Green Coffee Quality Report
Review and Expectations
Brazil: Harvesting is completed in all regions with the exception of Zona da Mata that is 85-90% completed. The pace of pruning is increasing. Estimated 20% of the growing areas have already been pruned with more still to come. Some 5-10% of the growing areas will most likely be uprooted and replanted leading to 3 years without significant production, updated numbers to be expected by mid of November. The Cerrado area continues to grow at an average pace of 5% per year. Warehouses in the Arabica regions are nearing maximum capacity, causing problems for some buyers. According to local wire news Safras & Mercados, producers have already sold 65% of crop 18/19. The cup quality for this season continues much above standard with most of the coffees are usable for all requirements. Rains continue helping all coffee areas particularly the most important areas of Minas Gerais, such as South of Minas, Cerrado and Zona da Mata. It has rained so far above average in all those regions. Parana also got rains above the average so far in October. Mogiana areas in Sao Paulo, albeit has had good rains, were below than average but overall soil moisture is within standards. Overall October rains should be much above the usual average which has been very beneficial for the coffee plantations, trees look to be in very good shape with leaves green and healthy. The main flowering has already happened and young cherries are in the development stage. Brazilian coffee growers are expected to invest less in crop cultivation for the 2019/20 crop, in the face of weakening commodity prices and rising input costs because of the appreciation of the dollar. The move may put more pressure on supply for the world's largest producer and exporter of coffee, as next year's crop will be down in the biannual cycle of Arabica after a record harvest in the country of about 60 million bags this year. Less investments in fertilizers, and especially defensive ones, could hamper the productivity of crops that will begin to be harvested in the second quarter of 2019. "The producer is wanting to cut costs because the return is lower," said agronomist Celso Scanavachi of the Coopinhal cooperative, stressing the possibility of disease incidence due to reduction in the use of pesticides. Mr. Bolsonaro won the presidential run off as expected. He got 55% of the valid votes, beating Mr. Haddad from Labor Party. The inauguration will be on January 1st. The number of Ministries shall be reduced/merged from 32 to 15, which should improve the effectiveness. Group 2: Producers have been active sellers during the long price decline period, since the beginning of July when prices broke BRL$400.00. Prices have then reached a bottom at BRL$340.00 level, but started a recovery in October to close today at BRL$370.00. This upward move was helped by ICE-NY correction and was in certain sense offset by the Real´s firmness. Bottom line is that producers are now clearly holding back offers forcing prices up. Volume trading lately is rather small, confirming producers don´t sell on a rising market. Duro/Rioy and Rioy/Rio qualities are trading with discounts and being used to attend Riado and Rio soft qualities rather than blended on superior cup qualities blends.
Colombia: Arabica prices converted into cents of Colombian Pesos per pound have reached the highest level since November 2017 which was great news for Colombian producers who are rushing on their harvest to seize the opportunity.
Costa Rica: First new crop shipments will start soon. Northern low lands however have been declared in a state of emergency due to severe flooding.
Honduras: The harvest for the 2018/19 crop is approximately 3-4 weeks behind average.
Producers looking quite positive following the terminal market price increase. Excellent weather conditions for a good crop.
Nicaragua: The 18/19 crop harvest has begun with an estimated 3% of harvesting completed for Arabica and 10% harvest for Robusta. Low altitude areas are at 6% alreday harvested, expecting mid-high altitude regions to start soon. Exporters expect a similar crop size as 17/18 with 2.3 mio. 60kg bags. More than normal pruning is taking place in some regions and some farms are being mismanaged or even abandoned. No major problems with pests or diseases have been reported and roya is, for now is under control Labor could be an issue during peak harvest as there may be a lack of pickers due to the political unrest leading to increased security concerns.. Private banks have reduced loans by 90% as the risk appetite is not there with the low NY levels we are experiencing.
Guatemala: The harvesting season in the region of Santa Rosa will begin soon. Good rains were reported all over the coffee producing regions. Some damage to the infrastructure has been reported due to heavy rains over the past few weeks. Congress is discussing a new initiative on how to revive the coffee producing sector via long term financing at preferential rates.
Peru: The exports so far this season are higher year on year by ~5%, in line with a crop estimate of 4.6 mio. bags. Future prospects: Good future crops in Peru will hinge on healthy crop husbandry especially in the once disease affected regions. Against the back drop of escalating inputcosts, good terminal price is paramount to sustain the up trend contributed by the new plantations.
Kenya: Dry mills start receiving fresh crop from western areas and Rift Valley - whilst the quality profile is not expectedto surprise anyone positively, at least we can say some more fresh FAQ coffees and more AA grade as those areas did not suffer significant dry spells in the last 12 months. Weather conditions in Nairobi and other highland areas have turned better, with occassional late afternoon / night time showers. Does this signify the onset of the anticipated short rains? Exporters sincerely hope so! Coffee estates and smallholdings alike in the traditional 'early crop' zone are stressed and need rain now to provoke a flowering and ripen their late crop hanging on the trees. Late crop harvest activities are ongoing at lower and middle altitudes - the recent uptick in pricing has provided some optimism to the farming community. Kenya is struggling to revive its coffee sub-sector, which has registered a 66% drop in production in the past 20 years. Kenya's production declined from 130,000 mt. in 1988 to 45,000 mt. in the last season (2016/2017). Smallholder farmers have abandoned the crop due to poor returns, and delays in payments with waiting times of up to one year. Expensive farm inputs has over the years forced growers to replace coffee bushes with mainly macadamia or avocado, currently the leading export crops of central Kenya where most of the country's coffee is grown. Macadamia and avocado do not require intensive labor or much capital to produce, and are well paying owing to their high demand.
Ethiopia: The ICE Arabica rally has put an upward pressure on EXC prices, with exporters having to cover their shorts at a loss. Left overs of washed coffees are still sitting in Addis, mostly stored in parchment. Sellers are not ready to adjust their prices down and buyers do not show any interest. The new crop harvest is now fully underway in the South. However, many wet mills in Sidama are not yet open, due to problems with bank financing.
Tanzania: There have been some showers in the northern production areas which is both helping to initiate some flowering and also to ripen some of the late crop in the higher altitude areas which are still harvesting.
Uganda: Wet weather is slowing the flow. The Ugandan government is introducing Arabica coffee into new districts. The minister of agriculture said he wants to increase coffee production, encourage coffee cooperative societies to form a union and establish coffee processing units. Uganda's 2017-18 coffee exports drop 6.5% y/y to 4.3 mio bags. Robusta accounted for 3.19 mio. bags, or 74% of the beans shipped. Total coffee exports came to 293,199 bags last month. Top destinations in September included EU, Sudan, U.S., India, Morocco. Uganda - The state-run Uganda Coffee Development Authority said this month that production in the 2018/19 season may climb 11% to 5.1 mio. 60kg bags because of the better growing conditions. It added that the crop may reach 5.8 mio. bags in 2020 and the country is targeting 20 mio. bags in 2025.
Ivory Coast: High coffee prices coupled with the regulatory changes in Algeria has drastically reduced the demand of IVC coffee. Against the back drop of a good crop, this has led to significant stockbuilding of approx. 1.0 mio. bags in the 17/18 season. As exporters expect another good crop in 18/19 (approx.1.7mio. bags), there is a need for the differentials to weaken notably, to create the demand for IVC coffee.
India: The 2018/19 harvest is expected to begin a month from now, before the first cherries are ready to be harvested. Larger flows are not expected before early January 2019. 18/19 new crop Robusta harvest is expected to start first in Kerala during second week of December. India's coffee exports could drop 8% to 230,000 mt. in 2019 as production is expected to fall to its lowest in five years after plantations were hit by floods in key producing southern states, the head of an industry body said.
Indonesia: The country is at the end of the season, the amount of fresh FAQ Robustra is slowly reducing even with the higher terminal prices. Rains look to be in line with their 5 year average in the growing regions, and next crop development looks healthy.
PNG: Travellers through the highlands indicate very little coffee activity in all regions with only very small parcels of coffee visible or on offer in the markets. Most dry and wet mills remain closed due to off-season. The cherry development on the trees remains healthy and exporters anticipate a fly crop harvest in the Western Highlands to commence in late December.
Vietnam: Due to lack of coffee almost all local suppliers are trying to mix both Robusta grades G1 and G2 together for delivery, so the quality isn’t uniform. The prolonged rainy weather causes problems with the moisture content and cup quality of the coffee stocks at the local coffee warehouses (HCMC). Good weather in the highlands so far seems supportive for a good quality crop. Arabica harvesting is slowly under way in the low lands. The Robusta crop is delayed and exporters expect the main flow to start in two weeks. According to the latest figures, Vietnam exported 1.46 mio. mt. of coffee in the first three quarters of calendar year 2018. This is a 20.1% surge in volume compared to the same period of 2017. Despite this large increase in shipments, export earnings were down by 0.4% on year to US$2.77 bio. In the Central Highlands, Vietnam’s major coffee-growing belt, it is likely to experience a water scarcity or partial drought during first months of next year, National Center for Hydro-Meteorological Forecasting says on their website. Almost no rains are expected in the first months of 2019 and the rainfall forecast is to be 20%-50% lower than long-term average in Nov-April. The Buon Ma Thuot Coffee and Commodity Exchange (BCCE), founded 10 years ago with a mission to facilitate commodity trading based on spot and future contracts, has ended its operation in a loss due to no liquidity and lack of trading mechanism. Coffee production in Lam Dong is likely to climb to a record 8.5 mio. bags in 2018/19. That is an upward revision from just below 8.0 mio. bags in June, and compared to 7.6 mio. bags last year. Vietnam's total coffee output in 2018/19 is projected by industry observers to reach up to 32.0 m 60-kg bags, due to favorable rains and plantings of new high yielding varieties.
Various: The Administrative Council of Economic Defense of Brazil (CADE) approved on October 8th, the acquisition of 25% of the coffee and food company Gran Coffee by its rival, coffee giant Café do Brasil. After the operation, Café do Brasil now controls 75% of Gran Coffee capital stock, which also has a presence in the sector for self-service machines, as well as the distribution of professional-quality coffee capsules of the Nespresso brand. An indigenous coffee operation in southern India called Araku Valley Coffee, has won a prestigious award at the Prix Epicures Awards in Paris for their bean. The organic farming model has benefited more than 45,000 Adivasi families, with profits from the high-grade coffee put into schools, healthcare and other needs of the remote community. The Adivasis are also countering deforestation by planting millions of mango, papaya and orange trees to provide shade for their coffee crops, as well as in other areas. Soon after it's initial establishment, Araku Valley Coffee commanded high prices in global auctions, and then opened its first cafe in Paris last year. In the past two weeks Lavazza has bought Mars’ coffee business, a licensing deal was struck between Illy and JAB. Activist investor Bill Ackman revealed a $900m investment in Starbucks. This comes only months after Coca-Cola’s £3.9 bio. acquisition of Costa Coffee and a spate of deals from JAB. More mergers and acquisitions are likely as the market remains relatively unconsolidated with many small, family-owned companies in operation. Many large beverage companies view coffee as a white space, a place to broaden and strengthen their portfolio. Companies are not just adding coffee as such, it’s an opportunity for consolidators to target profits at multiple price points and package types, from coffee pods all the way to premium brands in high-end coffee shops. We’re going to see plenty more coffee deals for sure, partly due to political pressure on sugary soft drinks but also younger consumers view it more favorably when compared with other refreshment beverages. Nestlé's organic sales increased 2.9% in the third quarter, pushed up by general momentum in North America, and business successes in infant nutrition and coffee. The Swiss CPG giant's total sales in the nine month period were up 2% to 66.4 bio. Swiss francs ($66.9 bio), according to a company release. Premiering on screens around the world today, George Clooney returns in his latest installment as a Nespresso brand ambassador, as he’s never been seen before.‘The Quest’ sees George Clooney suited up in armor, majestically saving a medieval kingdom before hitting the streets of New York City on a quest to find his heart’s desire, the kingdom’s most exceptional coffee. Co-starring in the epic adventure is one of the silver screen’s most famous queens, Natalie Dormer, and the two feature in the largest global Nespresso campaign to date, launching in more than 30 countries. Canadian chain Tim Hortons expands its presence in the Phlippines. Canada’s iconic quick service restaurant chain Tim Hortons, is expanding its presence in more communities within the metro, with over five new stores having opened its doors to serve coffeephiles their daily brews. Dunkin’ partnered with Blue Marble Biomaterials, “a sustainable biochemical company,” to create eco-friendly biofuel from 65,000 pounds of spent coffee grounds. The biofuel is created by putting extracted coffee oils and through a chemical process known as “transesterification,” which then gets “washed and refined.” For every 170 pounds of coffee grounds processed, a total of one gallon of biofuel is created, which means Dunkin’ and Blue Marble created a little over 380 gallons. For a limited time, Dunkin’ is renting out a tiny house on AirBnB that is powered by used coffee grounds. For only $10 a night, two guests can stay in the 1 bed/1 bath “studio” currently located in “beautiful Nahant, MA, providing picturesque views of the Atlantic Ocean and Boston skyline,” per the AirBnB listing. Massimo Zanetti Beverage Group acquires The Bean Alliance in Australia. Signed an agreement to acquire the business and assets of “The Bean Alliance”, an Australian Group with a portfolio of premium brands and strong growth potential. With this deal Massimo Zanetti Beverage Group strengthens its presence in Australia and acquires its own in-house manufacturing facilities. The purchase price is AUD 24.0 mio.
A coffee war is brewing in South Korea, according to the Korea Business Strategy Institute, as the franchised coffee shop market has reached saturation point. According to a report in the Korea Herald, one in 10 South Korea coffee shops closed their doors last year, the equivalent of more than 1000 stores. ICO’s latest inside report on gender equality in coffee is available online. Women contribute significantly to the global coffee sector. Between 20% and 30% of coffee farms are female-operated and up to 70% of labour in coffee production is provided by women, depending on the region. However, the empirical evidence presented in this report shows that women have systematically lower access to resources, such as land, credit and information, than men. This often results in a measurable gender gap in economic outcomes, including yields, productivity and farm income. The ENSO Outlook remains at El Niño Alert, indicating there is approximately a 70% chance of El Niño occurring in 2018, around triple the normal likelihood, says the Bureau of Meteorology of the Australian Government (BOM).
Sources: Volcafe, Flavour, ICONA, Mercon, Taylor Winch (KEN), OLAM
Carlo Delfs im Interview für den Lyreco Pausenmanager 3/2016: