The first few months of 2018 saw a very steady New York, and March was no different. By and large the market traded in a very narrow band, with daily closes trading in a range less than 6 c/lb. The 119-122 range that dominated February dropped a touch with a monthly average more in line with 118 c/lb. Many predict the crop in Brazil to start mid-May – more activity is predicted the closer we get. The market closed on the last trading day of the month at 118.15 c/lb.
The market opened the month at 1768 $/mt. Throughout the year, reports have consistently suggested that the Brazilian Robusta (Conilon) crop would rebound after the very low production of last year’s crop due to extreme drought in the main producing region of Brazil, Espirito Santo. However, dry weather and the prevalence of pests as a result have significantly hindered the revival of this producing region, and therefore the outlook has changed. Will Vietnam and Indonesia pick up the slack? The market closed the month at 1725 $/mt, representing a decrease of 43 $/mt.
GBP/USD started the month trading at 1.375. Trump’s top economic advisor, Gary Cohn, resigned in the second week, and with numerous threats being shouted from both the USA and China about a trade war, GBP/USD gradually strengthened and hit the 1.40 level in the second half of the month. However, the Dollar strengthened as the month finished with a great deal of dollar buying with many investors rebalancing their books.
Uncertainty over many issues that in the past one could assume were constant has led many to believe that we will see more volatility in FX over the coming months.
GBP/EUR started the month at 1.12. Volatility was observed with the success of populists at the Italian elections and the handling of Brexit by the UK government. GBP/EUR finished the month trading at 1.14.
Big origins: Brazil, Colombia & Vietnam
Data on the size of the upcoming crop has been questioned by some market players, who purport that the ginormous crop might not actually be so large and that pest damage is a larger threat than previously thought. However, the market has not taken note as the New York remained low and steady throughout the month.
Concerns persist about the strength of the Colombian Peso against the US Dollar. Internal replacement for exporters remains high, with international buyers seemingly all holding out for differentials to come down. Something has to give.
Vietnamese weather was variable through the month, but consistent rains were observed during the last week.
When asked what their biggest challenge is, most people we spoke with on our recent trip mentioned unpredictable weather conditions & the low New York coffee market. This combination has meant a particularly turbulent time for coffee farmers. The 2016/2017 crop was large and had depressed differentials – unfortunately, the expected increase in differentials of the current crop never materialised. Farmers are holding out for better times and many are focussing their efforts on diversifying. For those that can afford it, macadamia has proven to be a very fruitful option. Although it takes more time to get your first crop, the profit margin is larger than coffee and it has the added benefit of having a larger harvest period, giving producers an income stream that is less concentrated than that of coffee.
Reports suggest there is much coffee to sell, with certain exporters having to turn deliveries away. Even though there are more exporters back in the market after the tax problems last year, there is still an imbalance between supply and demand.
The harvest was winding up in the middle of the month, with only the highest altitude coffee still coming through. The quality and quantity of the crop have been good, but it’s still too early to say how good. There are whisperings that Honduras could reach the 10 million bag mark but given the data at hand, that number seems unrealistic. In the last week of the month, many flowers were primed for the arrival of the first rains with a few white flowers already out in full force in select microclimates. Many farmers commented that it’s becoming increasingly difficult to predict when to expect rain and in what quantity. This is having an impact on the cost of production as at any given moment, the increased volatility of the weather could wreak havoc on a farmer’s production.
Concern for the environment – and how to manage it – is also growing. We work with an organisation called ‘Cosecha Azul’ which works with groups of producers on how to best manage the wastewater of coffee processing. Their focus is on two byproducts of the traditional washed process: the water that is released from the pulp when the cherry is pulped, and ‘honey water’, the water that is used to ferment and wash the coffee. They use micro-organisms from the mountain that help turn the coffee pulp into a fertiliser which can be applied to the coffee plants. The honey water, oxidised using gravity through a series of lagoons, is treated to a level where it can be fed back into the farm, without damaging the quality of water of the surrounding areas. In Intibucá, we’re working with a cooperative called COMICOVEL who are part of the programme, and in a short period, some of the villages downstream from the coffee farms are already experiencing cleaner water as a result.
The harvest this year was earlier and lower than expected. It actually started in late August! However, it was not consistent and finished towards the end of February. Sporadic rains caused big issues in harvesting the cherries. During the height of the harvest when the cherries were at their optimum ripeness, a sudden and large downpour caused many cherries to be knocked off the trees. There were not enough pickers to pick these cherries in time, and a great deal of the volume ended up destined for the internal market, causing a big loss in income for farmers.
Although change is the main theme of this report, not all this change is negative.
Aldea Global cooperative is a perfect example of the power of low interest rates and their role in engendering or hindering growth. Banks in Nicaragua offer a rate of 45% to farmers, while the cooperative, through their microfinance programme, can offer 14%. This stark difference has allowed producers to not only survive, but to thrive. Investment in farms has increased and the value proposition to producers is so strong that the cooperative’s membership has grown to make it the biggest cooperative in Nicaragua! With the rising cost of production because of an ever-changing climate, this increased access to finance is most welcome.