Source Country Commentary
Differentials have remained steady to firm over the past quarter due to the lack of interest from sellers at origin. With Brazil being the largest producer of coffee with the lowest cost of production, cash flow at the farm level allows producers to hold coffee until the time when it’s most advantageous for them to sell. The only way differentials could ease during the remainder of this crop would be a significant rally in the “C” market. From the availability perspective, the port congestion has experienced relief and the outbound flow of coffee has improved significantly over the last 30 days.
Differentials for Colombian coffee remain stable to firm. Export registrations are marginally higher than last year. The mitaca crop seems to be in good shape, although due to lower net prices to farmers, fertilization (or lack of) is a factor. Producers/exporters having been willing sellers of new crop coffee in the September/October futures market rally, now are reluctant to follow prices much beyond $1.1000.
Honduras: New crop has been off to a very slow start with 6% of the harvest being exported when normally by this time we would see 15%. Due to the crop being late by almost a month, internal prices for coffee have risen making nearby differentials rise. Compared to last crop, differentials increased due to a combination of the consistently low “C” market and the delayed crop. With a slight uptick in futures pricing and overall production expected to be approximately 650,000 greater than last year, Honduras is expected to be a more aggressive seller in the coming months compared to other centrals.
Costa Rica: is set to have one if not the lowest yields in the past 10+ years. Icafé, Instituto del Café de Costa Rica who is a public company aimed at promoting Costa Rican coffee, education and the support of production, processing, export and marketing has estimated that the entire countries production could be close to 1.83 million exportable 46 kilo bags. The West Valley accounts for most of the shortage in yields. The reasoning behind this thought is due to the strong winds and long rains of 2018 as well as an off cycle year which has caused severe tightness in the market. Not many suppliers are offering more coffee for new crop until yields come in with more volume at the mill. Price offers have been firm for most of the season hoping to sell at fixed prices rather than “to-be-fixed,” due to the lower New York “C”.
Guatemala: Looking for a similar harvest for this year… approximately three million 60 kilo bags. Roya is still a concern as the harvest has been under way for a few weeks now with some HB and SHB coffees beginning to ship. Guatemalan producers and suppliers are also looking to sell at fixed prices with concern of the low New York “C”. Not many are willing to look at selling their coffees on a differential basis. So far quality seems very good and we expect that to stay consistent.
Ethiopia: The rain in October that continued in to early November helped ripen the cherries. In some areas picking started in November. Early reports from our suppliers indicate that we will have quality which will be on par with years prior if not better. There is the possibility the earlier arrivals will compare nicely to last year due to earlier ripening of cherries and processing underway at origin. We will soon receive pre-shipment and offering samples from Yirgacheffe, Sidamo and also from the Gera Estate in Djimma.
Kenya: Late crop or main crop is well under way as the auction is seeing large volumes of coffees being presented from low quality naturals to high quality cooperative and estate coffees. Production seems to be on par with last year and prices too seem to be firm looking for the highest price at the auction for high-cupping lots. We have just seen our first delivery of cooperative and factory traceable lots as well as a great cupping Organic lot from the late crop. More coffees will start to hit our cupping table as the weeks go on.
Tanzania: Is slowly arriving in the U.S where northern estate lots have been the gems of the season. Over the past few seasons we have seen inconsistency mainly from the southern areas, which seems to be a continued trend overall as well for this year. The port of Dar es Salaam is jammed with coffees from neighboring countries looking to ship their coffees (Burundi, Rwanda, Uganda) and we can expect some delays yet again from this port. This year will be a bit different from prior years where our focus has been more heavily concentrated on traceable, better processed lots from the north near Kilimanjaro and Arusha. Watch for further developments as coffees are starting to arrive from February to April.
Far East and Indonesia
This region can sure use a break from its share of natural disasters. As the Sumatra harvest and exports have started to roll in, we have witnessed fractional relief in the internal market price all while the “C” market continues to trend lower. Papua New Guinea, Timor, Java, Sulawesi and Bali have all but wrapped up their exports and with the underpinning of the Sumatra so it is our suggestion to insure you have proper coverage into the next six to nine months.
Once again, we reiterate that with the recent lows in the futures markets, our focus here at Royal is aligning ourselves with good supplier-partners who will do their best to maintain quality given the change in prices year on year.