COVID 19 In Ethiopia

Apologies for the delay, these are difficult times as we all struggle to adapt to a new reality!

There are now several cases of Covid 19 in Ethiopia and it seems that we are in a Déjà vu once again, as everywhere else, we expect the situation to worsen.

As far as the Ethiopia Coffee Supply Chain is concerned, so far the only consequence of the worldwide pandemic seems to be a shortage of containers in Addis which is delaying loading.

Minimum Registration Price restrictions are really starting to bite and shippers are having to come up with creative ways to continue to ship; last week some shippers manage to convince NBE officials that they had differential contracts that needed registering at below current Minimum levels, others are being creative with contract grades. Meanwhile export sales are down just as the traditionally busy season begins.

We are increasingly hearing of pricing issues in Vertical Integration supply chains, as washing station owners are requesting for much higher than market prices, leading to shipment delays and shippers having to purchase coffee at ECX which in turn is putting pressure on ECX prices. 

Natural Coffee registrations are also very much reduced although with the terminal market under pressure differentially current prices could become attractive.

Birr 32.56 to the USD.

Our Lisbon office is closed and the team is working from home; our quality lab in Lisbon is therefore not working and this function is currently being solely carried out by our Addis office. This will have some implications for the way that we control quality and get samples to our customers, please bear with us as we try to overcome the current movement restrictions that we all have.

by Charles Seara Cardoso

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Natural Volunes Increase

Ethiopia shippers are increasingly frustrated by the minimum price policy and export sales and registrations have reduced sharply as the levels are unaffordable for most buyers; one exporter has been left reeling when not allowed to register a sale at 3.45 c/lb because the Minimum Registration Price was 3.60! No one seems to fully understand how the Minimum prices are set and inconsistency between these prices continues, Natural Limu 4 price is higher than Natural Limu 2, for example. These glaring inconsistencies reflect badly on the Coffee & Tea Authority, which increasingly being labelled incompetent.  On the plus side, no Coronavirus cases have been detected in Ethiopia!

At ECX volumes of Naturals have increased and now look much better than only 3 weeks ago and more or less where we would expect them to be; However Southern Region coffees are still scarce and in much lower quantities than in the last 2 years:

We know that in the South the crop was delayed and is smaller this year, however there must be other reasons behind the low volumes coming to ECX and we believe that these lie in Vertical Integration; coffee must be by-passing the ECX altogether and coming to Exporters warehouses directly from the growing areas.

Forex is currently 32.44 Birr to the USD

by Charles Seara Cardoso

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Minimum Price Havoc

Minimum price rules are creating havoc, we have had to register Sidamo 2 contracts as Guji 2 because the min price for the latter is realistic and lower than the former, which really does not make any sense at all. All week D5 min price has been higher than L5, Yirgacheffe lower than Sidamo and so on… generally speaking the min prices have increased every day while the terminal market collapsed this week. Trading in Ethiopia is now at a standstill. The government is tightening the supply of money, banks are not lending and exporters are struggling to finance coffee purchases to meet their commitments; if this situation continues ECX prices will fall not only because export sales dry up but because shippers will not have cash to buy at ECX.

As we understand it, if there are no export sales registrations (or a very small volume registered at the minimum price) then the Coffee and Tea Authority will reduce the minimum price allowing for more volume to be registered and exported; however we are yet to see this in practice and the policy seems a little vague. What happened in Sesame Seeds was that the trade came to a holt; first the Export trade and then the internal/ECX trade; In coffee eventually this could result in delayed shipments and delayed deliveries to roasters, in other words “disruption” to the flow from origin to destination market.

At ECX we are seeing a much greater volume of Lekempti come to the market; there are still concerns about quality because what is coming to the market currently is very poor. Shippers are still hoping that the quality of Lekempti will improve and to be fair we expect approx. 1,500 MT to come to ECX every week over the coming 8 weeks, so the jury is still out.

The Birr is currently at 32.35 vs the USD

by Charles Seara Cardoso

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Liquidity Problems

There is an increasing liquidity problem in the Ethiopian banking sector; it has been reported that construction companies are facing real constraints in sourcing financing for infrastructure and other projects; some exporters with commitments to overseas buyers also report that they are facing financing restrictions to acquire coffee to fulfil their contracts; rumours of defaults and delays for this and other reasons continue to circulate in Addis.

Having been quiet on the topic for the last few weeks, yesterday the Coffee and Tea Authority circulated a Minimum Price Control table based on average NBE registration prices; this resulted in some contracts not getting registered at NBE yesterday; we are unsure how in the coming days and weeks this policy will be implemented but it is hard to see how the regulator will be able to ignore supply and demand in the middle to longer term. Interesting to note that yesterday’s Minimum Price List had Sidamo 4 lower than Lekempti 4 and Lekempti 5 lower than Djimmah 5, where is the logic?

At the ECX this week we started to see much more volume of Djimmah and Lekempti, in particular; the increased supply resulted in lower prices and exporter offers have started to reflect this. However, offers will have to come off more to attract business in any serious volume.

The Birr continues to devalue at a steady rate, however, the daily depreciation during February is around 0.03% which is a very restricted pace, equating to +/- 10% per annum; Late 2019, in November and December, the daily depreciation rate was much higher, resulting in the birr depreciating 8% in the 2 months.

Weather continues to be normal and favouring crop development and processing.

by Charles Seara Cardoso

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Delays, Defaults and Poor Quality

Delays, defaults and poor quality, all these issues have started manifesting themselves recently; the low volumes flowing from interior to ECX are hampering usual activity. Other than in the South we are not expecting a lower volume this year however the normal flow continues to be restricted. Sales activity is also limited as prices asked by shippers remain very far apart from overseas buying levels. In addition Terminal market volatility only confuses the issue. Some shippers expressed their doubts that this year’s election would indeed take place during August as announced. On the bright side, things can only get better!

Table below shows the sales at ECX of the Main Natural qualities:

MT @ 20 Feb201820192020Δ 20 – 19Δ %
Sidamo           1,344           3,620           1,158–       2,462-68.01%
Lekempti           2,321           3,565           1,198–       2,367-66.40%
Djimmah           6,286           5,074           5,553            4799.44%
Total           9,951         12,259           7,909–       4,350-35.48%

Djimmah is up by nearly 500 MT reflecting the good crop is that region this year, whereas Lekempti is sharply down as a consequence of the insecurity situation and Sidamo, likewise down, reflecting the lower crop and increased vertical integration which will take coffee away from the exchange.

Birr continues its very slow devaluation vs the greenback, the currency has devalued less than 0.5% in the last 3 weeks.

Weather continues to favour cherry and parchment drying.

by Charles Seara Cardoso

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AFCA

With many exporters at AFCA this week it gives us an opportunity to catch up and discuss the current situation in Ethiopia; the picture is not very pretty for both Washed coffees and Naturals for different reasons; Volumes for Washed at ECX continue to disappoint and increasingly the reason being given is that a chunky proportion of Sidamo/Guji and Yrgacheffe coffee is already committed to exporters through Vertical Integration arrangements.

We also believe that the crop in the South is both late and down vs 2018 crop. For Naturals the Lekempti insecurity situation is ongoing and this continues to limit the volumes offered at ECX; there are also concerns that the Lekempti crop is not being dried properly since farmers are not being able to go about their business due to fear caused by rebel fighters in the region; potentially this could lead to more mouldy beans, phenolic cups, and even OTA issues; as we understand it there are talks between the Government and rebel fighters to try to stop the attacks on the local population.

Overall ECX volumes at ECX are down from  31 K MT in 2019 to 26 K MT this year, mostly Washed coffee from the South, which is down by over 7 K MT:

Prices remain high although we are seeing some signs that they may reduce, particularly if volumes increase in the coming weeks. Shippers are reluctant to offer aggressively wanting to see ECX price evolution confirm the downward trend.

Weather remains favourable for drying cherries and the little parchment still requiring drying.

by Charles Seara Cardoso

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LEKEMPTI

FOB offers have not changed in the last 2 weeks however the terminal market has lost 15 cents, making new business with origin very difficult; All New Crop offers even for the lower Natural qualities are now offered equivalent at plus double-digit differentials, whereas interest is some 30 cents away! Volumes at ECX continue to disappoint; Lekempti coffee is nearly non-existent, pls see below:

We believe that the insecurity in the Lekempti region is the main reason for the current lack of flow of Lekempti coffee through the ECX.

With business from origin limited to Plus Qualities and natural volumes at ECX expected to increase at ECX to over 60,000 MT by the end of April something as got to give…

The Addis Coffee meeting is ongoing these days if something new and relevant is announced we shall report.

Hopefully we see some of our coffee friends in Mombasa next week.

by Charles Seara Cardoso

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Locusts Don’t Eat Coffee

Interest and overseas business picked up considerably in the last week; with Year-End reports finalised and with New Crop requirements yet to be purchased buyers started showing interest in Ethiopia both Washed and more noticeably Naturals. New business interest for long strings, up until the end of 2020. At origin, shippers starting to take notice of the relentless decline in the C market and particularly those that are long through washing station ownership or vertical integration scratch their heads. Offers for Sidamo 2 are now well over +100 FOB and with the premium for Sidamo over Limu now at around 50 cents it is clear that Southern coffees will be pricey this season. Origin offers for Naturals are also trading at well above normal levels however ECX flows remain low (as is expected this time of the year).

Rumours of Locusts eating coffee cherries and trees in Sidamo, Guji and Yirgacheffe have been surfacing in the last few days, this is no more than scare mongering of behalf of those choosing to spread them! Locusts have been plaguing Ethiopia in recent weeks but alas they do not like coffee!

Weather is normal for this time of the year sunny and hot.

At ECX prices are firm Naturals trading at FOB + double digit differentials and Sidamo 2 at > +100 FOB equivalent.

Next week there is a coffee conference in Addis, a good forum for industry stakeholders to discuss their current issues, i.e. Minimum Price Regulation, C market decline and Slow Flow of coffee to ECX. We shall keep our ears to the ground and report any interesting views and news.

by Charles Seara Cardoso

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Shortage Of Washed Coffee

Forex continues stable at a whisker below 32 Birr to the USD.

Our FOB Price ideas for forward shipments:

Yirgacheffe 2N+90
Sidamo 2  N+80
Limu 2 N+35
Sidamo 4N Level
Lekempti 5N-15
Djimmah 5N-20

Prices at ECX has eased a tad this week for Limu and even Southern Washed coffee although differently they remain very dear.

Below graph shows the extent of the shortage of Southern Washed coffee arriving at ECX,  between 2019 and 2020 the volume traded reduced by 6,200 MT or 73%, whereas Limu coffees (and other washed) increased by 2,200 MT or 39%, there is an overall decrease in Washed coffee availability by 4,000 MT or 29%. The reasons for this shortage were discussed last week, the consequences are high differentials for Sidamo, Guji and Yirgacheffe Washed coffees.

by Charles Seara Cardoso

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Elections Postpones

A week with a few surprises, it’s Ethiopia after all! Firstly, the much anticipated minimum price regulations were meant to come into practice this week, alas nothing happened, registrations continued as normal with contract levels registered at very different levels, the C&T Authority is meeting in Awassa to discuss this issue again so let’s see what comes out of this meeting; then on Wednesday the government announced that the May Elections would now be held in August and we all sighed in relief, by August a fair volume of the New Crop will have been shipped and existing commitments will be in warehouses in consuming countries, if not roasted and consumed!

The Birr has barely moved vs the USD since the start of the year, devaluing 0.03% only, whereas during the first 15 days of December the local currency had lost 2% of its value vs. the greenback.

Only the very highest regions of the South (Guji) will remain with coffees on the trees beyond January, the crop is mostly picked; In the southern coffee growing areas agrabes will start buying dried cherries (for Sidamo 4) in February; in Djimmah and Lekempti Natural coffee is currently offered by farmers to agrabes and trades at between 30 and 34 Birr/kg; there are some concerns about security in some areas of Wellega (Lekempti) which could complicate the flow of coffee from the interior to ECX, hopefully things will calm down in the coming weeks.

Weather continues to favour crop processing and drying. Coffee quality from the South appears to be very good (from what we have cupped so far) and limited Washed carry-in stocks should translate to good quality of shipments in 2020.

Focus on Washed Coffees:

Volumes at ECX remain disappointing and New Crop Washed prices high, way above overseas buyers’ ideas; After many conversations with Exporters this week we have the following explanations for disappointing volumes offered and high prices recorded:

  1. Agrabe expectations that the ongoing devaluation of the BIrr from the current 32 to 40 (Black Market rate) vs the USD will happen in the coming weeks; if the currency devalues a further 25% this would mean that a cherry price today of 20 will equate to a cherry price of 15 if the Birr reaches 40 to the USD;
  2. Vertical Integration (shippers accessing coffee at farmgate level through own washing stations or agreements with Washing Station owners) has removed coffee from the ECX supply chain;
  3. There have been some large volumes rolled over from 2018/19 crop to the 2019/20 crop as a consequence of the tight supply of Washed coffees in late 2019; this exacerbates current demand as shippers try to cover current and past commitments in a reduced availability scenario;
  4. Crops were delayed by wetter than usual weather;
  5. Low carry-in stocks held by Agrabes and farmers of washed coffees since demand for Washed was high in late 2019;  for the last 3 crops Washed carry-in stocks have been very large, this season carry-in stocks are very low;
  6. Lower crop in the Southern region and a shift in production from Washed to premium quality Naturals, which will decrease the availability of Washed coffees.

The Graph below charts weekly sales of Washed Coffee at ECX of New Crop, and it is evident that this season the pace of sales this season is slow.

by Charles Seara Cardoso

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