Welcome to the February 2022 edition of DRWakefield’s Monthly Origin Focus.
The headline which has dominated this month is, of course, the distressing news that Russia has invaded Ukraine. Our thoughts are with Ukraine and we are wishing for a speedy and peaceful resolution. The event shook the world, causing both currency and the coffee market to drop sharply.
In sport, the Six Nations Rugby is well underway, with England’s recent victory over Wales offering a lot of excitement and a tense few final minutes. Let’s hope they can continue their winning streak in their upcoming match against Ireland!
At the start of February Sterling was looking fairly strong, sitting at about 1 GBP to 1.35 USD. However, on 24 February it dropped down to 1 GBP to 1.32 USD. But corrected slightly, ending the month at 1 GBP to 1.34 USD
In this report, we will delve deeper into Indonesia, Ethiopia and Brazil.
Coffee Origin Focus
Whilst here in the UK the pandemic seems to be coming towards an end, Indonesia is still very much in the thick of it. The third wave and the Omicron variant is continuing to gain traction, with infections still rising. Precautions within the coffee industry are still being taken, most notably only 50% of the workforce is allowed in on any given day and alternates with the other 50% to keep workers as safe as possible. As a result, production is slower than typical pre-pandemic times.
The new crop season is about to begin, starting at some point during March-April this year. Currently crop volume predictions aren’t looking that optimistic. Estimates are 10-15% lower than last year’s crop due to heavy, unfavourable rains at the end of 2021. On top of this, weather predictions are showing some decline in rains over the next few weeks, which is not the best news. However, at this point in the crop – more than halfway through the cherry growth phase – it is not a disaster either. It could be problematic if this continues into the coming weeks though, so we will keep an eye on this.
Local prices are on the rise due to a lower volume autumn 2021 crop as well. Due to the crop shortage, many exporters are long on their contract position, but short of the physical coffee. On top of this, the soaring NY Coffee Market has, like with the rest of the coffee world, pushed local prices up even further, with no sight of them coming back down in the near future.
Photos of the current crop in Indonesia, supplied to us by Sari Makmur.
In Ethiopia, there has been a significant change to the way coffee is being exported. The regional Oromia administration has begun to export coffee, rather than just through the Ethiopian Commodity Exchange (ECX). The Oromia administration has been encouraging farmers and traders to sell directly to exporters, not to the ECX. Since this change was introduced the volume of coffee going through the ECX has dropped significantly and our partners in Ethiopia, Heleph Coffee Exporters, believe this trend is likely to continue, meaning the ECX’s future is uncertain.
The Federal Government still controls the exchange rate, which currently sits at 51 birr to 1 USD. The actual rate is thought to be anywhere between 62 and 100 birr to 1 USD, with expectations that it could go even higher to 200 birr to 1 USD. The birr is thought to be heavily overvalued: all agricultural and industrial exports in Ethiopia are down and foreign investment is also down due to the civil unrest. Coffee exports, however, have increased. Last year 300,000 MT of coffee was exported but this year 350,000 MT are expected to be exported.
The rising prices of the New York Coffee Market have, like with other origins, meant higher prices in Ethiopia. This is good news for the farmers as it means they earn more money on the coffee they are growing. However, it does create a risk of potential defaults. If the market and prices keep rising farmers may default on their contracts as they have the potential to sell their coffee for a better price elsewhere.
Life in Brazil seems to be on track to return to some sort of normality following the pandemic. Whilst cases are still very high, they are certainly on a downward trajectory following their most recent wave of Coronavirus, which peaked at the end of January. This year the Rio Carnival is going ahead, having been cancelled last year, and is taking place at the end of April.
When it comes to the weather in Brazil, we have more good news! Brazilian weather is continuing to look very positive for the recovery of coffee after the turbulent conditions over the last year. The weather forecast for March is looking increasingly dry, but this is not a problem as, over February, the trees benefited from good rains and so are healthy enough to withstand a drier period. No major storms are expected in March which happily also means no major storms are likely to hit Brazil before the next harvest begins.
The Brazilian Real has experienced quite a bit of movement this month. Starting the month at 5.26 Real to 1 USD, peaking at 5 Real to 1 USD on 23 February, before largely correcting to 5.16 Real to 1 USD to close out the month.
In other news, Brazilian Vanusia Maria Carneiro Nogueira has been elected as the Executive Director of the International Coffee Organisation (ICO). With more than twenty years of experience in the coffee industry, Nogueira is the first woman in the history of the ICO to hold this position. Her appointment sheds a light on the invaluable role women play in the coffee supply chain.
Our thanks to Andry from Sari Makmur and Tsegab and Michael at Heleph Coffee Exporters.