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Industry Update: Bird’s Eye View

From where I sit in the Royal offices, I can see maps of several key producing countries, labelled with flowery titles: Colombia, País del Café (Country of Coffee), Guatemala, Tierra de Contrastes (Land of Contrasts), El Salvador, Rincon Mágico (Magic Corner). Much of the work we do alongside roasters involves the minutiae of coffee, lining up lots that have the right notes of fruit or the sought after tone of sweetness, or helping put together blends that make as much sense in the cup as they do for the budget, but a quick glance at the wall of maps reminds me of the large-scale world of coffee. This month, I’ve got an update for you, straight from the bird’s eye view of the coffee map.

C Market: As of Friday, 10/28/2016

After a summer-long struggle to breach the $1.58, futures pricing surged into the $1.60 range. The market rebounded from a low of $1.4520 on 10/7 to close at $1.6550 on 10/28, marking a $0.23/lb increase in 21 days. Resistance becomes support on the technical charts, so the summer’s $1.58 ceiling will now be a baseline from which the market can launch further probes against the $1.70 and beyond. Technical indicators also show signs of strength, DMI (directional movement indicator) readings show that upward movements in the last two months are more decisive and ADX (average directional index) readings show that the upward trend is picking up steam.

Foreign Exchange:

US dollar values firmed up considerably in October, as currency traders expressed confidence in Federal Reserve interest rate hike at the end of the year. On Friday 10/28, the dollar fell from this three-month high as economic reports indicated a slowing in consumer spending despite a strong GDP growth this quarter. The Brazilian Real, coffee’s second most relevant currency, also firmed up in the last two months as new President Michel Temer reasserts efforts to tame fiscal misbehavior and rebuild confidence in South America’s largest economy. A firm dollar usually forces commodity futures to fall, and a firm real usually boosts the C market higher, but the strongest motivator for the C is our next point: coffee supply and demand fundamentals.

Brazil:

The lingering dryness in Brazil, lower Robusta production and reduced warehouse inventories have created a situation of limited supply from the world’s largest producer of coffee. The diminished Robusta availability pushes the price of the lower quality variety to near parity with Arabica, motivating green buyers to switch from Robusta to low-grade Arabica and further reducing the supply of Arabica, in turn pushing the C market higher. Although rains have returned to many of the producing areas, speculators area also participating in buoying the price.

Colombia:

On the other hand, Colombia is enjoying solid production numbers and improving cup quality. Deliveries from Cauca, Narino, Popayan and Huila have cupped well above average, with a good range of workhorse lots as well as microlots coming to port punctually with no further strikes in view and the USD to Colombian Peso exchange rate navigating steadily. An interesting study on leaf rust fungus by the University of Exeter found little evidence of climate change as the cause of the 2008-2011 epidemic, and cited other factors (particularly decrease in fertilizer use and a combination of weather conditions favorable to leaf rust) as more important to spread of the disease. Click here for the article

Ethiopia:

Earlier in the month, the Ethiopian government declared a state of emergency following violent protests, announcing last week that police had arrested 1,645 people to subdue recent unrest. Dozens of civilians have died in clash with security forces and foreign-owned factories were damaged in the confrontations, and there were reports of several coffee mills falling under attack as well. Media outlets cited land disputes, ethnic tensions and a heavy-handed government crackdown as sources of the unrest. While the specifics of how this will affect next year’s crop are still unclear, the incident further highlights uncertainty for availability and prompt shipments in 16/17.

Sumatra:

Dry weather in northern Sumatra will likely reduce the amount of Indonesian coffee available in the coming months. With prices at origin climbing already, buyers are advised to contact their traders to discuss how to best forecast usage. Alternatives to Sumatra, i.e. Bali, Flores, Timor, Java, Sulawesi, have delivered great lots in the past few weeks and merit attention from roasters looking for wet-hulled and fully washed Southeast Asian coffees.

Central America:

With current crop all delivered and good weather supporting production, Central American countries have a few more moments of calm before the storm. Low altitude plantations are already harvesting, but the coffee of significance to specialty roasters is months away as the harvest advances in elevation.

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