Welcome to the new monthly DRWakefield Market Report. The layout will be a recap of NYC & currency movement of the previous month and an update of 3 origins using information from people we work with in the relevant origins.
Trump. Numerous executive orders have been introduced (& hotly contested) and while this may seem unrelated to coffee, soft commodities can be directly impacted from various breakdowns in trade agreements soon to be brokered/broken, which might also shift trade flows and impact usage. This has only increased market uncertainty and many funds still appear to be surveying the horizon and waiting to move. The market was below 140 at the beginning of January for a few days but has since mainly traded in the 145-155 region. Many reports suggest we will see a trading bracket of 140-160 for the upcoming months with an average of 151. The ICO has just released its monthly average ICO composite indicator, which tracks monthly movements of the NYC, and it is up by 5.6% to 139.074 c/lb compared to 131.70 c/lb this time last year.
Robusta increased to a 5 and a half year high. This was mainly due to supply shortages in part caused by an extremely low crop of conilon (Brazilian robusta) from Esperito Santo state as well as Vietnam and Indonesia issuing reduced crop forecasts. Increasingly large domestic consumption in Brazil is piling on pressure to lower grade arabicas shortening supply, as well as many of the large international roasters who too, are substituting lower quality arabicas as a result.
We have seen numerous reports predicting GBP vulnerability and amid lacklustre growth forecasts and continuing uncertainty surrounding the EU exit process, many forecast sterling to move to 1.20 in the coming months. Currently it’s trading around the 1.23-1.25 range. A drop to 1.20 will equate to a 2.44-4% increase in UK green coffee prices.
Big origins: Brazil, Colombia & Vietnam.
Conab has released its first estimates of coffee production in Brazil for the upcoming crop year 2017/8, projecting a reduction of 10% in crop compared to the current year. Large export volumes and the high levels of stocks in consuming countries seem likely to put pressure on price levels. Export of Colombian coffee continues to surge, reaching levels not seen since the 1990s – thanks to an extraordinary effort of replanting and regeneration of old trees. As mentioned earlier, crop forecasts for Vietnam are reduced, although we have seen varying reports to what extent.
In general, coffee from Brazil this year will be a mixed bag so to speak. It is predicted that a much smaller harvest will occur with some people predicting production will total 44 million bags. The National Stock is empty and with domestic consumption increasing year on year, there are concerns of where the coffee is going to come from to satisfy this demand. Conilon (Brazilian robusta) has been particularly badly affected-to the degree that domestic roasters who use this coffee as the main component in their blends are in discussion with the government about authorising the imports of green coffee to Brazil. That’s right, Brazil might also be a coffee importer as well as an exporter!
For the Mantiqueira de Minas Region it’s going to be a good year. Rainfall is as expected for this time of year, in line with the annual average of 1.600 to 1.800 ml, and the beans are showing good maturation, indicating quality will be good. However, maturation is faster than normal as it’s quite hot, and we are expecting the harvest to start around 3 weeks earlier than last year. Even in the high altitude farms we work with, earlier harvest is expected. Uniform maturation of the beans is one of the biggest challenges, though early signs indicate this year the beans are maturing quite evenly. Volume wise Mantiqueira should have around 30% more volume compared to last year, roughly the same as 3 years ago when climate was similar to what it is now.
Honduras is an origin that is increasing its quality and quantity game. Right now more than 110,000 families depend on the production of coffee in Honduras and more and more families are joining the Honduras coffee club. It’s predicted that the 2016-7 crop will be 10 million quintales (46kg = quintal), with 80%-90% being exported. There was a great deal of work done in 2012-3 to prevent further destruction by la Roya, Ojo de Gallo, and Broca and this is paying off. Weather conditions remain perfect for harvesting and it is estimated that the crop is now between 50 to 60% complete. Our first containers of new crop are on the water right now so watch out for new arrivals.
Small but important changes are afoot at Coagrisal Cooperative in Copan, both at the farm level and also where the coffee is dry and wet processed. They are working closely with their members to promote the separation of higher quality coffees to produce microlots and also to promote good farming practices (especially on wet processing at the farm for the farmers that de-pulp coffee on the finca) which in turn will lead to more sustainable and better tasting coffee. They have increased the capacity of 5 wet mills they have and the aim is to standardize the quality of the coffee processed in these producing areas to improve consistency in the cup. It’s not just about the cup though. Sustainable initiatives being introduced include the adoption of solar panels on all of their wet and dry mills which power the lights in the mills!
The 2016 harvest in Northern Peru was affected by droughts during the key flowering months which increased the levels of broca found on farms, resulting in lower yields for producers-especially in lower altitude areas. Another effect of the drought was beans not reaching maturity with a stunted development. The forecast for the 2017 harvest is significantly better than that for 2016. However, there is heavy rainfall at the moment and if this continues during the next couple of months, both volume and quality will be impacted. There have even been rains on the coast of Peru, a place which typically does not receive rainfall at this time of year.
As many of you know, Sol & Café Cooperative struggled to ship on time this year mainly due to problems at the port of Paita and the dry mill they use in Piura. However, they are currently looking at how best to ensure timely shipments for the upcoming crop and come up with an action plan. This will be critical as it is expected they will receive 20-25% more coffee due to: new members, reduction of broca & better weather conditions. The container of Project 121 is due to arrive in 2 weeks so keep your eyes peeled for that!
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