March Origin Focus: Vietnam, Honduras and Ethiopia
Welcome to DR Wakefield’s second Monthly Origin Focus of 2021. February began with the distressing news that Myanmar’s democratically elected government had been overthrown by a military coup. The new military rule declared a one year state of emergency and went about disrupting internet signals, blocking roads and replacing a number of ministers. Opposition to the coup d’etat started peacefully but as many predicted was escalated by the military and the army has used violent tactics to disperse crowds. Internationally the coup has been condemned. We hope for a swift and peaceful resolution.
In sport the Rugby Six Nations began with Scotland beating England at Twickenham for the first time in 38 years. To add insult, it also happened to be the 150th Anniversary of the first meeting between the two teams, which was also the first ever international rugby match, held in Edinburgh. Scotland managed to claim victory then as well.
A continued feeling of positivity about the UK vaccination program has caused Sterling to strengthen resulting in a near 3 year high against the US Dollar, tipping over $1.42. The NYC market made a sudden, sharp spike pushing above the significant level of 140 c/Ib.
In February Vietnam celebrates the holiday of Tet, the Vietnamese New Year. In preparation for a large party many farmers liquidate their coffee stocks in the weeks prior. Farmers sold more than 70% of their stock preparing for the Tet holiday on the 12th of February, amounting to around 8 million bags. This rapid sale at the start meant there was a steep drop in the second half of the month.
In February, Coffee exports from Vietnam are estimated to have risen about 17% from January to 1.8m 60kg bags. Although Vietnam’s competent handling of Covid has spared the country from a heavy death toll and crippled economy they are facing a container shortage and freight costs that have risen threefold. These problems have resulted in a lot of bags (4.4m) being sat in port warehouses around the country, such as Ho Chi Min. One solution would be to build more shipping containers, but Asian countries have so far stayed away from this solution. When considering the export of all Vietnam’s agricultural products the numbers show a 26% decline in volume year on year.
There has been irregular light rain in part of Vietnam’s central highland but the average precipitation in February was still low (about 5.7mm). Light rain two days before the Tet holiday prevented farmers from irrigation, but now almost all farmers have irrigated to push flowering. The first irrigation is very important for flowers to bloom uniformly. Traditionally, most farmers would use a petrol pumper with long pipes to pump water from the source to irrigate their trees, other farmers may use an automatic irrigation systems.
The Vietnamese Dong has strengthened recently to 23,016 after the low of 22,962 VNĐ per US dollar in January. Robusta farmgate prices are reported from 31,800 to 32,400 VNĐ spot Dak Lak. FOB differentials remained steady at USD 110 over for Vietnam grade 2.
Honduras is Central America’s largest producer, and its 2020/21 output was estimated to rise by 2.8% to 6.1 million bags, following a 21.5% decrease in the last two seasons. To encourage production the Government provided fertilizer to farmers, and the addition of beneficial weather during the growing seasons helped yields. However, since the hurricanes Eta and Iota at the end of 2020, the new assessment has reduced this figure to 5.8 million bags as the 20/21 potential. Honduras has seen an important recovery in exports since the end of 2020 when shipments were down 30%
Honduras is currently bringing up the tail end of its harvest and IHCAFE statistics show 35% of the crop has been sold but according to some market participants their sales have not yet registered so as much as 55% could be sold. This would still be behind the regional average as the next closest is Guatemala with 65% sold and Nicaragua boasts 85% sold. However, differentials dropped 3-4 cents per Ib since the start of the month potentially indicating that the country is not as sold as exporters have been saying. A rising NYC market will have also been a factor at play here. Over February the total number of bags for certified stocks increased, but the certified Honduran stock levels reduced from 808,787 to 796,074 bags as the draw off continued. Nevertheless, Honduras represented the largest origin in certified stocks.
Like elsewhere in the world, the pandemic has caused social and economic distress to Ethiopia. To support recovery, the National Bank of Ethiopia has made a liquidity injection of 15 billion Ethiopian Birr (379 million USD) to the banks to provide debt relief and additional loans. The government has also adopted a series of measures to prevent mass unemployment. Despite the challenges, the economy is expected to grow by 1.9% with real GDP showing signs of recovery in 2021. The Ethiopian government has unveiled new Birr notes for 10, 50, 100 and 200 in an effort to curb cash hoarding. This has led to an increase of more than 31% in the number of savings accounts as people rushed to bank their expiring notes. Although a success, this could increase the inflation rate further pushing the price of coffee cherries. On the other hand, it also raises the banks’ ability to lend more and support investment which would be beneficial to the coffee sector at large.
On average the country produces around 7.5 million bags of coffee every year. In the year 2019-2020, coffee exports were around 3.9 million bags, down from the expected 4 million. This reduction was due to COVID-19 resulting in reduced orders from importers and disruptions in supply chains. For the year 2020-2021, the country is expected to export around 4.1 million 60 kilogram bags of coffee.
Harvest in all major coffee-growing areas of Ethiopia started in November 2020. Cherry prices recorded 16 Birr/kg at Limu and 20 Birr/kg for Sidamo respectively. In Guji, cherry prices have been reduced down to 23 Birr/kg, compared to the industry average of 28 Birr/kg last season. FOB prices remained static at around 2.20 usc/Ib for Grade 2 Yirgacheffe washed throughout February despite large changes in the NYC market.
Our thanks to Anh Tuan, and Tingirit Tamiru for their input this month.