Lots going on in Ethiopia at the moment!

The postponed 2020 Presidential Elections are now widely believed to be happening in May of 2021; a couple of procedural hurdles have been overcome and 8 months gives everyone enough time to prepare. The Government is yet to officially announce a date but May 2021 is what most people seem to believe as likely.

The changing of bank notes exercise that is currently underway is forcing the population to bring to commercial banks old notes to be exchanged by new currency. We are unsure of what will be the implications for the wider economy, on the one hand currency that was outside of the formal economy is forced back to it; on the other hand, could result in inflation as people change currency for goods and assets faster than they normally would, pushing up prices. Conversely the price of the locally produced cereal, Teff increased by 25% in the last 2 weeks. As a large percentage of income for most of the population goes on food, a sharp increase in the price of stable foodstuffs has a big impact on the population.

In some lower areas of Sidamo B washing stations have started buying cherries, the price is 15 Birr per kg of cherry, this equates to approximately 160 C/LB FOB.

Below we chart the ECX FOB Equivalent and NBE Minimum Registration Prices for Lekempti and Djimmah alongside KC2; Our conclusions:

The main aim of introducing a Minimum Price was to stop shippers selling below ECX levels has failed completely; ECX prices continue to be much higher than Export prices.
Lekempti coffee has more or less tracked Djimmah until July, when Lekempti prices increased sharply in line with KC2 increase whereas Djimmah remained stable until September when these also increased sharply as a consequence of increased export sales when KC2 traded into the 130’s.
There have been 2 occasions that have allowed shippers to record good volumes of sales: back in the End of March when NY rallied as a consequence of the potential negative impact of Covid on origin shipments ; and more recently in late August and early September, when the difference between Registration prices and KC2 reached 30 c/lb. This recent spike in NY coincided with low Djimmah prices at ECX encouraging shippers to sell.
The recent divergence in ECX prices between Djimmah and Lekempti is a consequence of the volumes being offered at ECX, whereas Djimmah volumes are up 6% on last year’s volumes, Lekempti is down 18%. We need to be particularly vigilant on the quality of Lekempti as shippers will try to mix in coffee from other regions to avoid using comparatively much higher priced Lekempti to fulfil their commitments.