Welcome to DR Wakefield’s Monthly Origin Focus.
July encompassed the start of the Tokyo Olympics in which Japan got off to a flying start with the Olympic fever quickly spreading amongst the population and, at time of writing, holding second place in the medal table.
It nearly came home, but then didn’t, after England narrowly lost out in the final of Euro 2020 to Italy. Unfortunately, what had been a great competition for England was marred by disruptive behaviour at the final in Wembley.
Jeff Bezos made a strong case for Amazon being the ace of tech companies by setting the pace and earning first place in the Billionaire race, shooting into space, and tracing his steps back to his earth base, leaving Branson and Musk to chase him in disgrace. There is no trace of the smile leaving his face any time soon.
Of course, by far and away, the main news from the coffee world this month was the Brazilian frosts and the impact they had on the New York Coffee Market. In a single week, the market rose from 160.50 c/Ib to 209.50 c/Ib. Such large and rapid movements are not often seen in soft commodity markets.
After a temporary dip, the Pound has managed to gain slightly on the Dollar edging closer to 1.40. The Pound/Euro followed the same pattern.
In this report, we will take a closer look at Brazil, Indonesia and Burundi.
Brazilian weather is carefully monitored throughout the year, swinging from frost risks to drought warnings as the seasons shift. Being by far the world’s largest producer, adverse weather conditions can reduce crop volumes in a single spell by more than some growing countries export on an annual basis. This July was like many others, and cold snaps were forecast. However, when producers went on their daily crop walk on Tuesday 20th, many of them found more severe damage than predicted.
Reports vary a lot, but bag numbers as low as 2 million and as high as 9 million have been suggested as the possible loss to the 22/23 crop. Sul de minas and Cerrado suffered the worst from the frost.
Part of the reason why frosts are so disruptive in Brazil is due to their growing system when compared to other producing nations. Large, expansive, mono-cropped fields allow for high yields when conditions are good, as there are no other plants to compete for sunlight or nutrients, and they also allow for mechanization. Yet, when growing conditions are less favourable, the lack of intercropped shade trees can lead to over-exposure to sun and drought worries, and there is nothing to help protect from frost. Other countries that grow their trees less intensively and with a more holistic frame of mind reduce their potential exposure to such large swings in production.
It is well documented that, as the climate crisis worsens, extreme weather occurrences will only get more frequent. Perhaps this should serve as a prompt that Brazil needs to change their growing system not only to protect themselves, but also as a responsibility to other players in the coffee market around the world in an attempt to limit volatility.
The mid-crop this year, running from March to May, came in smaller than recent years as weather conditions over the last year have not favoured coffee production with too much rain in August and September, which caused the flowers to wither. Some reports suggested around 40% of production was lost. However, for the upcoming main crop from October to December, production levels are expected to hit the usual numbers, around 42,000 MTs, and the mid-crop of 2022 also looks promising.
Like other countries around the world, Indonesia is seeing Corona cases on the up again, so new lockdowns are being introduced to try and combat this. Workers in key industries are allowed to fill their workplace to a 50% capacity only. This includes the coffee sector.
Indonesia, like neighbouring countries in Asia, has been facing limited space on shipping containers, and freight costs have gone up 300-400% which, unsurprisingly, has caused difficulties. It was noted by one of our suppliers that demand has dropped as the NYC increased off the back of the Brazil frost news.
Local prices on the ground have gone up since the NYC hike but, since they are in between crops, buying activity is very low. The Indonesian Rupiah is the third weakest currency globally, and it lost another 1-2% but overall remained stable.
2021 is considered to be Burundi’s off-cycle year, and so production expectations remain at 6,000MTs of green coffee. The harvest is now over, and most coffee has been passed from the farmers to the dry mills for grading and export preparation. Farmers have begun their between-harvest agronomical practises such as mulching and pruning. The second and final payment for farmers is due on the 15th of August. A minimum price of 106 US cts/Ib has been set, representing a 25% increase on last year. Of course, the farmers are very happy about this, but a sceptical person might question why such an increase might occur and wonder what the long-term impacts of such a large departure of cash from the government might be.
July sits in the middle of the dry season, and so growers are still waiting for the rains to arrive in September, which will induce flowering. 2022 will be their biennial on year, so if weather conditions are good, 18-20,000 MTs could be expected.
Nowadays, there is no mass violent instability amongst the population, but the government continues to hold a tight grip on its opposition. Killings and disappearances are still an occurrence. The government is also continuing to assert its dominance on the coffee industry. Cooperatives are being grouped into new structures which are closely controlled, and private companies often find operating difficult, as it takes a long time to obtain operating licenses. Moreover, the Burundian Franc currently sits at a rate of 2,763per Pound Sterling. US dollars are often used as currency because of this low value. The official rate is 1,980 to the Dollar but, due to a shortage, a black market value is as high as 3,300, which can create further difficulties.
Our thanks to Andry Simarmata from Sari Makmur, Armia at Permato Gayo, and Cyril Savio at Anura Trade for their input this month.