February shipments still very low

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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.

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Quieter week

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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.

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Busy week!

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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.

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Boom!

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.

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January Exports lower than December!

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.

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This week in Ethiopia – Over 1,200 coffee exporters!

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It is a well known fact that many companies in Ethiopia involved in the import business are attracted to the export of agricultural commodities to access the foreign currency needed to pay for goods that are imported into Ethiopia. Many companies that have investments in construction, manufacturing and consumer good distribution are attracted to the coffee export business solely to maintain their main activity operating. In recent months even more companies have gotten into the coffee business and are buying whatever they can at ECX to have something to export. More established shippers are really struggling to buy at ECX what they need to fulfil commitments. The supply to ECX is reduced by the current standoff between ECX and Agrabes regarding Maximum prices! As a consequences of increased demand at ECX and reduced supply from agrabes, established exporters are intensifying their efforts to access Natural coffees through Vertical Integration at farmgate level, therefore bypassing the ECX altogether. This will ensure that established shippers have coffee to ship and do not need to rely on ECX to source Naturals, however for those that rely on ECX as the main source, increased competition will negatively impact purchase price levels. At present supply is tight however as the flow from the interior to exporters increases we expect that the supply and eventually prices to normalise.

Birr 39.54 to the USD

Have a good weekend.

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Minimum Registration prices decline, at last!

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The situation in the Tigray region of Northern Ethiopia is worrying world leaders that expressed concern about the conditions of the civilian population and many refugees mostly from Eritrea. There have been several reports of Eritrean Army excursions into Tigray in recent weeks that have targeted the vulnerable residents of the region. The Ethiopian authorities deny that there is any Eritrean involvement, however we know that early on in the armed struggle between the Ethiopian Army and the Tigray Peoples Liberation Front (TPLF) fleeing National Army soldiers took refuge in Eritrea and that Eritrea has weighed in on the side of the National Government shelling Tigray from position in Eritrea. With several Tigray leaders now arrested or killed during the conflict, the region is at the mercy of National Government and its friends. Humanitarian aid is desperately needed as hunger has set in among the local population.

Map

Meanwhile the Minimum Registration Price for Washed coffees has finally come off this week, declining 20 cents per lb for Yirgacheffe2 and Sidamo 2; prices are still too high to attract a rush to buy and register sales but at least it is a step in the right direction. Exports normally increase in the first few months of the year and this sort of measure will certainly help to boost business.

Birr 39.40 = USD 1

Have a good weekend.

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Exports continue to disappoint

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We cannot say that it comes as a surprise but the December 2020 export volumes once again are below expectations; May to Dec 2020 exports are 25% below same period in 2019, unless the pace of Exports picks up significantly in the first 4 months of 2021, we shall see exports for the 12 month period May 20 to April 21 below 4 Million bags. Current sales pace Oct to Dec 20 versus our own Coffee Ithaka estimate are running behind by 6%. We have been commenting over the past few weeks and months on the slow pace of sales and this has been confirmed by actual exports since October. We are not sure what the effect the May elections will have on coffee flow from the interior to ECX and on to vessels but hopefully it will accelerate the pace of exports during the first quarter of 2021. We should also consider that the 2020 crop is higher than the previous crop and therefore more coffee is available for export from January onwards. In addition the crop came in early so coffee will flow earlier through the pipeline to Addis. Moreover, we believe that there still are many rolled over contracts that need to be shipped. Meanwhile, shippers are eager to sell, lower grade Naturals are easier to move because of more reasonable Minimum Registration Prices whereas Grade 2 Minimum Registration Prices remain still too high to attract any serious activity.

May to Dec         142,949         190,712         156,332
  20/21 19/20 18/19
May           25,967           28,449           26,142
June           25,790           29,294           27,082
July           19,015           26,512           17,928
August           19,995           30,279           23,694
September           14,443           23,696           17,557
October           13,018           19,966           17,674
November           11,964           18,328           13,263
December           12,757           14,188           12,992
January            16,570           11,166
February            17,456           16,199
March            26,949           20,739
April            25,135           21,809
TOTAL          276,821         226,245
(Ethiopia Exports in MT)

Forex: Birr 39.38 to the USD (the Birr actually appreciated to the USD, even if only marginally).

Have a nice weekend.

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Standstill in the internal and external markets

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For the first time ever there is no Lekempti coffee and only 150MT of Djimmah coffee in ECX warehouses waiting to be sold, in total only 500 MT of Naturals are waiting to be sold at ECX warehouses. The reason is clear, agrabes will not bring coffee to the market while price ceilings are in place, this impasse has to be resolved soon or the pace of shipments will continue at the very low levels of recent months or fall even further. Furthermore, the National Bank of Ethiopia has stopped allowing registration of 2019/2020 crop coffee which had lower Minimum Registration prices than 2020/21 crop coffee so unless the NY market rallies strongly we see registrations for Washed coffees also stopping since there is little appetite for Sidamo 2 or Yirgacheffe 2 at around +100 FOB.

The Government forces continued their offensive against the leadership of Tigray region forces adding more victories to the initial taking control of the northern region territory. Tensions with neighbouring Sudan continue but little fallout to report.

Birr 39.33 = USD 1

Have a great weekend

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Christmas week if you follow the Ethiopian Calendar

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A short business week in Ethiopia with Christmas on Thursday. Business activity was further diminished by the small volumes traded at ECX. The main problem seems to be with lower quality (grade 5) price levels established by the Coffee and Tea Authority (C&TA). These are +/- 10 cents/lb below where they were trading before Maximum prices were introduced at ECX. Middlemen do not accept these reduced price levels and are shying away from delivering their stocks to ECX warehouses. Since prices are set weekly, we could see the C&TA review these this weekend to encourage more volume. As with Minimum Export Prices, these Maximum ECX prices do not appear to be well thought out, the price differences between grades do not make much sense and further blur the situation. Exporters are keen to sell has the crop is plentiful and larger in volume and improved in quality vs 2019/20 however the C&TA Maximum and Minimum price setting policy is hindering the normal flow from the interior to shippers’ warehouses.

Politically the country is stabilising following the turmoil in the North of the country in late 2020, however there is a sense of simmering unrest, due to both internal and external pressures.

USD 1 = Birr 39.28

Have a good weekend.

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