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Coffee Market Report June 2018

Welcome to the June market report. Our last few reports have focussed on the supply side increases driven by the predicted bumper crop in Brazil and the narrative for this remains strong. The USDA June report pinned world coffee production for 2018/9 at 171.2 million bags, 11.4 million bags more than the previous year – lucky the global consumption annual figure predicted is at a record high. Someone has to drink that coffee! Aside from big numbers, we focus on foreign exchange in Ethiopia, coffee production in Vietnam, and the impact of El Fuego in Guatemala.

NYC Market

Downward pressure on the NYC remained strong, with a steady downward slide continuing into the end of the month. The first day of the month was the highest close at 123.75 c/lb, and the month end its lowest, at 115.10 c/lb. Further devaluation of the Brazilian Real (BRL) drew in the funds and spec community, some of which have not been seen in the market since 2016. The drop in the market has seen increases in margin calls, which has put pressure on market players’ cash flow as the amount of margin call to fulfil has increased. The commercial sector is reportedly very long, with many players covered until March 2019.


The Robusta terminal showed weakness over June, and selling pressure is expected to persist. The Conilon harvest in Brazil continues to progress well with forecasts of a big crop holding strong, despite the main Conilon producing state – Espirito Santo – not having the best of harvests. Uncertainty remains as to where this coffee will go and if we will see any come to the board in London. Sep-18 closed June 1st at 1732 $/mt and broadly traded in a range of 60 $/mt, closing the month at 1689 $/mt.


USD rallied against a raft of its key currency pairs and strong economic data coming out of the US indicate that the rally is far from over. This has led to some industry actors, such as HSBC, to revise some of their USD forecasts for the rest of 2018. Is the Greenback back? We have certainly observed Turbulent times in the Cable. It started the month trading in the 1.325 region, briefly hitting 1.35 before oscillating between 1.30 and 1.34 for the rest of the month.

Big origins: Brazil, Colombia & Vietnam

Political uncertainty and lack of confidence in the actions of the Brazilian Central Bank has stoked worries regarding the fragility of the BRL. Investor confidence has taken a knock as a result and the Real has hits levels against the US dollar which have not been seen in the last decade. Coffee farmers have benefitted from the weakness of the BRL but unfortunately, they are the only farmers able to offset the low NYC price in this fashion as no other currency has lost nearly as much value against the Greenback.

Colombia chose Iván Duque to be its next president after a long and divisive campaign that centred on the peace process with FARC. Time will tell what impact his tenure will have on the road to peace.

Germany, the USA and Italy remain the top 3 export destinations for Vietnamese coffee, with Japan, Spain and Russia jostling for 4th, 5th and 6th place. Traditionally its exports were more concentrated in the top 3 countries, but this is changing as more market players in different countries see less of a quality difference between Vietnamese and Indian Robusta.

Origin Focus


Reports indicate that the volume produced from this crop year is going to end up being high. However, we have noticed that it has not been a favourable year quality wise for some key producing regions. The floral and bergamot cup profile that one usually finds even in a conventional Yirgacheffe Grade 2 has been somewhat muted compared to years past. Inconsistent rainfall and in quantities lower than expected have  been a key driver in this, also affecting the Bench Maji region. Sidamo and Limu cup profiles, on the other hand, have been particularly good. Renewed focus has shifted towards Djimma Grade 5 (DJ5) and the sustainability of this export product.

Many exporters, in a bid to get US Dollars, are selling lower and lower. They make so much profit on importing goods such as laptops and motorbikes that they can continue to absorb losses on the exportation of DJ5. The spread between the production cost compared to the export price continues to grow. Many people rightly pose the question ‘How much longer can this be sustained?’. The question has made it into the government’s crosshairs and many predict it will not be long before some regulatory change occurs to combat this gross market imbalance.

Relaxing of FX and capital controls? Perhaps. Agricultural exports reportedly make up 70% of Foreign Exchange earnings in Ethiopia so whatever happens is bound to make a big impact in the country, not just the coffee sector. From a coffee perspective, foreign buyers are accustomed to extremely low prices for DJ5 and if there is a regulatory adjustment meaning Ethiopian import/export businesses have unfettered access to US Dollars, either the ECX price for DJ5 will collapse or Foreign buyers will have to look for an alternative to this popular product. Turns out the humble DJ5 is causing more of a fuss than the prized Yirgacheffes right now.


FAS/Vietnam estimates Vietnam’s 2017/8 crop production to reach 29.3 million bags. This is 600,000 bags lower than an earlier USDA estimate of 29.9 million bags, due to the impact of late rains. Of the 2017/8 production, 25 million bags (85%) are expected to be exported.

Favourable weather during the flowering stage of the 2018/9 crop means that the 29.9 figure is back in the game. Even though prices were low at the beginning of the year, farmers were still able to purchase fertiliser and other inputs which has ensured a steady development of cherries. This is welcome news, as significant numbers of farmers have switched growing coffee to other cash crops such as black pepper. We touched on this in our May report and saw this trend observed in Cauca, Colombia, where citrus and avocado are providing strong competition to coffee. That said, the tide has slowed, due to black pepper prices falling over a prolonged period and showing no signs of shooting up. Also, farmers like the flexibility of coffee as it can be stored for a few months before being sold, allowing farmers the chance to speculate on pricing in a way which is not possible with other cash crops that perish quicker. The tide may have slowed, but Vietnam, over the last 3 to 4 years, has still managed to become the world’s leading producer and exporter of black pepper!

In Vietnam, when we talk about coffee it typically refers to Robusta, but Arabica production is growing and is estimated to represent 4% of Vietnam’s total coffee production and 6% of Vietnam’s coffee producing area (in hectarage). Lam Dong, the 2nd largest coffee producing area (Robusta and Arabica combined), is also the largest Arabica producing area. Keep your eyes peeled for more Vietnamese Arabica hitting European shores.


On the 3rd of June Fuego Volcano erupted. It was the volcano’s most violent eruption since 1974, causing widespread chaos and destruction. A number of coops/farms in the area have been affected. The latest update from the National Coffee Association notes that losses of high quality coffees produced in the Alotenango region have reached an estimated 100,000 bags of 46-kilo bags (77,000 60-kilo bags), this is according to their second evaluation. This volume represents 2.27 percent of the total exportable production for the 2018-2019 coffee season, estimated at 4.4 million 46-kilo bags (3.37 million 60-kilo bags).

We source coffee from FEDECOCAGUA and Transcafe in Guatemala, who have both been affected. Within FEDECOCAGUA, Unión Huista cooperative has been evacuated as a preventative measure because they are so close to the damage caused by the volcano, and eight other cooperatives have been affected with ash falling on their coffee plantations. FEDECOCAGUA have provided food for the evacuees via an ongoing US AID project, which was delivered on 15th June. They will provide food for six months for 300 families in the community to compensate for the loss of subsistence crops and water filters. They are still waiting on test results to see if the water quality has changed.

Within Transcafe no one has been hurt but they and the wider community are of course feeling the affects of the eruption. They have financed three burns units to help children in the local community who have been burnt by the volcano, through the Guatemalan Children’s Burn Foundation which are already full. Our thoughts go out to all the families affected. For our full report click here.