The Harvest is well and truly underway! Washing stations are now open throughout the coffee growing regions. However, many remain closed or operating well below capacity (only opening a few days a week). Lack of financing and high prices are the reasons for this. Cherry prices are all over the place, in Guji prices are around 40 Birr per kg cherry, in Limu we hear 52 Birr per kg cherry and in Yirgacheffe price are as high as 60 Birr per kg cherry. To make commercial sense, washing stations should be buying below 40 Birr per kg, this explains why many shippers are not financing cherry buying, preferring to take their chances at the ECX or buying parchment directly from agrabes once the coffee is ready for milling. If farmers are not able to sell cherries they will dry them on their farms and process Naturals which they will sell later. If more washing stations do not open in late November and December in the Southern regions we shall see a smaller proportion of Washed coffees viz a viz Naturals. More Sidamo 4 less Sidamo 2! Size and quality wise we continue to be optimistic, weather continues to be favourable for harvesting and primary processing.

Current crop offers are well above where they should be (above 300 usc/lb for Sidamo grade 2 and above 185 usc/lb for Djimmah 5), even minimum registration prices are nonsensical:

Sidamo 2 250 usc/lb

Djimmah 5 171 usc/lb

Trading is at a standstill, prices are to high and quality is very poor. Prices in the internal market have decreased but remain above export prices and are therefore increasing quantities of coffee are finding their way to the “mercato”.

For a good synopsis of the current situation on the peace initiative in Ethiopia we recommend this BBC article: https://www.bbc.com/news/world-africa-63503615 and a more update report on the talks on disarmament that are ongoing in Nairobi: https://www.bbc.com/news/live/world-africa-62845587?ns_mchannel=social&ns_source=twitter&ns_campaign=bbc_live&ns_linkname=636a334049d9ef23494b9987%26Ethiopia%20troops%20and%20rebels%20%27share%20food%20and%20cigarettes%27%262022-11-08T13%3A12%3A51.571Z&ns_fee=0&pinned_post_locator=urn:asset:8cab7052-b241-40ca-9b5a-011ee1852992&pinned_post_asset_id=636a334049d9ef23494b9987&pinned_post_type=share

Birr 52.94 = USD 1

Have a good weekend

Yes, for all the wrong reasons, following months of being out of the limelight Minimum Registration Prices (set weekly by the Coffee & Tea Authority) once again become relevant and will act as an impediment to trade unless revised to reflect the sharp decline in the terminal market in past the 2 weeks. Tuesday’s (25th October) published minimum prices FOB Djibouti:

• Yirgacheffe 2 268 usc/lb

• Sidamo 2 260 usc/lb

• Limu 2 203 usc/lb

• Sidamo 4 197 usc/lb

• Lekempti 5 180 usc/lb

• Djimmah 5 179 usc/lb

Needless to say trading is at a standstill (particularly Grade 5) at a point where the Government is pressurising shippers to export the remaining volumes of the 21/22 Crop since the 22/23 Crop is upon us. Meanwhile cherry prices paid by agrabes in the areas where the crop is currently under harvest range between 51 and 63 Birr per kg, this translates into a price above 300 usc/lb at farmgate level. It is difficult to see how the crop can be marketed profitably unless a significant devaluation occurs between now and when the crop is commercialised. The context we are faced with this season contrasts with last, the coming crop is much larger and additionally there is a worldwide economic crisis looming, therefore the prospects for buoyant demand are dim. From the perspective of an agrabe, you would rather have coffee than cash, coffee has increased in value over the past 2 crops; it can also be turned into USD which is a hedge against any potential devaluation of the local currency. The only spanner in the works would be a declining coffee market, which is what we have at the moment (the NY market has lost 40 cents in three weeks). Ethiopian stakeholders need to be cautious, the export price for Ethiopian coffee in 6 months’ time may not meet current expectations. Furthermore, if the Birr does not devalue substantially the expected returns will not materialise.

Following reports of increased fighting in Tigray region and Government troop advances in that part of the country, some hopeful news of peace talks emerged this week: https://www.bbc.com/news/world-africa-63384278 and for more commentary: https://www.bbc.com/news/av/world-africa-63406979

Birr 52.86 = USD 1

Have a great weekend.

Exports for the month of September will not reach 10,000 MT, a far cry from the Sep 21 exports which totalled 23 K MT. The Coffee & Tea Authority is so incredulous of the figure that they have decided to double check Bills of Lading records before publishing their findings! We were expecting a reduction in the export figure, but less than half of the 2021 exports is quite a drop!

The 2022/23 crop continues to develop well under sunny dry conditions. Stakeholders are optimistic of a good quality crop and with 2022/23 being an on-cycle crop, volumes will also be good. Harvesting as now started in Limu areas and with good weather conditions we expect the harvest to progress well.

Logistics continue to be very difficult, empty containers are very hard to come by so loading is slow.

The BBC published a 2 minute video which succinctly explains where the Tigray situation is at present: https://www.bbc.com/news/av/world-africa-63193772

Birr 52.73 = USD 1

Have a good weekend.

The Government in Ethiopia is struggling to keep a lid on price increases, this week the price of fuel at the pump increased by 20%, which prompted the Black rate for the Birr to also accelerate deviating from the official rate, one USD is now worth 96 Birr on the black market whereas the official rate is still 53! In the month, from Aug to Sep, the Birr devalued 13% on the Black market. During the previous 7 months (Jan to Aug) the Black market rate moved 42%.

The harvest in progressing well and more areas have now started picking and processing cherries we expect that in October the crop will be in full swing. Cherry prices are higher than last year but a lot can change between now (harvest) and March 23 (first shipments) in terms of forex rates and international coffee prices.

China has leapfrogged many countries to become the 7th largest buyer of Ethiopian coffee in the year ending July 22, it had been in 33rd place the previous year (20/21). Exports to China totaled 200 k bags in 21/22, and the trend is likely to be maintained in 22/23.

The BBC publish the following report on the renewed efforts of the Ethiopian and Eritrean governments to take the battle to the Tigrayan forces in the North of the country: https://www.bbc.com/news/world-africa-63061686

Birr 52.58 = USD 1

Have a good weekend.

Whilst the official Forex rate has remained stable over the past few months, the Black market rate has been devaluing continuously, this week reaching 90 Birr to the USD. We last reported on forex rates in August when the Black Market rate reached 85 Birr to the USD, having lost another 6% in the past 4 weeks. It would seem that by keeping a strong grip on the official forex rate the Central Bank is managing to stem inflation by restricting imports, however the rapid and accelerating devaluation in the Black Market rate should be an omen for those managing the economy.

In other news August exports figures show that shipments are increasingly falling behind 2020 shipments. August 2022 exports reached 25,971 K MT vs 32,015 K MT in August 2021. Since May 2022 shipments have closely tracked the previous year’s shipments at a slightly lower pace (between 1 and 2 K MT slower pace) however the opening of the gap in August to 6 K MT seems a little ominous. Overall, shipments for the 6 month period from March to August is 20 K MT behind the 2021 pace. It is also unlikely that this pace will accelerate in the next 6 months. We shall continue to monitor shipments in the coming months, however it now seems unlikely that yearly shipments (March to February) for the 22/23 period will reach 5 M Bags.

August exports are also below the 4 year average 2018 to 2021 (same as in April), which is also an indication that shipment pace is struggling. There is no question that the 21/22 crop is a large crop (even if it does not match 20/21) however we are very optimistic for the upcoming 22/23 crop. Picking has started in some lower lying areas of Yirgacheffe, Benchi Maji and Limu. Volumes are still small and the harvest will only really start in earnest in October, but indications are for the up-cycle to be reinstated.

The European Union has expressed concerns that fledgling talks between the Government and Tigrayian Leaders are unlikely to yield a resolution to the conflict anytime soon. For the BBC’s take on the latest from the frontline: https://www.bbc.com/news/live/world-africa-62693401?ns_mchannel=social&ns_source=twitter&ns_campaign=bbc_live&ns_linkname=6322d4fe9ec49f77eefbe374%26EU%20says%20drone%20strikes%20risk%20Ethiopia%20%27fragile%20hope%27%262022-09-15T08%3A32%3A15.368Z&ns_fee=0&pinned_post_locator=urn:asset:9dcf4b06-3e8e-4748-84df-9a7b198d36b0&pinned_post_asset_id=6322d4fe9ec49f77eefbe374&pinned_post_type=share

Birr 52.52 = USD 1

Have a good weekend.