Green Coffee Quality Report
Review and Expectations
Brazil: Dry weather has helped to accelerate the maturation of the cherries and also enabling producers to start the pre-harvesting services at their farms. Good weather conditions in the majority of the Arabica regions contributed to steady fruit setting and good bean development which may result in high yields. Arabica coffee areas did face very low temperatures with light frosts reported in some low lying areas but fortunately no sizeable damages were reported. The harvest in Espirito Santo is in the early stages and the main new crop activity is delayed by immature beans and wet weather. Water levels have recovered in the area and the production capacity looks very good for next year’s crop, if the weather remains good. Harvesting of the 2018/19 Arabica season has started in Paraná. Cepea collaborators have reported that from 10% to 15% of the estimated output has been harvested. In the remaining arabica-producing regions, the harvesting pace is still slow. The Brazilian Institute of Geography and Statistics (IBGE) has raised the 2018/19 coffee crop forecast to 55.3 million bags being 42.2 mio. bags of Arabica and 13.1 mio. bags of Conilon. CONAB (National Supply Company) is expected to update its coffee estimates next soon. Among private sector however, estimates are from 58 to 64 mio. bags, being 60 mio. bags almost a common consensus. CONAB on their deep research at the fields state that the total planted area reached 2,16 mio. hectars while under production are 1,86 million hectares. The average yield this crop surpassed 30 bags per hectare for the 1st. time, or 30.8 bags per hectare. The flow of the business is fully disturbed by the truckers strike. The country is virtually halted. Most of gas stations have no more fuel to sell. The population is somewhat in panic running to supermarkets to get hold of some food stocks. Airports fuel stocks are at risky low levels. Petrobras, the state oil company has already reduced supply and froze the diesel price for 15 days but it was not enough to change truckers strike leader´s minds. They want a sustainable fuel price policy, heavy tax cut over fuel price (about 50 pct. of current retail price are taxes) among other requests. Government has requested the army to help unlocking the main roads. No solution for the end of the strike on the horizon. Consequently coffee shipments are suffering further delays as empty containers cannot be moved for stuffing to the interior warehouses and the stuffed ones cannot be transported to the ports for shipment. Vessels are leaving ports practically empty and shipping lines may skip Brazilian ports calls, until strike is over. Exporters have withdrawn from the market as coffee cannot be moved from cooperatives warehouses nor producers could move coffee from their farms. The lack of fuel impacts also the utilization of the harvesting machines and labor needed for the harvest. Group 2: Almost no offers, small quantities are held by strong and few producer´s hands. Even the Zona da Mata producers that due to the warmer temperatures start harvesting early, are not offering any Rio Minas for forward deliveries. They do harvest the Good cups Group 1 first and leave the Rio cup for the end of the harvesting. This may postpone Rio Minas crop entrance for late July and August. The end of this season tends to continue very tight. General cup quality has a good cup profile, clean cup therefore shall enjoy premium as Group 1 qualities. Conilon: Producers have already started their harvesting and the dry conditions are helping to intensify the picking in the coming days. According to Safras & Mercados wire news, 30% of Conilon´s crop has been already picked. Fresh coffee beans are going to pop up at Vitoria spot market soon. Local exporters and producers do diverge about Conilon´s crop size, particularly on the Espirito Santo crop size. The expansion of clonal seedlings allied with improved crop management helped the production improvement in Rondonia.
Colombia: Recent heavy rains are reported to have damaged infrastructure and are a concern for the development of the main crop. USDA’s estimates that Colombia will produce 14.5 mio. bags of coffee in the 2018/2019 crop year, up 300,000 bags from the previous crop. Exports are forecasted to rise to 13.5 mio. bags, up 200,000 bags from 2017/2018 numbers. Coffee production in Colombia's second-largest coffee producing region, Antioquia, will likely fall around 20% in 2018 from a year ago as torrential rains damaged the key flowering process, hitting the region’s secondary crop, and rains have blocked roads. The expected fall in Antioquia is a widespread signal that Colombia’s mid-crop, known as Mitaca, will be lower than the same crop of last year.
Costa Rica: At the beginning of the month the weather was wet and windy, thus focus has been on roya control. Actually the forecasts for the new crop are good with favorable weather. Tarrazú area will increase its production. The current crop is now over with 90% sold, whereof about 55% has already been exported. The government of Costa Rica has annulled the Robusta growing prohibition. Main argument is the substitution of low grade imports and providing jobs in the poor regions in the low lands.
Honduras: Albeit the delays in shipping, exports remain about 5% ahead of last year. Weather pattern is normal.
Nicaragua: After a month of protest resulting in violence and civil unrest affecting the export of coffees, the political situation in Nicaragua is starting to improve. Exporters are starting to move cautiously their cargo in close collaboration and communication with shipping lines and trucking companies. Some containers have left the country already and others will follow every day by carefully checking the situation at roads to port. Protests were initiated by university students against nicaraguan president Daniel Ortega’s administration in response to a social security reform law that sought to increase contributions from workers and decrease pensions of the retired. Subsequent violent clashes between activists and police have led to the death of at least 76 people, with another 900 injured, according to the latest reports.
Guatemala: The rainy season has begun with another round of flowering expected.
Peru: The flow of coffee has intensified throughout San Martin and the central regions. The crop is advancing and qualities are in line with expectations. However, heavy rains caused landslides and hampered the internal flow of coffee. USDA’s estimates that Peru will produce 4.3 mio. bags of coffee in the 2018/2019 crop year, up 5% from the previous crop. Exports are forecast to rise to 4.1 mio. bags year-on-year.
Kenya: Kenyan crop and livestock farmers are grappling with a myriad of diseases resulting from adverse weather conditions brought by the rains. It has been raining since March, and the meteorological department has said the heavy rains would go on until next month, adding more pressure on farming. So far no complaints from farmers but some areas of the country have had terrible flooding and displacement of peoples as rivers overflow. Logistics have taken a turn for the worse within the last month. Port congestion forces vessels to offload but then depart before loading export cargo as the port operations are simply too slow / inefficient and equipment failure prevalent. Railways capacity is limited to a market share of perhaps 10% of the total cargo moving up and down. Mombasa port is in chaos, import and export containers are all mixed up and port movement has slowed to a trickle. It is a desperate situation and unlikely to improve anytime soon. Coffee agriculture authorities held additional stakeholder forums to validate and present further drafts of proposed new coffee rules which have been the subject of court injunctions in 2016/17 and continue to disappoint the industry in their complexity, bureaucracy and contradictions. The last 25 years have seen considerable changes in the internal market through many changes in the existing laws and rules, the patchwork of rules now resembles a potholed road in Nairobi during the rainy season (no foundation, no drainage, soil thrown into the holes for temporary use….). There will be two more auctions of low grades for this season before the break.
Ethiopia: Still some washed coffees from last year are available. Prices at ECX for natural coffees continue to be very high despite the retracting ICE Arabica market from its recent highs. This is mainly a reflection of the short covering of exporters who have sold significant volume of Naturals.
Tanzania: The crop development remains positive and has now started with some early fly picking in the lower altitude regions. Persistent rains in the northern regions are beginning to cause issues of drying for some of the lower altitude farms which have already started their picking season. The weather in the south remains dry and the crop is progressing well with expectations of starting the main harvest in early June. There is no confirmation yet of when the new crop auctions will start, however, expectations are that they will begin again in July or August. Tanzania’s Prime Minister Kassim Majaliwa dissolved the Tanzania Coffee Development Trust Fund, claiming it was redundant and depriving farmers of their money. At the same time, he directed the revocation of all licenses for traders purchasing coffee directly from farmers, reinstated cooperatives, and mandated all coffee be purchased by exporters through the auction, effectively eliminating the possibility of direct trade from farmer to exporter. As this year’s harvest approaches, Tanzania coffee farmers and traders are facing a stark new reality, and it remains to be seen how the market and the actors involved will navigate the new regulations, or what effect the new system will have on the specialty market. It’s the latest chapter in the long, complex history of Tanzania’s coffee sector.
Robusta: Rainy weather continues delaying the current harvest. Upcoming western crop looks average in terms of volume. The limited availability keeps internal prices firm.
India: Off season summer rains continue to provide good support for the 18/19 crop. The rains are supporting the application of fertilisers by the farmers. The local supply has dropped off significantly being well into the off season now. The Robusta parchment prices skyrocketed due to a lack of supply. India’s 2018/19 coffee crop (Oct/Sep) is forecasted at 5.5 mio. bags as erratic rains and unusually high temperatures touched coffee growing regions. 2018/19 exports are forecasted lower after strong 2017/18 numbers due to smaller carryover stocks and uncertainty with the future of the export incentive scheme. Rising temperatures damaged coffee plants and led to stunted growth and moisture stress. Trade sources indicated a high incidence of white stem borer infestations on the 2017/18 Arabica crop. Growers have been advised by state governments to uproot and burn infested plants.
Indonesia: Low land harvest is about to kick off. With Ramadan about to start farmers target is to get the coffee processed as soon as possible and to sell as much as possible. USDA’s estimates that Indonesia, bigger Asian coffee competitor of Vietnam, will produce 11.1 mio. bags of coffee in the 2018/2019 crop year, up 500,000 bags from the previous crop. Exports are forecasted to rise to 7.2 mio. bags.
PNG: Cherry arrivals in the Eastern Highlands have picked up and all the other regions remain busy. Quality looks promising.
Vietnam: The hot dry season in Vietnam is steadily coming to an end and rains are falling regularly as the wet season starts. Coffee quality remains good although but exporters have to be vigilant as always. Farmers who did not dry the coffee properly in Nov/Dec. before storage will find their coffee has gone moldy, so it’s often better from a quality perspective for them to sell early and let the mills re-dry, store properly, avoiding OTA risks as well. In general there has been a risk of 1 cup per 10 being unclean but recent cups are very soft, clean and more exciting than usual. Vietnam continues to export at a higher pace than last year with April coming in at close to 150,000 mt., an increase of 20,000 mt. versus last year. Given the slow expensive start to the Indonesian crop as well as potential exports to the exchange, May shipments from Vietnam should continue to outperform, and exporters don't expect any stock building in Vietnam by the end of the crop. Discouraged by current coffee prices, farmers increased intercropping of other high-value cash crops like avocado and durian, not only as a hedge from coffee but also alternative better income. According to MARD it is confirmed, with a record of $3.5 bio, that Vietnam got during 2017 from fruit and vegetable exports a 43% better result than the $2.5 bio for 2016. Exports of fruit and vegetable have exceeded other key export products such as rice, rubber, tea and perhaps coffee as well when this commodity earned by itself steadily $3.5 bio. for recent years. Coffee production in Vietnam is forecast slightly lower next season in the range of 1.7 to 1.75 mio tons, as per initial estimates by some local and foreign trading houses, with reasons mainly attributing to poor development in key growing areas and farmers reduced investment.
Various: Indian Coffee Instant exports are on decline (- 18.69%) in comparison to 2017. The India coffee retail chain market is expected to reach USD 855.0 mio. by 2025, according to a new report. Growing popularity of spending time at café houses and coffee consumption amid the young population in urban India has resulted in further growth of coffee chains in the market. The southern region dominated the India retail coffee chain market in 2016 and is projected to reach over USD 253.8 mio. by 2025, growing at a CAGR of 21.04% from 2017 to 2025. Starbucks Corporation announced it will form a global coffee alliance with Nestlé S.A. to accelerate and grow the global reach of Starbucks brands in Consumer Packaged Goods (CPG) and Foodservice. With a shared commitment to ethical and sustainable sourcing of coffee, this alliance will transform, expand and elevate both the at-home and away-from-home coffee and related categories around the world. Nestlé will pay Starbucks $7.15 bio. in closing consideration, and Starbucks, with a focus on long-term shareholder value creation, will retain a significant stake as licensor and supplier of roast and ground and other products going forward. Additionally, the Starbucks brand portfolio will be represented on Nestlé’s single-serve capsule systems. Pret A Manger (“Pret”), a leading company in the ready-to-eat food market, and JAB, a global investment firm with a proven track record of investing in premium brands, today announced that JAB will acquire Pret from Bridgepoint, an international private equity firm and its majority owner, and other minority shareholders. The transaction is expected to be completed during the Summer 2018. Terms of the transaction were not disclosed yet. Rabobank marginally boosted its forecast for the 2018/19 global coffee surplus but warned growing weather risks in top growers Brazil and Vietnam could increase volatility in the market. The world coffee market is poised for a surplus of 3.8 mio. bags in the 2018/19 crop season.
Sources: Volcafe, Flavour, ICONA. Taylor Winch