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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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Internal market liquidity woes

Happy New Year, may 2021 be a little more predictable than 2020!

In attempting to address Exporters’ sourcing problems the Coffee and Tea Authority (C&TA) has allowed shippers to sell coffee between themselves increasing liquidity in the internal market, we see this as a positive move allowing those exporters that have coffee but no export market to offload excess stock and free cash while permitting short shippers to tap into an alternative supply to fulfil commitments. Meanwhile at ECX, volumes on offer are smaller when compared to this time in previous years. Traders are still upset with the C&TA meddling with prices, in particular capping the maximum price coffees can fetch at ECX. ECX Warehouse stock levels remain low when we would expect these to be building up. The problem with delayed shipments continues with no end in sight… A further consequence of diminished activity internally is a reduction in offers from shippers, particularly in lower grades (Grades 4 and 5).

National Bank of Ethiopia Minimum Registration prices for Exports (also set by the C&TA) remain too high for Washed Qualities buyers, bid levels are around 30 cents below offered levels.

USD 1 = Birr 39.20

Have a good working week, and Merry Christmas to our Ethiopian friends.

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Some tensions ease, others not so much

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The Coffee and Tea Authority is continuing with their ECX Maximum price policy, however price limits have been increased so there is less tension between collectors (Agrabes) and the C&TA. Export Registrations of Washed Coffee are very disappointing so the pressure is on for the C&TA to reduce minimum registration prices for grade 2 coffees from the South. Volumes at ECX are still reduced and shippers continue to struggle to cover shorts established long ago and in many instances rolled over. Some of the larger exporters have stopped offering for nearby shipment not wanting to increase their very short positions. Several donor organisations are limiting their support to Ethiopia over concerns of Government actions in the North of the country so we expect that pressure is mounting on Exporters bring in foreign currency to alleviate the shortfall in overseas remittances from international partners.

Unknown assailants attacked a village in North Western Ethiopia and it seems that a massacre has taken place. This comes the day after the Prime Minister toured the area, therefore it is an obvious conclusion that this occurrence is linked to the PM visit and the recent fighting in Tigray region. It always was a real concern that having stabilised the main cities in Tigray, the security forces would be facing guerrilla warfare and terror attacks. We expect that these strikes towards civilians will only strengthen Central Government resolve to subdue Tigray fighters. Peace in Ethiopia is not assured in the near term.

The harvest is entering its closing stages, cherry prices range between 20 and 27 Birr per kg, a considerable variation in prices and depending on the area. In Yirgacheffe  areas competition is strong, whereas in other areas coffee is starting to dwindle and there is less demand.

Birr 38.94 to the USD

Have a nice weekend, stay safe over the festive period.

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Maximum ECX Prices

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In early 2020 the Coffee and Tea Authority introduced Minimum Registration Prices for export coffee, now we have Maximum Sales Prices at ECX! Consequently Agrabes stopped selling coffee at ECX! It is easy to understand why, one day you are selling at 1,900 and the next the price is capped at 1,300! In recent weeks ECX prices have been driven upwards on tight supply and huge demand, both for Export and by Internal Demand, Exporters complain that the ECX price is too high but I am not sure that capping the price is going to help exporters…

Exports in November decreased as is normal for this time of the year, however the pace of sales is much lower viz a viz 19/20;  the period May to November 2020 is 46 k MT behind the same period May to November 2019:

 20/2119/20
May           25,967           28,449
June           25,790           29,294
July           19,015           26,512
August           19,995           30,279
September           14,443           23,696
October           13,018           19,966
November           11,964           18,328

(Export figures in MT)

Meanwhile registered sales of Washed New Crop 2020/21, for shipment first quarter 2021, is very low as a direct consequence of the high Min Prices for Sidamo and Yirgacheffe, these grades cannot be registered below 220 c/lb; Limu seems quite reasonable at around +50 FOB equivalent. Steady business for Lekempti and other Naturals for both current and new crop this week.

Birr 38.48 vs USD

Have a good weekend.

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Not much coffee around

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Ongoing limited supply to ECX with Djimmah 5 trading at around 175 c/lb FOB equivalent; FOB buyers are bidding around 95 c/lb and the local market is paying 350 c/lb, so it is no surprise that shippers do not have anything to sell and that coffee is not arriving at ECX warehouses. Any coffee that is around is finding it’s way to the local market illegally but the incentive is too great. Volumes of Naturals at ECX are pitiful, yesterday 166 MT of Sundried (all grades) were offered; we do not expect to see any meaningful quantities of Djimmah type until February and Lekempti/Sidamo (Natural) until March so local tightness is likely to continue for a few more weeks.

Minimum registration prices for New Crop Sidamo 2 is over 220 c/lb FOB, which is too rich for most standard Sidamo 2 buyers. The Coffee and Tea Authority (CTA) does not seem to understand that there are different qualities of Sidamo 2 and that most will only find a market if traded at much lower levels; in time we believe that this minimum registration price will be reviewed to better reflect levels where larger buyers and standard quality is tradable.

Ethiopia appears to be much more peaceful this week although there remains a heavy military presence in Tigray region.

Birr/USD = 38.34

Have a gd wkend.

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Fighting nearly ends but is it over?

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Government forces have taken the main town in Tigray region, Mekelle, however the TPLF leadership have not been arrested which was the main justification for launching the offensive in Tigray. For now the region is stable and not as tense has in the previous month of November. The focus seems to have moved to aiding the displaced population that are in need of food and other basic necessities.

Exports continue to disappoint, during the 6 month May to October 2020 vs same period in 2019 volumes are down by 40 k MT or 25%. If you only look at the last 4 months, the drop is even greater at 34% between 2020 and 2019. This poor pace of shipments is expected to continue until the New Crop starts to be exported which could be early 2021 as the harvest was early and the weather conditions post-harvest favour parchment drying. Quality wise indications are that the crop is good and better than 19/20 quality. Reported cherry prices are still very high, as much as 27 Birr per kg in Yirgacheffe.

Birr 38.20 = USD 1

Have a good wkend.

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Fighting in the North continues

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Government forces appear to control most of Tigray region and are poised to take the regional capital having surrounded it this week. All attempts at mediations by African leaders have been rejected by the Central Government that feel they have the upper hand and can resolve this rebellion my military force alone. Tigray leaders for their part, facing arrest and imprisonment, must feel they have little to lose by prolonging the standoff. We can only hope that the confrontation has a swift and peaceful resolution. Meanwhile there are over 40,000 refugees in Sudan fleeing the conflict.

The rest of the country is peaceful and life continues more or less as normal. At ECX, prices for current crop Naturals remain elevated even if the volumes are reasonable, as a consequence of intense competition between shippers that still need to cover shorts. New Crop Sidamo is trading at 220 c/lb FOB equivalent and New Crop Limu not much lower at 210 c/lb FOB Equivalent. Meanwhile, cherry prices paid at washing stations in the South (Sidamo, Guji and Yirgacheffe) vary between 19 and 25 Birr and 20 and 25 Birr in Limu.

Birr 38.01 vs the greenback

Have a good weekend.

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Better market, more sales and increased volume at ECX

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Notwithstanding the conflict in the North of the country Ethiopian Coffee business continues at great pace; the NY market rally has made differentials more attractive and shippers have been able to register some sales in the past few days. At ECX the volumes on offer have increased as the New Crop harvest is in full swing and possibly as a consequence of these more turbulent times that we live in Ethiopia these days. Shippers are very eager to execute their commitments, getting coffee on vessels and be paid. You certainly get the feeling that the conflict is affecting all aspects of Ethiopian life and shippers decisions.

Meanwhile there is very little news from the conflict zones; again rockets from Tigray were fired at Amhara towns. In Addis the Government has arrested scores of influential and prominent Tigray military leaders and other persons, while at the same time freezing bank accounts and assets. An estimated 30,000 civilians have fled Tigray to Sudan to escape the conflict.

So far the pace of shipments is very disappointing, reflecting the poor 19/20 crop, May to Sep 2020 shipments are 33 K MT (25%)  lower than same 5 month period in 2019:

USD 1 = ETB 37.85

Have a peaceful and restful weekend.

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Picking and processing ongoing

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Buying of cherries is ongoing in all coffee growing regions of Ethiopia. A little alarmingly prices for kg of cherry are between 20 and 25 Birr per kg cherry depending on the region; at current terminal levels differentials would start at + 3 digits…

Demand for Naturals at ECX continues to outstrip supply; one the reasons for this is that there seem to be new players getting into the coffee export business since sesame seeds and other crops are less attractive than in previous years and importers need access to hard currency that they can only get from being in the export business. These new players are upsetting the more established shippers that are struggling to fulfil shorts and have asked for Coffee and Tea Authority support but it is hard to see what the regulators can do since production this year is down and quality poor.

Weather conditions continue favourable in most areas and the harvest is progressing well.

Birr 37.50 to the USD

Have a great weekend.

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Cherry prices start where they stopped last season

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Let’s discuss 20/21 Crop Development.

Southern Region

Sidama: we are indeed expecting a good crop and harvesting started early October.

Yirgacheffe: as in Sidama we are expecting greatly improved crop in 20/21 vs 19/20, harvesting will start later in November/December.

Guji: Harvesting has also started here, and Vertical Integration is very intense in this region leading to increased price competition and substantial investments in Washing Stations and processing capacity in general.

South Western Region

In Kaffa, Bench Maji and Tepi farmers have been harvesting since September and the crop is down as much as 40% in some areas. The crop has been affected by CBD by as much as 8% in Tepi. In the South West this is an off-cycle year so a decline in production is expected.

Western Region

Jimma: The crop is expected a tad higher to 19/20, with some parts of the region slowing a substantial increase in production. There has been very little crop expansion in Jimma in the past 12 months.

Ilubablor: we are expecting a higher crop in 2020 vs 2019, the crop will only start to be picked in November.

Wellega: A sharp increase in production expected in 2020 vs 2019, as a consequence of good weather conditions and a more peaceful circumstances in this region. Harvesting will only commence in December and farmers are still holding some stocks from the 2019 crop.

Generally speaking there is little to no coffee in the hands of farmers and even agrabes are well sold as a consequence of the lower 19/20 harvest and good prices at ECX.

Current cherry prices are very high, a reflection of internal competition, as follows (kg cherry):

Sidamo :  18 to 20 Birr

Guji:  25 Birr

Limu: 21 Birr

Forex rate: 37.34 Birr to the USD

Have a good weekend!

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