Welcome to the April market report. A consistent theme we hear from origin is the changing climate and this was observed in the UK too, with some chilly and mild spells interspersed throughout the month! This month we head to El Salvador, Kenya and Canada (via the Swiss Water Decaf folks) and coffee is not the only agricultural product featured!
NYC Market
NYC closed the first day of the month at 118.5 c/lb and closed the last day 4.3 c/lb higher at 122.80 c/lb. It was fairly stable but did see a dip in the middle of the month, closing on the 16th at 116.55 c/lb. With the figure of 45 million bags (Arabica) mooted as a potential figure for the Brazil 2018/19 crop total, downward pressure remains strong. All fundamentals point to the downtrend but the large speculator short position remains in the shadows as something to watch out for.
NYC Market
NYC closed the first day of the month at 118.5 c/lb and closed the last day 4.3 c/lb higher at 122.80 c/lb. It was fairly stable but did see a dip in the middle of the month, closing on the 16th at 116.55 c/lb. With the figure of 45 million bags (Arabica) mooted as a potential figure for the Brazil 2018/19 crop total, downward pressure remains strong. All fundamentals point to the downtrend but the large speculator short position remains in the shadows as something to watch out for.
Robusta
Not much action to report at the beginning of the month but the final days were characterised by speculators short covering. The Conilon (Brazil Robusta) crop was boosted by favourable rains and is expected to be better next year. Sustained weakness in the Real could see a surge in Conilon coming to market, although the European market favours Vietnamese Robusta.
Currency
GBP/USD started the month trading at 1.40, strengthening to 1.42 in the middle of the month to then see a sharp downslide, finishing the month in the 1.37 region. Not only did it weaken against the US dollar but it weakened against its other major currency pairs. Sterling’s resurgence in the first quarter of the year has been put in reverse and with UK GDP growth forecasts revised downwards, we may see this currency continue to move only in one direction. It’s not all negative for the UK however, The UK’s budget deficit fell to its lowest level since before the financial crisis. The Office for National Statistics released a report showing Britain’s budget deficit dropped by £3.5 billion in the last financial year.
That’s probably the only positive statistic however. GBP/EUR started trading the month at 1.15 and saw a similar trajectory as GBP/USD, strengthening in the middle of the month and then weakening at month end to 1.13. Since the start of 2018 there has been a raft of underwhelming economic data surrounding the eurozone, with many pointing to the euro’s strength as a hamper on export growth. However, in the month of April that changed and it seems the Eurozone is now fast outpacing the UK’s GDP growth. How that impacts GBP/EUR remains to be seen.
Big origins: Brazil, Colombia & Vietnam:
Final data on the 2017/18 crop suggest that it’s bigger than previously thought, due to a stronger Arabica crop which hit 40 million bags. Including Conilon, it appears likely the total number will surpass 52 million bags. With the expected bumper crop of 2018/19, forecasts suggest there will be a significant increase of carryover stock which will show no sign of abating with current world demand.
In Colombia the data is the opposite. The crop is 10% down compared to this time last year. The low New York paired with the strong Colombian Peso means exporters are squeezed and this is being felt by producers, who do not want to sell at prevailing market levels.
Vietnam exports have reached a three year high, egged on by the incoming bumper Conilon crop. Reports for the upcoming crop all point to 28 million bags +/- 0.2 million.
Origin focus
El Salvador
The harvest is officially over and it’s been a good season in el Salvador. There were no extreme winds or rain patterns to deal with this crop and this translated into good figures. In 2012/2013 El Salvador exported over 1,740,364 coffee bags, this volume sharply dropped off to 499,020 coffee bags the following year and then to 232,599 in 2016/2017. Why? A severe outbreak of La Roya (leaf rust). In the 2017-2018 harvest, figures point to export figures of nearly 560,000 coffee bags. Although it’s still well under half of what was exported in 2012/2013, the numbers are moving in the right direction. The key driver of this resurgence has been quality, with over 2/3 of the volume exported this year sold at a premium. This bedrock of quality and the renovation done at farm level to combat La Roya should provide a solid spine for the coffee industry in El Salvador. There are six denominations of origin in El Salvador and El Balsamo Quetzaltepec is the newest member of this list. This is where Finca San Ernesto is located, a farm’s cup profile we have grown to love over the last few years.
Talking of farms, we’re looking forward to our first arrival of Finca El Ingenio washed process from Urrutias Estates. Located in the western part of the El Salvador in the famous Apaneca Llamatepec mountain range, it’s surrounded by several hot springs which shower the coffee plants with various minerals that with the unique terroir (closeness to the equator, soil + altitude) combine to produce a very delicate cup that has a super sweet aftertaste.
Kenya
April was characterised by a torrential downpour which wreaked havoc on roads all across the country and inhibited the flow of coffee as a result. The flooding showed no sign of abating as we moved into May.
Kenya coffee is prized for its acidity and now another product grown there is sought after…Macadamia. Macadamia is no new product in Kenya as traditionally farmers used to grow it to provide shade for their coffee trees. Nowadays however, the profits from the nut outweigh those provided by the bean and in many areas coffee is now playing second fiddle to Macadamia. This drive has led to Kenya taking third spot in world Macadamia production. With prices so high this trend is only set to continue. From December 17 to April 18 farmgate prices for unshelled macadamia nuts rose from 70 shillings to a high of 180 shillings ($1.80) a kilogram. This is a stark contrast to the world of coffee, where many coffee farmers operate at a loss with their beans earning about $0.55 per kilogram, according to a report last year by London-based advocacy group Fair Trade.
We are looking forward to the arrival of a top AA lot from Mweiga coffee factory located in Nyeri County. Near the Aberdare Forest and National Park it overlooks the famous Elephant migration route and due to the quality of the coffee produced there, is not likely to turn to Macadamia anytime soon-we hope, at least.
Swiss Water
Now we turn to Canada, where we source our delicious decaf from and who always provide us with some handy statistics! As we mentioned in our August Market Report, it is the younger demographic who is most engaged with decaffeinated coffee and this trend is observed across both the US and Western Europe. In Western Europe, consumers aged 25 – 34 are the largest group of decaffeinated coffee drinkers, making up 18.5% of decaf coffee drinkers. 52% of decaf drinkers are under 45 years old. Total coffee growth is at 1.74% versus decaf coffee growth at 2.43%. What is interesting is that this growth is being driven away from home. The fastest growing segment for consumption is the restaurant/café area, at 3.26%. More and more shops promote decaf and pay more attention to the quality of decaf offered to the final consumer-the growth of specialty decaf growth was at 4.85%!
Talking of quality, we have sourced a very tasty organic microlot from Ecuador called ‘Jardin del Inca’ from ACRIM cooperative in Chinchipe, Zamora. Grown at 1800-2000 masl, it’s a fully washed coffee that has a lovely toffee sweetness and is full of apricots and pears. We cupped this coffee at the London Coffee Festival both pre- and post-Swiss Water Process and found that the process added more balance to the cup. It’s arriving to the UK later this summer so keep your eyes peeled!
