Welcome to DRWakefield’s first Monthly Origin Focus of 2021.
The start of the year saw the roll out of the Covid-19 vaccination program around the world. Many areas of the UK received some snow, even the very centre of London, something not seen too often. Scotland celebrated Burns night on the 25th of January, so I hope at least a few of you indulged in a wee dram and a freshly caught haggis. In what could be the most shocking result in the Premier League this season, dead-last Sheffield United beat in-form Manchester United 2-1. Pound Sterling kept climbing against the Dollar and Euro and peaked over 1.37 and 1.13 respectively. The coffee market had a turbulent month bouncing under 120 c/Ib and over 130 c/Ib.
So, in our new Monthly Origin Focus this post will take a deeper look at what is happening at origin. For updates on NYC, currency and Robusta please head to our website and look for our new Fortnightly Market Report.
Guatemalan coffee exports were on the backfoot in January due to the hurricanes that hit Central America in November last year. Between October and December 2020 it had only exported 73% of the volume compared with the same period in 2019. This equated to 192,945 60 kg bags down from 264,639 bags. The region of Huehuetenango had a delay to the harvesting and is 15% down in volume from the previous year. This has caused the shorts in the market (especially the multinationals) to pay somewhat high prices. FOB differential have gone up 2 cents/Ib since the end of December.
The heavy rains damaged roads and caused problems for the ripening coffee. The first two weeks of January also saw bad weather, further causes issues. The national coffee association Anacafe claims that the country has lost over 40,000 bags of 60kg worth of coffee. Further to this, the rainfall also damaged a number of seedling nurseries which may have longer term impacts for coffee growing in Guatemala. Another side effect of the hurricanes from an agronomical point of view is the increased leaching of nutrients and the loss of top soil due to mudslides enhanced by steep mountain slopes. The immense precipitation has also increased the humid conditions in which fungi thrive. This could result in the number of incidences of Leaf Rust rise as the fungus spores are spread by rain droplets.
The main news coming out of India is the suspension of three recently placed agricultural laws. Thanks to over 250 million farmers striking (which is said to be the world’s largest ever strike) the policies enacted by the Supreme Court in 2020 have been put on hold. In an attempt to advance the countries agricultural industry, which employs nearly half of the population, the Supreme Court introduced three reforms aiming to accelerate growth through private investment to aid smallholder farmers. However aggrieved smallholder farmers believe they were not consulted and in fact the laws may do the opposite of benefit them. Time will tell what the final solution is.
The first two weeks of the month had rain which resulted in some cherry drop but not thought to be too damaging. The country is on track to ship just 0.25m bags in January, leaving coffee Y-t-D shipments at just 1.23m bags (0.35m below the 5-year average). However, overall The Indian Coffee Board forecasts 2020/21 production to be up by 0.73m bags at 5.45m (4m Robusta / 1.45m Arabica). The Coffee Board’s numbers tend to be below the market consensus. This is the first year in a while that most exporters are not short. Diffs are on the high side and are not attractive to European trade houses or roasters, especially when demand is slow due to lockdown. The lack of buying could put farmer’s in difficulty unless the flow increases.
Conab released its first survey of the 21/22 Brazil crop predicting a drop of between 32% and 39% for Arabica which pushed up prices with differentials tightening by 1 c/Ib with offers of -23 or GC and -18 for FC. Washed arabica diffs are slightly weaker than Honduras HG at +20. There were marginal movements in the BRL/USD.
The lack of food grade containers that has plagued Brazil for the last few months is starting to get worse meaning the need of traders to send shipping instructions promptly is of the upmost importance. To add to this Brazil’s truckers union has threatened to strike from the 1st of February which would certainly hamper the flow of coffee to ports. Shipments slowed to 3.3 million bags in January from the higher levels of 4 million seen at the end of 2020. Semi washed Brazils now account for over 30% of Arabica certified stocks. A week of high temperatures and little rainfall in the coffee regions as been typical of summer in Brazil but forecasts of rains at the start of February are enough to reassure farmers.
Brazil has started its vaccination program with the most at risk sectors being targeted first. So far over 400,000 people have been vaccinated. However crowds at end of year parties have gone someway to undo this hard work and have spiked number of cases and deaths.
Our thanks to Gerado Alberto, Moorthy Krishnan and for their input this month.