Welcome to the August 2022 edition of DRWakefield’s Monthly Origin Focus.
August in the UK has been marked by some very hot weather, the start of a drought and the Conservative Party leadership race to determine who will be our next Prime Minister, who, it has just been announced, is now Liz Truss.
At the start of August Sterling was sitting at 1 GBP to 1.21 USD, but tumbled throughout the month, closing out at 1 GBP to 1.16 USD. These are levels unlike anything we’ve seen over the last decade, with the one expectation of March 2020 where the exchange rate did hit a low of 1 GBP to 1.14 USD for a few days when the UK first went into lockdown. Hopefully Sterling will be able to regain some strength throughout September.
In this report we will delve deeper into India, Peru and Brazil.
Coffee Origin Focus
The Indian Government is bringing in changes to the age-old ‘Coffee Act’ in order to make it more up-to-date to suit current quality and volume requirements and to focus on solutions for pests and diseases.
The rainfall patterns seem to have changed in the coffee regions, we have seen an unprecedented volume of rain in May and then almost no rain in June, and then July again was a wet month. When the rain does fall it is heavier than usual. Producers now feel like they need to be prepared for further real change in the climate conditions. Whilst the rain has become more unpredictable, luckily, for this crop’s flowering, it has been very timely, meaning things are looking positive for a bigger crop next year!
The political situation in India is quite stable with the present ruling party initiating new laws and being proactive across many sectors. The inflation due to the war in Ukraine is affecting the overall cost of living, particularly with the increase in prices of oil as India is a big importer of oil. The Rupee has weakened against the USD in the last months which in turn has put further pressure on current account deficit as all the imports mainly oil is going to cost higher resulting in much higher outflow. The exporters and in turn the coffee producers are benefiting as a weaker currency gives them a little more money. Although, this seems to be negated by the higher fertiliser prices which are being experienced across the globe.
Peru, like most of the coffee world, has been struggling with smaller crop volumes this year. Many producers are 30-40% down on last year. Because of this many producers are currently reluctant to offer further coffee until the harvest is fully complete and they know exactly how much coffee they have left to offer.
Part of the reason for the lower crop volume is the irregular weather patterns that Peru has begun to experience over the last year or so. Rains used to be very predictable and occur between January and March every year, but this year the rain began in January and continued intermittently for more than 6 months. This has interrupted the regular development of cherries and flowers, and as a result, there are both cherries and flowers on the trees simultaneously, which spreads out the harvesting period.
On top of which, continued intermittent rains also pose a problem for drying coffee after it has been harvested. The majority of coffee in Peru is patio-dried in the open air. If rainfall is predictable producers know how to work around it, but if not then it makes it much harder to dry the coffee evenly, which therefore makes defects more likely to occur. The best way to manage this is to dry coffee in covered solar dryers. Many producers in Peru are now prioritising funds for covered-drying solutions to try and mitigate this.
Harvest in Brazil has almost entirely finished, with the high altitudes the only ones left to pick anything. This year in general the harvest started late and finished early, with a lot of farmers reporting good quality and even pickings despite the yield being slightly below estimates.
A small amount of rain a month earlier than expected has produced a flowering, though the fears are the follow-up rains will not be in time for the flowers to fix. If it is, this may also lead to a more uneven harvest next year, so there is much discussion over the best outcome or course to take.
The large numbers of trees that were damaged by frosts earlier were stumped, and these should be set for good production next year.
Elections in Brazil are heating up. A first TV discussion between candidates including the controversial right-wing Bolsonaro and the Left-wing, ex-president Lula has set the tone with the country looking set to split their choices between the two political heavyweights. This will roll on with more debates scheduled until the first election day on October 2nd. An optional day of voting is set for 30th October if the first round is not decisive.
Our thanks to our partners Allanasons in India.