Welcome to the March monthly DRWakefield Market Report. This month, as well as the usual suspects (NYC, Robusta & Currency) we’re also delving a little deeper into Guatemala, Ethiopia and Myanmar. Enjoy!
The past month has presented some pressure on the terminal markets. The beginning of March saw levels in New York around 145, but by the end of the month, the market closed at 139.30 c/lb, representing almost a 4% loss over the course of the month. As you can see from the graph above, there was nearly an 8 c/lb drop over a five-day period from Monday 20th to Friday 24th March. With a significantly lower Brazil 2017/8 crop, some reports suggest that the market will rally over the coming months due to this tighter supply. On the other hand, in the last week of March, CEPEA (Centro de Estudos Avançados em Economia Aplicada) noted that 20% of the current Brazilian coffee crop was still unsold, compared to only 15% last year at the same period. This has added to the negative sentiment, suggesting there is significant stock at origin to sell. Will this extra quantity compensate for the lower 2017/2018 crop? Difficult to take a position at the moment as reports are pointing to different conclusions. What is certain, is that this price is historically quite low so now is a good time to check your contracts for the coming months.
In India the majority of Robusta regions are waiting for much needed blossom rains. Lower water availability is limiting the possibility of irrigation in most growing regions. Vietnamese coffee exports are expected to be sharply lower this season (which runs till November) with most figures pointing to 20-30% lower year-on-year, after a severe drought during crop development turned into damaging rains come harvest time. However, attention is now focussed on the next harvest, with widely divergent views on prospects. Big variances in production estimates for the next crop are causing uncertainty in the Robusta market which closed at 2,149.00 $/mt at the end of March.
Everyone was waiting to see what would happen when UK Prime Minister Theresa May triggered Article 50 on the 29th March. GBP/USD had been moving in the 1.22 to 1.25 range during the month of March and that has not changed since she unleashed the ‘trigger’. In the immediate aftermath of the Prime Minister’s announcement, Sterling came under some downward pressure on the currency markets. However, much of the economic data which followed later in the week turned out to be rather supportive. In any case, both GBP/USD and GBP/EUR are less volatile as many predicted, after the infamous letter was delivered to Donald Tusk.
A recent Rabobank coffee crop survey on Brazil indicates a 2017/2018 crop of 49.2m bags: 36.7 bags of Arabica and 12.5m bags of Robusta. The 2016-7 Arabica final number was 42m bags. The main reason for the lower 2017/18 Arabica number is the fact that last year’s Arabica production was very good, and trees are in a clear off-cycle in many regions. You can read more on that here. The intense pruning undertaken recently increases the prospects for a bumper Arabica crop in 2018/19. The US Department of Agriculture sees Colombian coffee production in 2016-17 at 14.50m bags, the highest level since 1992. However, landslides in Colombia have blocked important routes to ports, affecting the flow of exports.
These won't be the best tasting naturals in the world given the amount of over / under ripes here - but it's the end of the season so we can be forgiven for enjoying the multicoloured "skittles" aspect. #tastetherainbow #skittles #cherries #drying #natural #patiolot #mexico #origin #drwontour #coffee #coffeefarming #specialtycoffee #microlot #thingsaboutcoffee #ilovemyjob #sustainable #fullytraceable #traceable #certified #colours
According to ANACAFÉ (National Coffee Association in Guatemala) the volume of exports is estimated for this year at 3.9 million Gold quintals (2.1 million bags of 60 kg), however, it is predicted by some that the final figure could be 10% to 17% less due to droughts in some areas and excessive rainfall in others.
There are fewer participants in the market this year as the government has cracked down on exporters who have seemingly ‘fiddled’ the tax system. This has meant growers have struggled to sell their coffee with fewer buyers to provide access to markets and there appears to be still a great deal of unsold coffee. While the crackdown is good for government ‘coffers’ and will yield long term benefits, producers are struggling to sell their coffee in the short term.
This has forced growers and exporters to sell coffee below the cost of production in some cases just to shift the coffee. This makes Guatemalan coffee look extremely cheap when you look at historic price levels. Exporters we work with are stressing it’s not a sustainable situation nor one that will occur again anytime soon as more market players are expected to return next year when they have sorted out their tax issues. A low NYC coupled with extremely low differentials and an exchange rate (USD $ versus GTQ) falling to levels not seen in 17 years, means all involved with coffee in Guatemala are suffering.
Change is afoot, or on the distant horizon depending on who you talk to in Ethiopia. Coffee is the major source of USD earnings for Ethiopia representing over 25% of all foreign currency earnings. Needless to say, this importance has made the government take more action / involvement to protect this vital resource. Several meetings have occurred on the state of the Ethiopian coffee industry, culminating in a meeting with the Ethiopian Prime Minister at his office. Several proposals and recommendations were put forward for changes in the Ethiopian Coffee Value Chain by a committee of stakeholders ranging from growers, to representatives of foreign coffee traders, and ECX officials and exporters.
Some of the main conclusions were:
Allowing for direct trade from agrabe (middlemen owners of washing stations and hulling stations) to exporter, bypassing the ECX and insuring traceability. This was the most salient conclusion agreed upon, driven by demand from international buyers.
Shortening and streamlining the supply chain. Currently the farmers are selling cherries (fresh and/or dried) to brokers/agents that will collect at farm gate and deliver to agrabe washing station or hulling station. The new model envisages the abolishment of the agent/broker, so that the farmer sells directly to the agrabe.
Set up a system whereby low quality is channelled to the internal market leaving the higher grades for export and therefore attracting more foreign currency. Currently the internal market is starved of product and therefore prices are high (higher than the export market prices for same quality) which encourages better quality to remain and be consumed in Ethiopia. This conclusion is bad news for Ethiopian consumers who enjoy a lovely grade 1 Yirga.
The New Coffee Authority (established in 2016) is the main agency responsible for implementing the approved recommendations.
This is the first year we are importing coffee from Myanmar. We are working with producers in three states: Mandalay, Shan & Chin. The first two states are more developed in their coffee producing methods with Chin being right at the very beginning of its journey to producing coffee for export. The potential there is huge. Chin sits at 1400-1600 metres above sea level and is one of the highest regions in Myanmar and is perfectly placed for growing premium Arabica.
The main varietals cultivated are SL 34, Catuai, Caturra and some lesser known types simply referred to as “wild/indigenous ones”. Most of the coffee plantations were given to locals in the mid-twentieth century from the Government as a source of income. Myanmar Care, a NGO working in the region, began distributing coffee seedlings in 2010 to help boost productivity but abandoned the project shortly after. Working with a local agronomist and our partner out there Nat Coffee, we are continuing their work and taking their vision a step further: exporting specialty grade Myanmar coffee.
Chin State, West Myanmar, is sparsely populated and suffers the highest poverty levels in the country, making it one of the least well developed. There also exists a lack of institutionalized coffee farmer groups and connectivity among farming peers. One of the key objectives for Project Myanmar is to provide smallholder farmers of Chin Litaï with intensive, field-based agronomy training. The programme is based on the experiences of local trainers and focussed on harvest activity, including collection, organic fertilization, maintenance and processing. Keep an eye out for Myanmar coffee hitting the offer list soon.
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