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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!

The crop has started to be picked and collected in nearly all producing areas of the country, only the higher growing areas like Yrgacheffe are yet to start. Our initial thoughts of decent quantity and quality remain unchanged, below we list the cherry prices that we have heard are being paid by washing station owners in Birr per kg cherry:

Guji 18-19

Sidamo 15-16

Limu 15

Kaffa 13

These prices are in line with prices paid to farmers last season, however as mentioned the crop is expected larger so it would not be unreasonable to have expected lower prices to reflect the larger crop, however the flow is small presently and only a few Washing Stations are working; as the flow increases and supply increases, if it outstrips Washing capacity we could see prices stabilise or even drop; on the other hand if demand from Washing Stations increases and competition to attract cherry intensifies then the price will go up. It is still a little early to get a realistic picture and we shall monitor the price and flow evolution.

There is very high percentage of Vertical Integration between Exporters and Washing Station owners this season. Offtake and pre-finance agreements are in place allowing exporters to access coffee at farmgate level and bypassing the ECX altogether. Expectation are that an even smaller proportion of this crop will find its way to ECX compared to last season.

Focusing on exports, below we compare Export figures for the current crop vs past 2 crops. We have started the “year” in May to try to outstrip the overlap between one crop and another, we could have started 2 month earlier at the start of the seasonal increase in shipments, however we believe that March and April shipments usually include a high proportion of previous crop Naturals…

What we can derive from the last 2 years is that we should see a drop in shipment over the period September to December/January followed by an increase from February 21 onwards as New Crop starts to be exported. Whatever the case (and confirmed by ECX figures) the 19/20 crop is a very disappointing crop and even if ECX volumes pick up the coming weeks, export quantities are likely to remain on the lower side.

Birr 37.00 per USD

Have a good weekend.

The weather has changed for the better in Ethiopia in recent days. It is drier and these conditions are more favourable for ripening and drying after picking. Additionally, roads that were impassable for weeks because of wet weather conditions  have now become operational; we expect more coffee to move from upcountry to ECX warehouses, increasing the volumes available to exporters. Export business continues subdued and below last year’s volumes and we believe that this trend will continue for the remainder of the crop. Our initial thoughts on the size of the 2020/21 Djimmah Crop are positive, conditions have been favourable and we are expecting a good crop, higher than last year and, importantly, better quality.

Saudi Arabia which is the single largest buyer of Naturals from Ethiopia (Grades 4 and 5) have decreed that the maximum allowable number of defects that can be imported to Saudi is 26 defects, i.e. grade 3 quality; if this regulation is enforced it would have a big impact on the Ethiopia Natural Supply Chain, since the competition for better quality coffees would intensify. Furthermore much more raw coffee would be needed to achieve Grade 3 quality squeezing the price for grade 4 and 5 coffees, particularly in a year where quality is below average. Some exporters have told us that a few Saudi buyers have requested contracts to be changed from Grade 4 and 5 to 3. The price difference between a grade 3 and a grade 4 is much more significant than a 4 to a 5. It remains to be seen if this regulation is enforced in the coming weeks and months.

Daily positive Covid tests are just under 1,000 for the past few days. The total number of positive cases has reached 82 k.

Forex 36.90 to the USD

Have a good weekend.

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.

Current Forex rate 36.72 o the USD

Have a good weekend.