Welcome to the May 2022 edition of DRWakefield’s Monthly Coffee Origin Focus.
May, like the rest of 2022, has proven to be a tumultuous month. Internationally, all eyes remain on the invasion of Ukraine, and our thoughts remain with those who are affected by the conflict.
Here in the UK much of the month has been spent in anticipation of the Queen’s Platinum Jubilee celebrations and an extra-long bank holiday weekend. Parades and street parties and all things red, white and blue have been the order of the day as the country came together to celebrate.
At the start of May Sterling was, retrospectively, looking fairly strong, sitting at about 1 GBP to 1.26 USD. However, on 11-13 May saw it drop to a 2-year low of 1 GBP to 1.21 USD. However, it corrected by the end of the month, ending May as it began at 1 GBP to 1.26 USD.
In this report, we will delve deeper into Brazil, Hawaii and Papua New Guinea.
Coffee Origin Focus
Once again, all eyes have been on the Brazilian weather forecasts. Throughout May there was a cold weather front moving through the country which held the potential threat of frost. Whilst thankfully no frost did occur, concerns did cause turbulence in the NY coffee market. Fortunately, for now, the weather forecast in Brazil is looking more favourable.
The harvest is currently underway in Brazil, although at the moment it is behind schedule. About 13% of the crop has already been harvested, but this time last year it was already 17% complete. Similarly, exports are also down compared to last year. According to Cecafe, Brazil exported about 1.4 million bags of coffee in May 2022. This is a significantly lower volume than May 2021 when almost 2.7 million bags were exported. This is due to the crop being later than last year, but also to the difficulties in securing shipments that have been faced since the second half of 2021, and the difficulty in getting a booking to ship out of Brazil does not look to be easing.
This month the Brazilian Real has strengthened against the US Dollar. Starting the month at 1 USD to 4.9 BRL, peaking on 10 May at 1 USD to 5.16 BRL and then strengthening throughout the rest of the month at 1 USD to 4.73 BRL. This strengthening in the latter half of May has encouraged the upward trend of the NY Coffee Market we have been seeing.
According to the USDA Natural Agricultural Statistics Service, coffee production in the State of Hawaii for crop year 2021/2022 totalled 27.4 million lbs (12.4 million kg) of cherry, representing a 21% increase from 2020/2021. Hawaii now has approximately 7200 acres of coffee production, up roughly 6% from year prior. The average yield was 3900 lbs per acre, up 440 lbs from the previous year. The total value of the crop was $61.9 million, up 28% from the year prior, with an average cherry cost of $2.26 per lb statewide. Green coffee production for 2021/2022 is 5 million lbs, up from 4.3 million lbs in 2020/2021 with an average price of approximately $20.30/lb.
Coffee Berry Borer (CBB) and Coffee Leaf Rust (CLR) continue to be problematic for the Hawaiian coffee industry. CBB was first detected in 2010 and has subsequently appeared on all the islands. CLR has appeared more recently, however, it too has been found on all the islands. The State of Hawaii continues to provide and support legislation for subsidy programs as an incentive to farmers to adopt preferred strategies in an effort to eradicate CBB and CLR. Educational support is also provided to farmers by local groups, research organizations and coffee associations.
The current outlook for 2022/2023 is predicting a smaller volume following the bumper crop of 2021/2022. Contributing factors include early drought conditions and increasing CLR. At present, rains are ample, providing excellent conditions for the development of the cherries on the vine, however, this is being negated by the spreading of CLR. Housing and labour costs continue to skyrocket across the state and fertilizer and fuel costs have doubled. As a result, we expect to see higher prices for the new crop.
Papua New Guinea
In Papua New Guinea nominations for the upcoming national elections have opened in readiness for polling in June. Always keenly contested, there are sometimes up to 40 candidates in an electorate, all trying to convince voters to mark number 1 against their name. Parliamentary elections happen every five years, and their structure is based on the Westminster system of government. It can be a turbulent time in the towns and rural areas and the coffee movement may slow down over the course of June, and perhaps longer, as people decide to stay at home rather than travel around on the open road.
The crop forecast in Papua New Guinea is likely to reach just under 1 million bags this season as the high local prices are incentivising farmers to ensure they harvest every bean for sale. When prices are lower, less effort is put into harvesting coffee but this year we are expecting good volume! The weather is also very favourable during this year’s dry season, making transport along the rural roads less arduous than usual, as the drier conditions mean the roads are easier to maintain and use.
The local currency, the PNG Kina, is under some pressure to hold the level of 0.2915 $ to 1 Kina. Importing companies often wait weeks for their foreign currency payments to be actioned in order to get a good rate, and are thankful that the coffee industry will add approximately US$300m to the foreign exchange reserves this year.
Local prices are easing a little from the early highs as more coffee becomes available in the marketplace and the early physical shorts have been covered. It is expected that internal prices will decline slightly if the NY price stays around the present level and decline further if it drops.
Our thanks to our partners Coffee Connections and Karen Fazzio.