.

Birr 47.52 = USD 1

Have a good weekend.

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No good news!

Hi All

The government has declared a State of Emergency giving itself the ability to quickly act to mobilise against Tigray rebels and other forces that have been fighting the National Army and other militia aligned with governmental forces in the Northern part of the country (in Tigray, Amhara and Afar regions). The fighting has been intensifying and the Government forces have been losing ground to the rebels, now approximately 350 Kilometres to the North of Addis Ababa. There are some reports that the road that links Addis to Djibouti is a target for the rebels, however we understand that this important link is still operating normally. In addition, there are instances of instability in the South (Oromia) and in Wellega, these have been a constant occurrence in the past few months and are ongoing. In Addis itself life is normal, offices and processing facilities are operating normally; we are drawing samples, loading containers and supervising processing at several locations in and around Addis Ababa. Our office is working as it usually does.

For a short video on the humanitarian crisis that is unfolding pls follow the BBC link: https://www.bbc.com/news/world-africa-59160862?ns_mchannel=social&ns_source=twitter&ns_campaign=bbc_live&ns_linkname=59160862%26How%20Ethiopia%27s%20war%20is%20hampering%20humanitarian%20efforts%262021-11-04T13%3A41%3A35.509Z&ns_fee=0&pinned_post_locator=urn:bbc:cps:curie:asset:ec19e0da-9e41-4adb-885f-a5b540ff48e3&pinned_post_asset_id=59160862&pinned_post_type=share

Prices continue to increase in Ethiopia, the annual inflation rate accelerated for a fifth consecutive month to 35% in September, its highest level since February 2012. In particular, Food prices continued to increase (42% vs 38% in August), staples foods such as bread, reflecting the impact of adverse weather conditions and the war raging in the North. Ethiopia is also on the verge of being removed from the AGOA group of countries and if this were to occur would lose the preferential tariff treatment that this agreement confers in trade with the USA, coffee trade, fortunately, would not be affected.

On the coffee front, quality of recent arrivals in Addis is poor, the dregs are starting to arrive, it is likely that shipment quality during the end of 2021 and start of 2022 will be lower than what we are shipping at present. Coffee harvest is not being affected by the ongoing political instability, there is a small delay in ripening of cherries in some areas but so far the arrival of the new crop is progressing well.

Birr 47.34 = USD 1

We wish all the best to our friends, colleagues and partners in Ethiopia during these difficult and trying times.

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