A more subdued week than last

Whereas the focus of the world this week was on the disastrous fighting in Sudan between opposing factions within that country’s military structure, Ethiopia has not been featured in the news, a sign that the country is at peace and inspite of the drought in certain parts of the country, things are stable.

On the coffee front, the buoyant terminal market allowed for some trading even if in a more subdued manner viz a viz last week when the terminal galloped ahead. Shippers are now preparing coffee for shipment, moving stocks to Addis from upcountry and the focus has shifted to execution of commitments rather than selling additional volumes. It will be interesting to see what happens to Grade 5 and 4 FOB differentials for September shipment onwards as New Crop (23/24) Brazil Natural prices are offered at substantial discounts to 22/23 crop offers (for shipments in the next 3 months). Certainly roasters are looking for big discounts in prices, however it is not certain that more usual/normal Ethiopia Natural differentials will be reached this crop. There has been a lot of retention by farmers and agrabes, if they do not like the price they will keep the coffee. This season will see a build up in stocks, after stocks were drawn down in 2021 and to a certain extent in 2022. Shipments will accelerate in the coming months, the recent terminal market moves above 190 c/lb allowed for sales and these will become shipments over the coming 2 to 3 months. The picture for second half of 2023 is murky, the underlying theme seems to be that farmers are selling slowly and consequently stocks are upcountry rather than in Addis.

Inflation rate has remained fairly constant over the past few months between 32 and 35%, with food price increases above these rates. Food inflation remains a major reason behind farmers demanding increasing prices for their coffee, farmers do not sell unless their price expectations are met.

Forex 54. 09 = USD 1

Have a good weekend

/0 Comments/by

Things got busy

The rally in NY really gave business a push this week, the terminal market moved approximately 20 usc/lb and finally shippers’ price expectations could be achieved. A lot of business was concluded this week let’s see some execution now! Quality of Naturals (Grade 4 and 5) seen so far this crop cycle has been very disappointing, with many samples rejected for earthy, mouldy and phenolic cups. It seems that wet weather in parts of Djimmah and insecurity in Wellega region have played a hand in reducing cup quality. Washed coffee quality is good but there is very little Washed Sidamo and Yirgacheffe this year therefore buyers need to be diligent to avoid receiving coffee from different regions “to what it says on the bottle”!

Meanwhile shipments continue to disappoint, March marks the first shipment month of New Crop shipments and this March was the lowest for shipments in the last 5 years. This follows very low shipments in December, January and February. We expect that in April there will not be a sharp reversal, hopefully the recent rally in NY and business concluded this week will eventually filter into better shipment figures.

Birr 54.03 = USD 1

Have a good weekend

/0 Comments/by

Very slow week

Minimum registration prices remained unchanged, in NY prices came off so it is not surprising that business is slow. Shippers want to do business but asking prices based on upcountry prices are completely untradable. Export Contract Registrations for commercial qualities must be close to zero this week.

Something will have to give and it is looking increasingly unlikely that the terminal market will come to the rescue!

It is unlikely that buyers would be paying these prices so exports will remain low; indeed this is a very slow start to the year, export figures for March will be available soon and are surely to disappoint the Coffee & Tea Authority. The body that oversees the coffee industry has been on a campaign to get shippers to export but with so little coffee arriving in Addis there must some very concerned officials in Addis these days.

Weather continues to be very wet in Addis and some of the coffee growing areas such Wellega (Lekempti).

Birr 53.90 = USD 1

Have a good weekend.

/0 Comments/by

More of the same

Very little business concluded this week, offers are plenty but prices are untradable. Minimum Registration Prices were put up this week, quite unexpectedly, so with the terminal market losing ground during the last few days, prices are unworkable.

Meanwhile, although there is some flow of coffee from the growing areas to Addis the volume is still much less than expected for this time of the year. Some stakeholders blame the wet and rainy weather for slowing down the transportation of coffee from the interior to Addis, however we feel that the volumes moving down the value chain are very much reduced compared to previous seasons. Farmers are not releasing coffee, prices are perceived as low and the value of cash not attractive enough for farmers to exchange coffee for Birr. Sales registrations remain low and forbear below potential exports in the coming few weeks.

Eventually the flow of coffee from the growing regions to Addis (and on to the port in Djibouti) will have to improve, however for now everything is very delayed.

It seems that this week the Prime Minister instructed the Coffee & Tea Authority to work on a plan that will lead to opening up the coffee business to foreign entities. We shall have to monitor this process carefully, the wheels of change turn slowly in Ethiopia but if they eventually change direction, we will all be travelling down a very different road!

Birr 53.87 = USD 1

Have good weekend.

/0 Comments/by

Headwinds

Shippers and agrabes have not been having it easy in recent weeks. Shippers sold at minimum registration prices end of February (when NY was above 190), so by now you would expect Grade 5 coffees to be moving in volume to Addis, however shippers are struggling to access coffee. Why? Well, firstly, agrabes are holding little stocks and are proud sellers since they bought at high prices and need to maximise returns to allow cash generated from sales to be used to buy more coffee from farmers. Farmers are asking for high prices since inflation is high and the value of cash diminishes rapidly. Additionally, transport costs are high and getting higher. Meanwhile the government is tightening controls on movement of coffee to Addis and other centres in an attempt to restrict coffee being diverted to the internal market. There is also uncertainty around a 15% tax of coffee,this idea was floated by officials a couple of weeks ago. Trade finance by exporters and banks has all but stopped so there is a liquidity problem upcountry. Lastly the weather is very wet, this stops final drying of stored coffee and damages the roads, increasing the risks to coffee while being transported. It is not easy at the moment…

We have finally seen an increase in shipments following the lowest 2 months of shipments in recent years. February recorded 16.6 K MT of exports bringing the 12 month period ending Feb 23 to a total of 261 k MT, not as high as it could have been given production in 21/22, however, at least the decline in shipments has ended. The decline in shipments 22/23 vs 21/22 is 50 K MT, however 21/22 still manage to post a number just above the 5 year average.

Birr 53.82 = USD 1

Have a good weekend.

/0 Comments/by

Lower market, lower prices and rumours

The Coffee & Tea Authority lowered Minimum Registration Prices this week to try to keep the momentum going however, last few days NY terminal levels declined further so registrations will lag and slowdown as a consequence. There are plenty of offers from shippers however these are not at attractive price levels. Quality of shippers Washed coffee stocks is currently very poor, mixed with old crop it is very disappointing. Naturals are yet to arrive in Addis in any sort of volume, the disparity between price expectations from overseas buyers and local farmers/agrabes is still substantial. We expect that over the coming weeks increasing volumes of Naturals will arrive as shippers ready shipments to fulfill commitments established when NY ventured into the 190’s a couple of weeks ago.

Now to the rumours…the Government is unhappy with low export registrations over the last few months, by all accounts February 23 exports will again be disappointing (around 10 k MT). To boost coffee export revenues, rumour has it, that the Government is considering allowing Foreign entities to become exporters… if this were to happen it would be a huge shift in Government policy and would have far reaching consequences for the Ethiopian coffee industry. The Coffee & Tea Authority is leading this process and is working on legislation that would make this possible. Timeline would be at least 1 year for this to come to fruition, probably much longer. Watch this space…

Birr 53.79 = USD 1

Have a good weekend.

/0 Comments/by

Quieter week after a very busy one

Last week the terminal market helped shippers get sales registered, Grade 5 traded in volume as the market hovered the 190 c/lb level and minimum prices were kept just under 170. The washed coffee picture remains still very difficult, minimum registration prices for Grade 2 from the South (Sidamo, Guji and Yirgacheffe) are between 290-300 c/lb and there appears to be little roaster appetite to buy at prices greater than + 100. Since trade shorts are very small it would seem that that the standoff between sellers and buyers will continue for a little longer. This week the NY market took a bit of a breather retracing a fair chunk of last week’s rally and trading activity in Ethiopia also stopped as shippers will now busy themselves with fulfilling last week’s sales. Thursday was a holiday in Ethiopia which also helped slow business activity this week!

We are seeing some shippers offering last crop washed coffee stocks as current crop, as shippers try to offload sticky inventory as the new marketing season gets well and truly underway. Given this year’s lower washed coffee production we believe that these stocks will eventually get shipped however we caution buyers. We expect that new crop naturals will start to flow to Addis in much larger quantities in the coming weeks as shippers now have commitments to meet. As we see it shipments in February have not been remarkable, we expect exports figures to be available next week. We still believe that carry over stocks from the 21/22 crop to be substantial as all stakeholders got caught out by the dramatic drop in prices since October 2022 to January this year.

For now government policy regarding minimum registration prices, devaluation and the proportion of USD that shippers are permitted to retain for own imports has not changed and it has been the terminal market that has come to the rescue! However 50 cent upwards moves in matter of a handful of weeks is not a normal occurrence… how many more can we expect in the coming months?

Birr 53.75 = USD 1

Have a good weekend.

/0 Comments/by

All activity at a standstill during AFCA week

It is AFCA conference week again, after a 3 year hiatus the East African Coffee Conference is being held in Kigali, great to see so many familiar faces after such a long time!

Normally by mid-February Addis Ababa is a hype of activity with mills full of new crop parchment and the first arrivals of natural coffee “fighting” for warehouse space and milling slots. This year the picture could not be more different, warehouses have very little coffee, if there is any at all it is the remaining old crop that will be shipped in the next few weeks. Export registrations continue at very low levels, not even the recent 40 usc/lb rally has been enough to get new crop trading. Something will have to give in the coming months to allow new crop to start flowing:

1. Either the currency devalues

2. The terminal market rallies higher

3. Long holders “throw in the towel”

The other option is for buyers to pay up and accept “never seen before” differential prices… It is difficult to see buyers paying +100 to +150 for Ethiopia Grade 2 coffees while other East African milds from Kenya, Tanzania, Rwanda, Burundi and Uganda are quoted at the AFCA conference at prices between +40 and +65 FOB. Next conference is in Addis Ababa, in a year’s time, it will be interesting to analyse how the 22/23 crop was marketed and what had to give to allow coffee to flow to the export market, my guess is that it will be a combination of the 3 points made above; we could also see some build up of stocks, a normal outcome when downstream players are unhappy with prices.

Birr 53.64 = USD 1

Have a good weekend.

/0 Comments/by

January exports again below 10 K MT

Another month with exports below 10 K MT, only the second time this has happened in the last 5 years, first in December 2022 and now January 2023. Shippers have not been able to find buyers at asking prices or minimum registration prices. Hopefully February and March will be better, the recent rally in NY allowed for some sales, mostly of old crop. However, a more stable NY exchange this week took the excitement out of the the Ethiopia market. With little older coffee remaining unsold focus is turning to New Crop however buyers are looking for more attractive differentials than what can be achieved at present.

March to January (11 months) 22/23 stand at 244 K MT vs 290 same period 21/22, 16% lower. The prospects of shipments improving in the coming months will very much depend on pricing, shippers and the Ethiopian authorities need to adjust expectations to the market reality, otherwise below average exports will continue for longer.

In other news, voters in the South are casting ballots to decide if there is to be a new Region, for more on this follow the link: https://www.bbc.com/news/live/world-africa-64022924?ns_mchannel=social&ns_source=twitter&ns_campaign=bbc_live&ns_linkname=63e0a5722e179876cd7c0f41%26Millions%20vote%20in%20Ethiopia%20referendum%20for%20new%20region%262023-02-06T08%3A14%3A54.742Z&ns_fee=0&pinned_post_locator=urn:asset:b0466d4c-a5a2-4788-ad8e-d48efac1eb0d&pinned_post_asset_id=63e0a5722e179876cd7c0f41&pinned_post_type=share

Birr 53.56 = USD 1

Have a good weekend.

/0 Comments/by

Old stocks flushed out by a better NY market

By all accounts the January export figure is dismal, however we have to wait for the Ethiopian calendar to catch up with “ours” to get an official number. The recent rally in NY has helped shippers sell any remaining stocks, just in time before focus turns to New Crop business. However, we expect the export market to remain quiet for the coming weeks until we start to get more significant internal sell pressure for New Crop coffees. Currently, warehouses in Addis are empty of stock, middlemen are struggling to sell since exporters cannot find interest from overseas buyers at the asking prices. Demand will surface when Minimum Registration Prices start to reflect more realistic differentials; we saw this happen for prices for past crop coffees and we are expecting this to happen for New Crop coffees – shipment April/May onwards.

There are rumours in Addis that the Government is planning to introduce a new Export Tax of 15%. So far these are only rumours, however we would not be surprised if this happens given the pressures on Government to stabilise the economy now that the country has returned to peace and the focus is on reconstruction.

Birr 53.52 = USD 1

Have a good weekend.

/0 Comments/by