Welcome to the July market report. While the content is not as sizzling hot as the UK weather, it’s worth a read! We go into more detail on the Peruvian and Brazil crop, and also discuss the latest developments in Kenya.
Coffee prices on the slide? You guessed right. The average day close was 111.10 c/lb and it closed the month at 109.90 c/lb. The Commitment of Traders Report on 10th July showed that there was a record net short of -74,448 lots from the non-commercial speculators position. This shows how active the funds have been. It’s not just the funds that have been active though. Commercial roasters are taking advantage of the low market and have increased their gross long position, to six contracts off the previous record long record position. In our last report we mentioned that the bigger roasters were covered until March 2019 and many are now reportedly extending their cover to Q2 2019.
The July contract month was the first month where the new Contract Rules, and Grading & Warehouse keeping Procedures for ICE Robusta Coffee futures came into play. The rule changes aim to enhance transparency of warehousing procedures and costs and facilitate a more efficient delivery process. The main take away was that there is an earlier notice period and a shorter settlement process. First Notice Day (FND) is now the fourth business day preceding the first business day of the delivery month, and settlement day is four business days after Tender day. Sep-18 closed July 1st at 1639 $/mt and closed the month at 1682 $/mt.
On the first day of July, the Cable was trading at around 1.315 and strengthened to nearly 1.33 in the middle of the month, before readjusting back down to where it started the month. Much of the rhetoric regarding GBP was whether the Bank of England (BoE) would raise interest rates in the first week of August. Economic data coming from the US suggested the US Dollar was set to strengthen against its key currency pairs and has been undervalued in 2018. The UK’s dismal Brexit strategy saw the Euro claw back some value against Pound Sterling.
Big origins: Brazil, Colombia & Vietnam
Sunny and dry conditions were observed across the main producing regions in Brazil, and forecasts indicate that mid/end of August will see some rainfall.
Big volumes reported out of Sierra Nevada de Santa Marta in Northern Colombia. Traditionally this region is very strong in the certified market so expect to see more coffee offered from this region in the coming months. Excelso differentials have hovered around the +20 levels.
Weather continued to be favourable for coffee farmers and the view in Vietnam that it’s going to be a big crop remains firm.
Top qualities were the focus, with many top AA and AB lots passing through the auction. There is also less availability of grinders and lower grade naturals than usual at this time of year. Coffee Borer Disease (CBD) damages have had a more adverse effect on the trees than most expected. Weather is normal for where we are in the year, and reports suggest that the cold and foggy conditions in the Central Highlands are set to stay.
However, the weather is the only rosy piece of news to report. Kenya is a country famous in the coffee industry due to the complex acidity of the coffee produced there, but in volume terms is a small market player, whose volume is only set to decrease. The latest report from the USDA predicts that Kenya will only export 800,000 bags (of 60kg) of coffee in the 2018/9 crop and with many farmers selling their plots to Nairobi real estate agents, this trend is set to continue. We have seen this in San Jose, Costa Rica, and it’s a challenge for which no answer has yet been found. Avocado is also increasingly seen as more lucrative alternative to coffee.
Coffee was hotly debated in Parliament as certain MPs felt the industry needed a shake-up. So much so, that Gatundu South MP Moses Kuria, proposed a ban on the export of green coffee, in a bid to capture more value in Kenya. Mr. Kuria wants exporters to roast, process and pack coffee to capture more profit. While this idea seems far-fetched, serious debate has centred on reinventing the coffee auction and establishing a new Nairobi Coffee Exchange.
Everyone we have spoken to has mentioned that it has been a strange crop.In the lower altitude areas the harvest came early and for that reason it was expected to be a big crop. However, harvesting in higher altitude areas has been delayed due to irregular rains and therefore many cooperatives and exporters have adjusted their forecasts to be the same as last year or slightly less. Towards the end of July, many producers were struggling to dry their coffee as heavy rains would not allow it. Jaén’s coffee scene continues to grow, with more and more cooperatives and/or exporters setting up base there and building dry mills.Over the last three years focus has shifted from the centre to the north of the country. This is reflected in export data too, as the country’s three biggest cooperatives are all located in the north.
Cup of Excellence will be coming back for its second year in Peru after the success of the first year. The first event was widely believed to have been held too early in the year, favouring the Central coffee producing regions. Will we see this repeated?
Peru is one of the biggest Fairtrade and Organic origins, although it is fast gaining more notoriety in the speciality scene. After cupping some delicious organic microlots on our trip to Peru this July, expect to see some delectable options arriving in November.
The harvest in Brazil is reportedly 60% underway. It’s progressing as expected, and early indications show that quality is good. The Conilon (Brazilian Robusta) harvest is winding up and it remains to be seen where the bumper crop will go – will domestic roasters step up and absorb the extra volume or will we see the US or European market flooded with Conilon? With the consistent fall of New York, many producers have been holding off delivering their coffee with many expecting an upcoming reversal. The weakness of the Brazilian Real (BRL) had offset this somewhat, however the BRL strengthened as belief that Geraldo Alckmin, a candidate broadly seen as market friendly, could become the next President of Brazil.
At Daterra Farm, in Cerrado, the quality has been excellent thus far “As far as my memory goes, this is one of the best years in terms of complexity of flavours coming from the field! We have been working hard to overcome challenges on the field in the past years, but I am confident this is all paying off in the cup.” – said Renato, Daterra’s Head Cupper.
It’s been very hot in the UK, but it’s also generally been a great deal warmer in Brazil. With this heat, comes more CBD problems and lack of rainfall. Daterra have been busy investing in harvesting techniques and new sorting equipment to combat the presence of more coffee borer infested beans. More funding is going into different irrigation systems at farm level and they will be producing reports soon to show the pros and cons of each system.
We’d also like to congratulate the farm on their most recent sustainability achievement, where they became the first farm in the world to achieve Level A certification from the Rainforest Alliance! Well done to the all team at Daterra!