Arabica coffee futures started the month 133.40 c/lb and closed the month 3% lower at 129.35 c/lb. After a significant correction from the highs of 145 c/lb in mid-April, it rapidly plunged towards the end of April to around 128 c/lb, forming a base that was maintained during the whole month of May. Arabica futures struggled to go over the 138 c/lb mark by the second part of May mostly staying in a narrow range of 6 c/lb. During this period, there has been some unconfirmed frost news from a few areas in Brazil which have been responsible for sudden spikes. However, it has struggled to break through the mid Bollinger line. All eyes on the Brazilian crop with some reports promising over 50 million bags (Arabica and Robusta combined) in the 2017/8 crop, bringing a great deal of pressure on the NYC.
Prospects for Brazil’s Robusta coffee output have, thanks to much-needed rains, seen a dramatic improvement. Many forecasts have predicted a very small crop of Brazil conilon but expectations for the crop total, now seen coming in at 10.14m bags, represents a jump of 27% year on year. This figure is significantly higher than the range of 8.64m-9.63m bags which most of the crop forecasts had previously pointed to. London LIFFE finished the month trading around at 1995 $/mt.
GBP/EUR started the month trading at €1.188 and hit a two-month low in the last week of May reaching €1.15. This was due to disappointing UK economic data and renewed fears surrounding Brexit. GBP/USD started the month at $1.292 and fell to $1.28 at one point, but remained around the $1.285 area for much of the month. Attention was on the UK election and the potential interest rate hikes many predicted the FED would push through in June.
Big origins: Brazil, Colombia & Vietnam:
Political uncertainty due to ongoing corruption investigations surrounding politicians and JBS Group dominated the headlines in Brazil. Immediate effects on FOB pricing have not taken effect yet. Good exports from Colombia, high levels of certified stocks in both the US and Europe coupled with an ever-broadening consensus that the 2018 crop in Brazil is going to be extremely large, are all pointing to bearish speculators.
According to Cetrex data, Nicaragua exported 1,047,004.60 Quintales, equivalent to 698,003 sacks of green coffee (of 69kg), in the period from October 1st 2016 to 31st March 2017. The quality of the crop was much better than in previous years and this is shown through the cup of excellence scores. In past years sometimes it has been difficult to find coffees that reach 86 SCAA points but this year some coffees managed to surpass 90 SCAA points. This is evidence that quality is improving and also important to note, quantity of these special lots is growing.
Regarding commercial coffee, there has been a greater number of lower grades produced. Although there is not official data yet it seems more coffee of top quality and lower quality has been produced and exported. Excess rain and stronger winds than anticipated have been cited as potential reasons for the greater quantity of lower grade coffee on offer. This resulted in more unripe cherries forming. However, it’s important to note this was not consistent throughout the country as some areas experienced lack of rain.
Las Nubes exporter and farm, who exports the fancy naturals some of you may have had the pleasure of cupping, saw an increase in production of 38%. Its behaviour mirrored that of the rest of the country, with more top lots and lower grade coffee produced. A natural from Finca Santa Maria made it to the final round in the cup of Excellence programme.
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Vietnam’s 2016/2017 crop total was revised down from about 26.7 million bags to 26 million bags due to atypical rains during the harvest that exacerbated the losses for the predicted lower production total. The crop forecast for 2017/2018 is around 28.6 million bags, some 10 percent more compared to that of 2016/2017 due to favourable weather during the first half of the year. The right amount of rain fell from January through to March, which helped coffee trees sprout more branches and flowering started earlier. Furthermore, the current high prices of local beans helped farmers buy vital inputs like fertilizer, which is providing adequate nutrition vital for producing branches and coffee cherries for the upcoming harvest.
However, although local prices have been high of late, during the past 2-3 years, more farmers have been making the switch from producing coffee to growing other cash crops such as black pepper, avocado, and passion fruit, in order to generate higher incomes. This switch to other crops has changed the face of certain coffee areas such as Dak Lak, where arable land is limited. In other provinces like Dak Nong and Lam Dong, where arable land reserve is plentiful, the new arable land is used more for growing black pepper and avocado. In sum, coffee production is facing strong competition from other foods, namely: black pepper & avocado. Will the current high prices stem that tide? Too early say. The price of black pepper has slowly been falling. However; as many of you know, avocado has never been more popular! A likely situation is that farmers will maintain/plant more pepper/avocado while growing coffee as a second cash crop, which has less risk and requires less investment.
The record production output that occurred in 2016 has taken its toll on the plants. The monster crop has caused a physiological exhaustion of the plants which are predicted to produce less. The delay in the beginning of the rainy season and excessive rain in other producing areas has caused problems with flowering, pushing back the harvest by 30 to 40 days. As a result, prices for Colombian coffee are continuing to rise. Exporters we have spoken to are surprised as not many people thought differentials would rise to the levels they have.
During the present harvest (2017), Café Granja La Esperanza has implemented new practices of quality assurance focussing on picking, processing, drying, fertilising, soil analysis and storage. This has resulted in radically reducing (30%) the occurrence of defected cups found in internal quality control cuppings. The new agricultural management practices introduced by the new agronomy team has reduced the incidence of broca and roya, resulting in better coffee compared to previous years. Fertilization has been tailored to exactly the necessary amount of required nutrients (N, P, K, La, Mg, etc.) for the plants and has been programmed and carried out according to the soil analysis results.
Other news: Rainforest and UTZ to merge. Extract from press release below:
The Rainforest Alliance and UTZ, two of the world’s leading sustainability certification programs, announced their intention to merge later this year. The new organization, to be named the Rainforest Alliance, will tackle environmental and social issues around the world, including climate change, deforestation, and unsustainable farming.
Together, they will continue to protect the natural environment, striving to make sustainable agriculture and forest management the norm, an aim that is already at the core of the mission of both the Rainforest Alliance and UTZ.
By adopting the name ‘Rainforest Alliance’ they will carry forward a strong public-facing identity. By joining forces, they will provide a leading platform to help increase consumer demand for responsibly sourced products.
Their goal is to publish a new unified standard in early 2019. Until then, both programs will continue to provide you with the same services they currently offer. For Rainforest Alliance Certified™ farms and operations, and for those who are sourcing from Rainforest Alliance Certified farms, the 2017 SAN Standard will still come into force from July 1st, 2017 as previously planned.