Welcome to DR Wakefield’s Monthly Origin Focus.
The new English Premier League season began and the big news was the return of Cristiano Ronaldo to Manchester United. Will their old talisman be enough to take the title from their derby rivals? After the success of the Olympics, the Paralympics began in Japan and the UK got off to an excellent start. By the end of August, the UK had won 30 gold medals resting in third place.
A large number of countries have had worsening problems with wildfires this summer that persisted into August. Greece, Israel, Turkey, USA, Italy and Morocco, to name a few, have been consistently battling blazes. This July was the worst month on record, another indication that climate change is firmly marching onwards.
The Pound showed little movement against the dollar, but the NYC did see another jump over 200 cts/Ib off the back of dry weather September forecasts in Brazil. Many marketing participants are watching closely to see if further forecasts cause spikes in September.
In this report, we will take a closer look at Honduras, Myanmar and Guatemala.
Regarding political news, Honduras is approaching its next general elections, which coincide with the harvest period. The new President will take position in January of next year, and there is uncertainty of who will be elected among the three strongest parties: Nationalist, Liberal and Free. Along with this, the national currency, the Lempira, has strengthened slightly against the US dollar.
With the high market caused by the Brazilian frosts, producers are confident that the high prices will be supported for the medium to long term, and so attempts are being made by farmers to boost yields with the application of fertiliser. This will impact the upcoming 21/22 crop but will have a greater effect on the 22/23 crop. Other origins will look to partially cover the loss of the Brazil 22/23 crop.
As of July 2021, Honduras has exported 7.17 million bags, exceeding the third forecast prepared by IHCAFE. Producers continue their efforts to adapt to and help mitigate the effects of climate change and recover from the effects of the ETA / IOTA hurricanes. Climate change in recent years has mainly manifested with either the rainy or dry seasons, which last longer than normal and disrupt crop cycles.
The year in Myanmar awoke with a military coup on February the 1st. The army retook political control of the country after ten years of democratic opening. In the first weeks, there were massive protests throughout the country in reaction and strikes in many sectors, especially the public, such as health or education. Since July, the country has been fighting against the third wave of the pandemic, limiting travel and minimising citizen’s exposure to the virus in public and work environments.
As far as coffee is concerned, this year’s harvest crop was lower than in other years due to the low rainfall of the previous season – with rainfall almost half of the previous years there has been a 15% decrease in production. For now, the rains this year have been higher in the same period compared and a decrease in future production is not expected. The coffee harvest in Myanmar runs from December to April, and some coffee processors/exporters saw their operations interrupted in February. Due to the political situation and the incidence of the pandemic, this year the export market in Myanmar was altered, with part of the coffees left in the hands of small traders who have closer ties with neighbouring countries, such as China or Thailand.
Since February, Myanmar’s currency, the Kyat, has devalued against the US dollar by 25%, going from 1,300 to above 1,600. Coffee stocks at larger exporters are normal at this time, as they gradually release contracts with a slight delay due to the difficult context presented by the logistics sector amid the pandemic.
Guatemala is gearing up for its 21/22 harvest later this year and some ‘cleaning pickings’ have begun. Reports from exporters state that recently Guatemala’s maximum production potential has been diminishing due to several factors. These include few incentives to produce coffee from the government and no easy and cheap financing for small coffee producers, with some growers already carrying high debts.
Moreover, there are few technical assistance programs from government entities, and few success cases from private companies or cooperatives, which compound with low and slow renovation with new productive varietals, provoking abandonment of coffee-producing regions and low productivity per hectare. As well as this, coffees with certifications are shrinking due to costs and the merger of schemes such as RFA & UTZ. All this places a great deal of uncertainty on growers and is part of why differentials have not been reduced even as the market goes up. Participants are still hesitant to offer in volume, and not at cheap levels.
However, some participants have already sold some “adequate” volume, so do not need to offer additional quantity unless at higher diffs. Of course, with actual levels and potential probability of sustained prices, Guatemalan coffee producers will also invest in coffee farms with better and higher fertilisation per hectare. However, producers also face an increase in fertilisers costs of near or even above +30%. The effect on crop 21/22 will be marginal, maybe a +5%/max 8% due to this additional investment. The rest might be due to higher cycles.
Our thanks to Sandra Soriano of BEO and Pedro Carballo from Mandalay Coffee Group for their input this month.