Support around the 129 levels was broken at the beginning of the month, plummeting dramatically to 116.50 c/lb, the lowest level in 2017. The market felt like it was in a free fall with Brazil engaged in more political scandals with a crop that is expected to be just over 50 million bags, The NYC is feeling the pressure. By the end of the month the market started to gain some momentum due to the Real appreciation versus the US Dollar returning to the support levels of earlier in the month. With no major fundamentals, the market remains under pressure with a bearish outlook.
According to their second official survey of the Brazilian Conilon (Brazilian robusta) 2017-2018 coffee crop carried out in mid-May, production is estimated at 10.14 million bags. The estimate is assuming that productivity of cherry produced per hectare will recover, which has dipped due to the severe rainfall of recent years. The area devoted to this crop will be 441.4 thousand hectares, with 42.5 thousand hectares under renovation (9.6%) and 398.9 thousand hectares in production (90.4%). London (Sep17) closed the month at 2,149 $/mt.
Oil prices, inflation, interest rates and GDP growth. These are the key elements that have affected the Pound Sterling against the US dollar and the Euro for the past month (not taking into account Brexit of course). Oil prices have increased, helping the £ gain some support to the 1.29 GBP/USD region. The rhetoric about interest rates remain the key topic on Monetary Policy with a potential increase on the cards directly linked to the inflation rate surpassing the Bank of England’s target of 2%. UK GDP remains around 0.2% in the median term applying some pressure on the £. In the US, exactly the opposite is happening with inflation under the US target of 2%, making the prospects of an interest rate hike seemingly disappearing into the distance, at least for now. In Europe, everyone is waiting to hear the monetary policy stance of the ECB for the second half of 2017.
The difference in local price Brazilian farmers get for specialty coffeeand conventional coffee is historically rather low. Some reports predict that this has removed incentives for producers to produce specialty coffee. The Brazilian Constitutionality and Justice Committee has approved the labour modernization bill. This is a good indication it will be approved by the Senate and perhaps a sign there might be some political stability for a (short) while?
The coffee export volumes from Vietnam for the next four months are expected to be relatively modest due to indications that internal market coffee stocks are low and most of the exporter held stocks are already committed to fulfil forward contract export commitments.
Colombia originally seemed to be escaping the effects of El Niño which badly hit Peru and Ecuador. However, no-one escapes nature, and the effects on the crop were seen as a delayed harvest due to the excessive amount of rain and overall reduced production of the main crop from the south (Cauca, Nariño & Huila). As a result, differentials in the local and international market went up significantly. Earlier in the year the standard Excelso was around + 8 c./lb and now it is in the + 20 c/.lb region. There are talks about the main crop from the Eje Cafetero also being late. Typically they harvest in October to November and if delayed, could maintain pressure on these high differentials.
The harvest for most of the coffee producing regions starts end of May/early June and winds up in September. The two exceptions are Carchi, which has two crops like its neighbour Nariño; and the Galapagos islands, which also has two harvests. Due to heavy rain in March and April time, the 2017 harvest was delayed by 4-6 weeks. The harvest is now in full force in the lower region of Manabí and a good quantity of coffee has been delivered to the southern regions El Oro, Zamora & Loja.
The government organised another Macrorrueda event (export event promoting Ecuadorian products) which we attended at the beginning of the month. The export side of the industry is opening up and becoming more fragmented. Traditionally, the export of coffee was concentrated in the hands of a few firms but in the last two years the number of registered exporters has grown exponentially. This presents great opportunities and new access to producer groups, but many still have some aspects to tweak and things to learn before they are ready for exporting. Certainly, some exciting prospects for the future, but only a handful are ready to export this season’s (2017/2018) crop.
We will be holding a grand Ecuadorian cupping session at the end of the summer and we will be publishing the date on social media over the coming weeks. For a more detailed report of our trip, follow this link.
The proposed Ethiopia Commodity Exchange (ECX) reform is one of the most intriguing current events in the Ethiopian coffee industry. The reform has many articles but there are two that stand out. Firstly, coffees will be loaded and delivered to certified warehouse where coffee processors and exporters can physically inspect the coffees before they engage in trade. This could eliminate the problem with quality discrepancies in the current trading system. Secondly, it will increase traceability of the coffee to its origin, which is also limited to the general area in the current system (Yirgacheffe G2 for example). Last week’s issue of the The Reporter (a local newspaper) mentioned that the new (ECX) purchase reform draft was approved by the Council of Ministers and has been forwarded to the House of Representatives for review and approval. It is expected that most of the articles will be approved and officially declared over the coming months.
Climate change is the talk of town. The Reporter also ran a story highlighting a recent study by the Royal Botanical Gardens with other Ethiopian researchers titled “Resilience potential of the Ethiopian coffee sector under climate change”. The research concludes that Ethiopia is facing a major climate threat where coffee production will significantly decrease. The research also points out that 39-59% of the current growing area could experience drastic climatic changes that could render these areas unfarmable. The article also specifically mentioned Harrar where next year’s yields are expected to nosedive. As a result, Harrar prices are skyrocketing.
Exciting times at this origin. We just landed the first container of Myanmar coffee we have ever imported, with a mixture of coffees from 3 producing regions: Chin, Shan & Mandalay. In a detailed study of Myanmar’s fruit, flower & vegetable sector by ILO and MFVP in 2016, there were approximately 100,000 acres of Coffee farms in Myanmar, of which 30,000 to 50,000 acres could produce coffee cherry. If yield per acre of 0.22 tonnes was used to calculate the total production volume, 6,600 tonnes per year could be produced. The ratio of coffee farms between Arabica and Robusta variety was 9 to 1 at the time the report was published.
Local demand for coffee is on the up. More and more coffee shops are opening in towns and cities across the country. In villages, although Burmese people serve green tea to guests and continue to drink a great deal of green tea, coffee is now also being served to guests. Approximately 10 companies sell brewed coffee in the domestic market, of which only three to four brands such as Shwe Ba Zun, Lone Star, Eugenia and Shwe Yin Mar have received an approval from the Food and Drug Administration (FDA). In the local market, producers have almost sold all their coffee. Local market prices have increased due to higher demand from the domestic market. Interestingly FOB prices have not changed substantially since May.
In early June, The United Nations’ Human Rights Council appointed three legal experts as members of a fact-finding mission that will investigate the human rights situation in Myanmar, with a particular focus on the recent security clearance in Rakhine State. The Myanmar government has denied access to the fact-finding mission which some say will negatively affect future Foreign Direct Investment (FDI) into the country. The Monsoon started in mid-May and early cherry development has begun. The forecast is for continued wet conditions and business as usual.