Ukraine War Increases C Market Volatility, Worsens Supply Chain Crisis

Red Fox Coffee Merchants Q2 2022 Origin & Shipping Update

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As core issues from the last several quarters persist—snarled and effortful logistics, limited container availability, constrained shipping lines, domestic freight bottlenecks, elevated costs across the board, an elevated and extremely volatile C market, and the resulting global inflation hitting the most vulnerable the hardest—the Russian invasion of Ukraine has escalated all of those issues globally, adding more uncertainty, costs, and an increasingly unpredictable C market.

Combined with local shortages of coffee due to climate events, labor deficits, and cyclic down years for certain origins, price volatility has also created conflict between producers and larger traders as certain origins’ local market prices rise despite more recent C market drops. The market remains increasingly competitive as large players work to cover short positions, but our relationships are holding strong. We’re in the thick of Mexico season, final Peru shipments are almost here, first Rwanda and Kenya containers are here, and early Ethiopia shipments are on the water. As usual these days, the only constant is change, so stay flexible and read on to find out more. 

Logistics, Port, & Warehouse Updates 

The Russian invasion of Ukraine added new layers of complexity and volatility to global supply chains still reeling from pandemic disruptions, while another wave of Covid outbreaks in China threatens a cascade of new disruptions to the shipping industry. Port congestion and shipping delays remain an issue worldwide. Container shortages continue to cause delays and rolled and canceled bookings, especially in Brazil and East Africa. 

Congestion at West Coast ports has improved but remains seriously backlogged, while congestion at East and Gulf Coast ports has increased as shipping lines route cargo away from the West Coast. 

War in Ukraine and rising gas prices have caused spikes in bunker costs (charges added to steamships’ base ocean freight rates, protecting them from fuel cost increases). Those costs are passed on to shippers, increasing ocean freight rates across the board.

On land, domestic trucking capacity is still a bottleneck. Driver shortages continue causing delays transporting freight from ports to warehouses and hauling trailers from rail yards, while rising gas prices drive up trucking rates. Some freight lines have sold to larger companies to avoid folding, leading to fewer options. Less market competition allows for significant price hikes for LTL (less than truckload) freight.

Ongoing labor shortages across all sectors continue to hinder recovery from pandemic slowdowns. Trucking lines are particularly squeezed and are unable to invest time training new hires. Sheila at the Annex recommends that anyone relying on trucking companies for coffee delivery pay for the extra strap/wrap to protect the shipment from damage in transit. She also advises receiving freight with a camera ready—”take photos of pallets INSIDE the trailer before offload, and then again after the pallet is off the trailer. If there are any issues with the shipment, only sign documents to include acknowledgement of receipt with “requires further inspection” or “EXCEPTION/DAMAGE” noted on the paperwork.” She stresses that it’s not a good idea to refuse freight outright. “Freight lines respond better to a call asking for an inspection at the consignee location as part of a claim rather than a pallet sitting on their own dock.”

Supply, Demand, & The C Market 

Until the Russian invasion of Ukraine, the C market was headed towards $3/lb, hitting a high near $2.60/lb in early February with both supply and demand factors pushing the rise. The Brazilian real (currency) has strengthened against the USD since the beginning of the year, and while Red Fox doesn’t operate in Brazil, the origin is the largest supplier of coffee in the world and tips the scales whenever its factors affect price or supply. When the real strengthens, farmers’ motivation to export weakens. In Mexico, we felt this factor firsthand when the peso strengthened significantly during March, creating the same effect with Mexican domestic demand (among other supply factors) creating a highly competitive market for our sourcing team. Furthering demand woes and upward market pressure, the International Coffee Organization reduced its supply estimate to a deficit of over 3 million bags this season at the same time Minas Gerais in Brazil reported less than half its historical average production. All this comes after Colombia production and exports fell in February while US green inventories reported shrinkage in February.  

All those factors should underpin a bullish market, but on the day of the Ukraine invasion, the market dropped nearly 10c and continued to drop from around $2.50/lb to $2.10/lb over the course of two weeks. Institutional investors became bearish overnight, fearing a further stressed global logistics crisis and a derailed global economy. Analysts fear that consumer spending will shrink even though supply side economics suggest coffee prices should continue to strengthen. 

Our biggest uncertainty is not the coffee quality and consistency that Red Fox will source, but the unknown costs that will continue to add volatility and uncertainty. The price of oil will continue to put pressure on how we think about moving coffee. What will ocean freight and trucking costs look like over the course of the upcoming Mexico season? We can’t use historical costing data in answering this question and have had to become much more conservative as we look at forward booking, especially as almost all signs point to the cost of coffee increasing.

Mexico 

As you read this, our lab in the Oaxaca centro is at peak season and buzzing with activity. Harvest is nearly complete in our sourcing regions, we’re constantly cupping offers as more arrive, and deliveries are hitting the warehouse and dry mills. Our first shipment from Veracruz is almost afloat.

This harvest has brought particular challenges, some like those facing the rest of the coffee-producing world (rising cost of production, lower harvest, shipping and container issues/delays, inflation, etc.) and some unique to Mexico. 

Oaxaca is enduring a disruptive season of protest blockades in the city and surrounding areas, limiting mobility. A new tax law implemented this year and designed to reduce the informal economy and limit cash usage created new difficulties in how producers not yet registered in the tax system with a formal bank account receive payment, something not yet accessible to many smallholder farmers. In terms of productivity, Oaxaca’s harvest is looking to be about 50-60% of average production. As a region with heavy planting of Bourbon and Typica (which typically have a biannual cycle with a lower yield every other year), lower production was expected but not nearly to this degree, frustrating producers who finally see ultra-high C market prices coinciding directly with their harvest after so many years of a lower market. 

In Chiapas, much like Guatemala, labor shortages have severely affected picking, normally performed by migrant laborers who enter Chiapas through the Guatemala border on temporary work visas. The border is increasingly dangerous and effectively closed to legal crossing of people and goods. Without laborers to harvest it, cherry is drying on trees. 

Local cherry prices in Veracruz started the season near double last year’s price, setting off a country-wide scramble to acquire coffee by larger commercial buyers seeking to cover undelivered contracts from losses in Brazil and Colombia. Internal demand also continues to grow with national roasters looking to meet their needs and further pushing prices up. The competition for coffee is so extreme that it threatens to roll back years of quality recognition gains for the region as a whole, since most coffee is being purchased right in the field with no consideration for physical and cup quality. 

That said, we are genuinely seeing some of the best quality we’ve ever seen. We’ve opened up new supply chains in Chiapas with several new quality-focused producer organizations, and against long odds, we’ve also acquired the most volume we ever have in Chiapas. We expect to have several early shipments leaving in April and are working through shipping line headaches to get the fastest possible routing to the US. 

Ethiopia

In terms of our Ethiopia sourcing, we now have 5 FCL (full container loads) of Agaro G1 coffees from all of our usual partners (Nano Genji, Nano Challa, Kolla Bolcha, Duromina, Yukro, Gore Dako, etc.) afloat with ETAs into Port of New Jersey between 4/16-5/1 as well as 4 FCL of Agaro with ETAs into Port of Houston from 5/8-5/25. Our first Guji G1 containers from Gogogu Wate have current ETAs into New Jersey and Houston in late April, though we actually expect them to be May arrivals. We’ll also see the first of 3 FCL of G1 naturals from Guji Uraga hit the water this week. Updates on those to come. 

Generally, Ethiopian offerings continue to be volatile with rising prices in the face of a C market that’s dropped 30c/lb over the course of the two week period prior to writing. Even with Grade 2 prices climbing above $3.50/lb FOB (with certified organic G2 from $3.80) and Grade 1 prices now well above $4.00/lb, FOB demand appears relatively strong, especially for spot and afloat lots. The Ethiopian trade’s confidence in their differentials remains high as we hit peak shipment period.  

Exporters also continue to hoard parchment in hopes of the Ethiopian Government’s reversal of the Forex Retention Rule, which would let them retain a higher percentage of inbound dollars on green coffee exports.  

Dry mills are operating at full capacity even with limited overseas interest as larger roasters work to cover their positions short-term rather than taking positions in an expensive market (in some cases playing chicken with prices they don’t want to pay). In the trade at large, early season contracts are now somewhere between Addis and afloat en route to their destinations.   

Last quarter, we reported on how civil unrest pushed us into sourcing from just over the border. Now, a unilateral truce has been declared between the Ethiopian government and the TPLF as of March 25th. All hopes are that this leads to the end of the civil war.

Kenya 

Red Fox saw phenomenal quality out of Kenya this year. We’re finished contracting there for the year (Kenya’s main crop officially ended prior to Q2) and have 4 containers on the water, the first having just arrived into Port of NJ. We expect all of our Kenyan coffee stateside by May/June.

Outside of Red Fox, buying continues at an active pace into spring, especially on the top lot front. Larger buyers seem to be active in their own spot markets (eg. European roasters covering shorts from European spot markets) causing stocks in Kenya to remain strong and prices beginning to turn downwards. The fly crop has a strong outlook as long as rains arrive soon to activate cherry ripening.

Shipping woes continue to be a central theme with container availability very thin and shipping lines not offering much in terms of vessel bookings.  

Guatemala 

Guatemala harvest is in full swing and we’ve been cupping offers from both the San Jose Poaquil community in Chimaltenango and Finca Los Arroyos in Huehuetenango. Despite migrant labor shortages due to pandemic restrictions, quality is exceptional this year. Container shortages continue to be an issue. We expect first containers to go afloat in April with May arrivals to both NJ and TX. 

Peru 

We’ve concluded our current Peru shipment season with the last containers of the season arriving to US ports now.  

For next season, the coffee harvest has begun at lower altitudes, while the producers we purchase from are still a month away from the start of their harvest. While they wait for cherry to ripen, producers are preparing for the upcoming season: calibrating depulping machines, maintaining and upgrading wet milling and drying infrastructure, and participating in internal inspections conducted by producer groups to prepare for certification audits. Meanwhile, producer groups are meeting with banks and other lenders to line-up financing for the upcoming harvest and undergoing Fair Trade and organic certification audits. Many of the producer groups also held general assemblies in the month of March to review the prior year’s financial performance and accomplishments, receive their final payments and quality premiums, and elect new board members to replace those whose terms are up. 

Rwanda 

Our final Kanzu lots have arrived on the East Coast and we expect warehouse availability in the next couple weeks. Lots are also now available in the Annex for West Coast customers.

As for next season, this year’s harvest began in late January with peak cherry picking occurring in mid-to-late March. Cherry prices are high following the increased C market; competition is already intense. We expect to start seeing offer samples in late May/early June. 

Earlier this month, the Rwandan government fully reopened the country’s land borders two years after closing them in an effort to curb the spread of COVID-19. We’ll have to see how this impacts export logistics for the upcoming shipping season. Bookings for ocean freight routes from East African ports continue to be challenging. 

Colombia 

Expectations for an extended rainy season through the La Niña year persist, and with them expectation for reduced production for both 2022 harvests. Sufficient ripening come June/July requires extended periods of sunlight and warmth through spring.  

Differentials continue to rise as larger trade actors continue to cover their short positions through a lack of available coffee on the production side.  

Ports continue to see limited container availability and service from shipping lines. Buenaventura remains the most congested of the three ports while Cartagena faces the largest struggles finding efficient routes to Oakland and Charleston. Santa Marta shows increased container availability, but doesn’t have the infrastructure to handle a high volume of shipments.  

Primary Southern producing regions like Nariño, Cauca, Huila, and Tolima begin harvest in late April. We’ll have a much better sense of what to expect from the 1st Semester harvest from supply chain partners in Inzá and Tablon de Gomez as we get closer to summer.  

From Geovanny Liscano in Inzá: “The December 2021-January 2022 harvest was inconvenient due to heavy winter conditions/heavy rainfall. A lack of flowering creates concern for the harvest beginning May 2022. Prices remain high across Inzá for any parchment available.”

From Gildardo Chincunque in Tablon de Gomez: “The initial outlook for the coming season is weak due to heavy rainfall. We look forward to working together come July/August regardless.”

To learn more about our work, check out our journal and follow us on Instagram @redfoxcoffeemerchants, Twitter @redfoxcoffeeSpotify, and YouTube.

C Market Volatility, Complex Logistics & Ethiopia Civil Unrest Spill Over Into Q1 2022

Red Fox Coffee Merchants Origin & Shipment Update: Q1 2022

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As we sail into Q1 of a new year, a lot of the issues we dealt with through the third and fourth quarters of 2021 persist. Logistics are as tangled as ever on a global level and still require extensive planning and constant management, with ever-rising costs at every level of the supply chain. The C market price is ever more volatile and elevated, with new heights reached in the month of December. Civil unrest in Ethiopia has placed us in the region—but not in-country as we would usually be this week—cupping early offers and making commitments and firm plans, and we’re excited for the upcoming season. Despite logistical challenges, Peru’s shipping season saw early containers landing at the onset of Q4 and is now wrapping up. We’re on the ground in Mexico connecting with producers as the season peaks, and in Kenya tasting and approving offerings with first shipment already on the water. Despite the surrounding chaos, we’re managing details, landing coffees within our expected windows, and staying constantly connected with supply chain partners at all levels. More detail on all of this, in general and origin by origin, below. 

Logistics, Port, & Warehouse Updates 

The state of global shipping continues to be extremely challenging as we round the corner into 2022. Securing space on vessels is a daunting task. Even once bookings are secured, departures are repeatedly rolled, delayed, or outright canceled. Rates for all routes continue to increase and shipping lines are adding fees for port congestion on top of the already inflated rates. 

On the import side, trucking capacity is becoming a major issue. Shipments arriving to US ports are frequently sitting at port incurring demurrage fees (fees charged by shipping lines to importers when a full container is not moved out of the port/terminal within the allowed free days offered by the shipping line) and extra days of chassis (a special trailer that allows ocean containers to be moved via truck, required for shipments transitioning from sea to road) because of difficulty securing trucks to unload and move cargo to the warehouses. Costs continue to increase across the board. All services—trucking, rail, warehouses—continue to experience employee shortages (and the knowledge deficits that come with them), increased costs, Covid issues, and delays. Rail services are seeing particularly long delays. 

The port of Oakland, though still experiencing delays and not operating at full capacity, has seen modest improvements in recent weeks. However, we do expect congestion in West Coast ports to persist well into 2022.

Warehouses are reporting a lot of LTL freight shipments to customers still being sorted out from the holidays. Freight carrier holiday closures and winter weather in some states has affected many freight deliveries—some shipments are still stranded at intermediate terminals while carriers sort through the backlog. Freight is moving, but slowly. 

Supply, Demand, & The C Market 

We continued to see a meteoric rise in the ever-volatile C market this past quarter, which spiked past 250 in early December. The days of 2-3 cent moves being considered “volatile” are behind us when 5 or more cent rises have become commonplace (we’ve seen an average daily change of 5.6 cents over the period between 9/21-12/20). Expectations of lower global supplies due to unfavorable weather and supply chain disruptions continue to prop up the price of arabica futures even though the market has settled closer back to around 230 at the time of writing. It’s been quite astonishing to watch the C market price rise to levels higher than what our baseline price for some qualities has been in prior years in Peru (as covered in the last quarterly update, we’ve of course adjusted our purchasing prices this season in Peru—producers deserve the benefit of elevated base prices in low C market years as well as in high C years). Reports anticipate the events of drought and frost in Brazil may curb growth potential for the country’s coffee crop for the next two years. USDA production estimates Brazil coffee exports to drop by over 15 million bags recently, also citing La Nina’s heavy rains in reducing Colombia export estimates. Supply chain disruptions continue to wreak havoc on transit times and port congestion continues. Bloomberg reports shipments out of Brazil are taking as long as 100 days where the old normal was 30. We’re fortunate to have exceeded our expectations on transit time out of Peru so far without much additional transit time from prior harvests.  

What does this mean for you? It certainly feels like the days of sub $2/lb C market are behind us for the foreseeable future and some analysts feel bullish that we could see the market rise closer to $3/lb. We’re thinking about this daily as we begin to enter Mexico acquisition season to ensure we continue to pay the highest prices and quality premiums to our partners. We are well positioned with the communities/producer groups we work with due to strong relationships developed over the years from our base in Oaxaca that we continue to grow year over year.

Mexico 

As Mexico enters peak harvest season, a number of challenges face producers and traders alike. Our team at origin has already been busy for a few months making pre-harvest visits to producing communities across the country and getting a sense of how the harvest will shake out this year. 

Harvest at lower and mid elevations began in mid December and peak harvest of higher altitude coffees will be mid to late January and into February. Late rains have delayed the start of harvest in some regions. In areas of heavy Bourbon and Typica production (like Oaxaca) the bi-annual cyclical nature of these varieties is in a down year, which should bode well for quality but less well for total yield from these already lower-yield varieties. Strong rains and gains in farm renovations in the offseason and past few years appear to have boosted the predicted crops from Veracruz and Chiapas. 

A high C price in the outset of the harvest has created very high local prices for lower elevation coffee in Veracruz and Chiapas and led to strip and underripe picking to get coffees into the mills and sold quickly. Milling and exports of top quality coffee are expected to begin the second half of March/first half of April with first arrivals to the US in late May/early June. As always, we’ll keep you informed of any changes on that front. Port congestion and container availability are expected to be challenges again this year, but we are developing strategies early to thwart significant delays. On the positive side, costs for ocean freight out of Mexico don’t seem to be increasing much over last year. 

Economically, inflation is hitting Mexico very hard and is at its highest level in 20+ years, with gas and other basic goods (mainly food) prices increasing exponentially. Coupled with a rise in the national minimum wage scheduled to go in effect in January, costs of production are necessarily much higher all around compared with the 2021 harvest. Coupled with the rising C market, prices for quality and specialty coffee will be significantly higher this season and we expect to continue to pay substantially higher prices than other buyers for the qualities we’ve been working closely with producers to develop. Pepe Arguello of Finca Santa Cruz and manager of Cafeco is reporting increases of at least around 40%-50% over last year for both labor and parchment prices in Chiapas, where much of the labor for picking cherry has historically come from Guatemalan temporary migrant workers, but the compounding border issues (including refugees coming from Haiti and Honduras, among other countries, being stuck at the Guatemala/Mexico border in Chiapas due to disastrous US policy), and lack of visa permits are preventing many from coming for work.  

On the Covid side, Mexico is experiencing another surge in confirmed cases after a downturn last fall when the vaccine became widely available to adults and young adults across the country (children under 15 have not yet received vaccines, despite increases in pediatric hospitalizations). Only just over half of the population have received their vaccines, although they are widely accepted among adults and haven’t been politicized as in the US (for example, 95% of adults in Mexico City have received their first round of vaccines). The booster campaign just launched for senior citizens, teachers, medical workers, and other essential workers. The government has so far resisted any restrictions on foreign travelers or internal mandates.  

Ethiopia

We are wading into the great unknown this season in Ethiopia. The political situation, and contradictory reporting within the country, keeps us just over the border at the moment. While we would typically be on the ground in Addis by the beginning of January we are currently outside of the country, though in the region, working to execute our first half shipments from Agaro and Guji. As you read this we have our spoons in 15+ containers’ worth of offerings from Nano Challa, Nano Genji, Kolla Bolcha, Duromina and more from the Kata Muduga Union. We also expect to see our first G2 offerings and the first Uraga arrivals to Addis before we leave.  

Fortunately, our Ethiopian supply chain is older than Red Fox itself at this point. We have confidence in our small handful of trusted partners who are still working from the capital. While the global shipping crisis may keep us from our standard Feb/March arrivals in North America, we don’t expect delays past April at this point. More to come on that over the next few months.  

Price-wise, the state of the C market has pushed cherry prices upwards of twice their 2018/19 levels and 30-40% higher than last year. We are being quoted roughly 40-50c/lb FOB from last season’s levels. Top Ethiopia will be pricey in 2022.

From our trade partner in London, Scarlett Fishburn:

“In terms of updates, cherry prices continue to rise (now looking at 53/55 etb/kg) due to the higher NY and farmers’ speculation on the extent of the damage of extreme weather in Brazil last year. With little cash/tight liquidity, this is preventing big players coming to the market aggressively and so only really small guys are buying at these levels (which probably elevates the price outlook more than if the big players were factored in).

The National Bank announced last week that they are using their reserves to loan 12 billion birr to players in the coffee industry in an attempt to increase the amount of finance available during the harvest period.

Security seems to have improved since we last spoke. You will have seen that the US removed Ethiopia (and Mali and Guinea) from the AGOA program.”

In addition to Scarlett’s note, we are hearing that cherry in coveted producing areas of the south, specifically Uraga, are now upwards of 56 birr/kg as we head down the home stretch of the harvest. While the harvest is delayed in the south this season we do expect the first G1 stocklots to hit Addis by end January.  

Kenya 

As we wade into some unknowns with the Ethiopia season, things are off to a quicker start than ever in Kenya. Our first containers have left Mombasa and are now en route to New Jersey. We’ll be cupping through swaths of samples on the ground in Nairobi over the course of January to add reinforcements to our offerings.  

From our partner Kennedy Keya in Nairobi:

“Main crop cherry picking started earlier than usual. This was due to the early flowering that started in January 2021. Cherry picking usually starts at the end of October in areas near Nairobi (Kiambu and Thika)—but this season cherry picking for the main crop started at end of September and continued into December. Grade retention is fantastic and quality is great. We are seeing more bold beans with AA and AB grade making up 80 to 85% of outturns. We attribute this to proper use of farm inputs by farmers leading to well-fed trees and good weather conditions throughout from flowering to final fruit maturation.  

Prices have remained high and the high NY market is resulting in high historical prices for farmers.

Logistics remain slow. Shipping lines are constrained. Connecting vessels are full so bookings for nearby shipments are declined in most cases. Another struggle is getting empty containers. It takes a lot of advance planning to reduce the struggle to get empty containers.”

Guatemala 

The Guatemala harvest is underway in the lower elevations with picking of higher grown coffees just beginning. Overall, ANACAFE reported an expected 3% higher yield over last harvest, with regions such as Huehuetenango seeing slightly more gains than that. 

An anchor in Red Fox’s Guatemala sourcing for the past three years, Felipe Martinez of Finca Los Arroyos in La Libertad, Huehuetenango confirms early December pickings and expects to continue in earnest as the new year gets underway.

A trusted supply chain partner told us that despite the ongoing pandemic, he is expecting fewer disruptions this harvest and is already seeing an increase in their overall ability to collect and receive coffee, mainly through growth in projects in more remote areas such as Santa Barbara, Huehuetenango. We anticipate continued success in these investments, bringing in more volume from these small holders. 

Look for more updates as we get into the harvest. Currently we anticipate the usual May shipments for peak harvest Guatemalan coffees. 

Peru

The Peru shipping season is wrapping up with 17 containers currently en route to the US and the final handful of containers being milled to ship later this month. We will have warehouses in NJ, CA, and TX flush with fresh coffees soon and through spring.  

Peruvian ports, specifically Callao and Lima, have been some of the most affected during this global shipping crisis with general lack of container availability paired with shipments rolled on a weekly or monthly basis.  

Despite challenges with parchment competition in the early months of the harvest, container availability and the shipping crisis, we managed to increase our purchase volume almost 30% from 2019 and 2020. Our relationships across the country, though most specifically Cusco and Amazonas, continue to grow and be the backbone of Red Fox Sourcing Company Peru.   

Colombia 

Colombia has been the heart of the coffee sourcing struggle since entering the first semester harvest late spring 2021. Early pandemic lockdowns, violent political protests, prolonged port closures, the volatile C market, and intensive rains brought on by La Niña all equaled a massively decreased specialty coffee production. We brought in four containers from the peak summer season at FOB price levels near 50% above 2020 levels. As local prices continued to increase into the second semester harvest, producers across the country rushed to strip pick green fruit in order to deliver unselected parchment at exorbitant prices. Predictions for the coming summer crop also call for more intense rains as the ‘22 La Niña season peaks in the next 6-8 weeks. Availability for top quality Colombia may suffer until Q3 2022, but we’ll have a better assessment in our Q2 report come April.  

From our dry mill and export partner Frederic Boppe in Popayan:

“Production has decreased from last year, mostly due to excessive rains during the last semester. This affected flowering and maturation of the cherries, thus affecting quality and yields in certain areas. Drastic increase in price of fertilizers has also caused a serious impact in production, as producers tend to apply less. The harvest period was shorter than usual and production is over. Parchment is tight, with very few offerings from this area at this time.

This has been a very unusual year. Due to the drastic price increase of over 100%, several producers defaulted in their previous commitments on their deliveries to cooperatives and exporters. The spot market has ruled the trade, and most of the coffee which came out in the last semester was immediately purchased by companies who were short, driving the internal market even higher. All parchment was purchased for immediate delivery and paid to producers upon delivery at the mill. Future commitments are no longer being accepted and cash advances have become very unusual. Today, there is still very high demand with base prices around 2,250,000/carga for standard coffee, but exporters must pay a premium of at least 100,000/carga to secure decent quality. In the internal market, no transactions for future deliveries are taking place and all coffee is sold at the spot market. Longer-term offerings from exporters are very limited. The recent ICE market levels (reaching 2.50/lb) and record US/COL peso level transactions (breaching the 4,000 level), have undoubtedly generated a higher income for coffee producers, strengthening the coffee producing sector.

Logistics: Currently we expect that everything will be back to normal by Q3 2022. Shipping lines are calling off vessels and the lack of containers is dramatic. In general we expect an average delay of 45 days for upcoming contracts. The flow is normal for almost all destinations. In November, the US was the main destination for Colombian green coffee exports with a participation of 42%. Finally, we estimate freight costs have increased by 60% over the last year to the US.

Rwanda 

We’re eagerly awaiting the arrival of our Kanzu lots from Rwanda. Ocean freight routes from East Africa continue to be beset by delays in transhipment ports and lack of space on vessels, resulting in very long transit times. We currently expect US East Coast warehouse availability for Kanzu in the second half of February. 

Looking ahead to the upcoming harvest, the crop is developing well and weather conditions have been favorable. Cherry picking in lower altitudes is expected to begin in late January/early February with higher elevations ripening later in the season. Last season’s good prices are motivating farmers and the outlook for quality and volumes is good. 

Export logistics are expected to be challenging again this year. Landlocked Rwanda relies on its neighbors—Uganda and Kenya—for the transport of all imports and exports to and from ports. Covid testing requirements at border crossings have contributed to long trucking delays, sometimes as long as three weeks between Kigali and Mombasa. Low volumes of imports into the country have also made empty containers scarce. 

Ecuador 

After a few unexpected challenges, we have chosen to air freight all of our Ecuador coffee this year and it should be arriving in the states very soon. We’re expecting great lots from our long-term partners Hernán Zúñiga and Andrés Dávalos, Mateo Patino, and Gilda Carrascal from 1600 Estate. We’ll also have some stunners from newer producer partners Galo Davilos and Yesenia Murillo.  

On the Covid front, like much of the world, Covid cases are on the rise due to new variants. Fortunately, Ecuador has a high vaccination rate with over 77% of the population vaccinated. However, due to the rising case numbers, the government just put out a mandate that all eligible residents over the age of 5 get vaccinated.  

Get in Touch

As always, if you have any questions, concerns, or thoughts, let us know. We’re here to help.

Red Fox Coffee Merchants Origin & Shipment Update: Q4 2021

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Hello friends, coming to you with our final quarterly origin and shipment update of the year as we enter the home stretch of 2021. This report will cover some broad strokes and some details in all the origins in which we work, whether their coffee is on the water, heading to the mill, in harvest, or still looking towards its next flowering.  

To summarize, a key factor we’re continuing to see broad and escalating effects from this quarter is the global shipping crisis, which has continued to compound as the holiday season approaches and is not expected to resolve until Q1 2022 at the very soonest. On top of that, the C market has been driven up to levels not seen in a decade since frosts in Brazil drove down harvest estimates. Adding to reduced harvest outlooks in Brazil, Colombia suffered the dual factors of civil unrest and heavy rains leading to a much-reduced harvest, with those shortages putting added upward pressure on prices in Peru as large sourcing groups struggle to cover their contracts. The C market’s meteoric rise, while beneficial to producers, has created sourcing and quality challenges at the cooperative and producer association level across South America. At the nexus of the C market rise and the global shipping crisis we’ve seen another supply and demand issue heat up: labor shortages and space shortages leading to rising costs of doing business in the logistics sector, from ports to trucking to warehousing and beyond. More detail on all of this, in general and origin by origin, below. 

Logistics, Port, & Warehouse Updates 

We’re in constant conversation with logistics partners domestically and globally, and from what we and they are seeing, the global shipping logistics crisis is still deepening (and further jams expected as the holiday season approaches) with resolution not anticipated until at least Q1 of 2022. Capacity is still down on ships, at ports, and on trucks, labor shortages are a huge issue, and all costs are up. By all accounts, moving coffee from place to place in a timely fashion is as hard as it’s ever been. Below are some comments from some of our logistics and warehousing partners.

From Unishippers:

The most important domestic USA shipping news is that capacity is still very tight and carriers are struggling with staffing and moving all the cargo they are asked to. As a result, rates are climbing and carriers are being very assertive in charging for all the services they perform. This is expected to continue at least through the first quarter of 2022.

From Continental NJ Warehouse:

The amount of pallets that we ship out on a given day has doubled and we also see the carriers having a hard time keeping up with capacity. No matter how we plan it just seems like there is not enough time to complete everything, and when we do the carriers don’t show because of capacity issues, which leaves us in a bind because now we have a glut of pallets sitting on the floor taking up space, which limits our ability to prepare new pallets to complete orders. Warehouses and carriers are both having labor capacity issues—can’t hire enough people to get all the work done.

From DuPuy Houston Warehouse:

The ports have been extremely congested these past few weeks and it has caused delays on the containers being delivered. Standard freight shipping is the same, the carriers have been good about coming for their daily pickups.

From Continental Annex Warehouse:

  • Nearly 200,000 drivers did not come back in to the industry following the lifting of some pandemic and quarantine regulations. The shortage of drivers has created a major logjam at many terminals—the carriers do not have staff in the terminals and are short drivers so this will lead to (and we’ve already seen) increased transit times, damages and freight rates for some lanes have already tripled.
  • Some carriers have instituted embargoes and no longer accept freight into some of their own terminals while they attempt to clear the backup.
  • The driver situation goes all the way from the port down to local bus drivers—carriers are taking any driver with a clean record but we have seen that there is minimal training, they just throw them out there, often our check-in desk has to instruct them how to properly sign paperwork and handle the pro stickers, etc.
  • As for the Port, most ports are working about 3+ weeks behind at this point, so vessels are being held outside the port until the port can schedule the boats in for unloading. As a result of that backup, many goods are not being shipped since there are no empty vessels to go back out.
  • The same goes for rail—we have had rail shipments be rescheduled over 7 times because no driver to haul it, so since it doesn’t get brought to our location to unload, there are minimal empties available for new loads. Every delay compounds another aspect of the moving of freight and even though the delays have no real culprit and there is little we can do about it, the detention and demurrage structure of fees is still adhered to—so even though the port cannot give you an appointment to pick up your container for say 6 days, they still begin the count on the free time allowed.  
  • Ultimately every single company or service involved will have no choice but to review and hike their prices to survive and it is very likely that there will be multiple increases before this all clears out, then for the roaster-buyers, they must pay attention to the increase in transit time, particularly as the holiday seasons begin. If they have room, it would be very wise to get stock in their locations so delays create minimal disruptions and of course, they will have to increase their pricing structure.
  • We are directly across from the “receiving” end of the port and the boats keep coming, so we do not expect this to clear for several months.
  • SO longer transit times, much higher costs, longer delays for new inbound inventory, more damages/freight mistakes by carriers with unskilled employees… that’s where it is right now. I have been in this business a while and have never seen anything like this before.

From Volcafe: 

If anything, since the last couple of months, the situation has worsened. Domestic trucking rates are through the roof and capacity issues are becoming the norm. We have some warehouses that will email us a couple of days before containers are supposed to arrive at port saying they won’t be able to pick up before the last free day occurs. They are blaming this on slow turnaround times at the port, and fewer drivers on the road. The demand is high, but the supply of truckers and workers is low.

On the west coast vessels are sitting off the pier of Los Angeles/Long Beach and Oakland for as long as 2 weeks. They are taxiing on the water waiting for the longshoremen and the port to clear prior vessels. This is causing a dramatic increase on transit times going to the US West Coast.

Peru, Brazil and Indonesia are the 3 biggest problem areas right now. Container allocations and sea shipping lines not having a regular schedule is making it almost impossible to even ship out of those countries.

Supply, Demand, & The C Market 

Even as we’ve covered several aspects of how the global shipping crisis is affecting logistics, these complex dynamics have created interlinked supply and demand issues that we expect to see for months to come. Working backwards, diminished manpower in ports (specifically on the West Coast) has left vessels anchored off the docks for upwards of multiple months. This has led to decreased vessel availability from port of origin to certains destination ports as the vessel carrier lines themselves refuse to have their ships unavailable for months on end. Adding to the mess is a general lack of container availability in ports of origin as well, causing a huge cost increase as exporters battle with each other to get their coffees afloat. We are paying upwards of 50% more per container than we have in year’s past with the vessel carrier lines now holding all of the cards.  

Starting in July, we began seeing reports of poor weather in Brazil, the largest producing country of Arabica in the world. Crop estimates came out suggesting the total crop would only be 35 million bags, down from 50 million bags the year prior. During the same period, the Brazilian Real (currency) strengthened against the US dollar, increasing local production costs and adding even more upward pressure on coffee futures. The C market responded with a massive increase against the December 2021 trading month from 159.35 on 7/19 to 196.60 on 7/22. US green coffee stocks are also running low due to port congestion and supply chain disruptions, exacerbating the situation. The C Market held under $2.00/lb through September though immediately broke through that barrier on Friday, 10/1 closing at 204.05.  

The C Market has hit near 10 year highs, forcing us to ask how long it will last and to make necessary preparations. Are cost increases across the supply chain here to stay? As we’ve talked about extensively elsewhere, no one works outside the C market entirely, even as our focus has always been on paying prices that are consistent, based on clearly communicated standards, and typically do fall far above the C market especially during its long plunge over the last several years. With that said, when the price skyrockets for undifferentiated coffee, we still need to adjust our pricing to make sure those who benefit from our pricing during low C market years benefit equally during this spike. Considering all that, our acquisitions team made the decision to increase our base price across Peru entering the 2021 harvest. With Colombia in disarray, parchment prices in Peru soared to record levels beginning in June and continuing now as the harvest hits its downward slope.  Fortunately, we are well positioned with the coops/producer groups due to strong relationships developed over the years from our base in Lima. 

Aside from all the other logistics havoc Covid is causing, it also continues to cause crippling labor shortages at every step of the supply chain. We notice this most acutely at the mills and ports, but even from farmers directly where harvesting with smallholder farmers is often an extended familial procedure.

We’re seeing costs on the supply side increase across the board, which will equate to all roasters, including the largest ones, dealing with their own increased set of costs. While large companies like Starbucks that lock in contracts far in advance haven’t yet been hit by the price rises that smaller and leaner companies are already seeing, even they will eventually be affected by the increase in C market and coffee prices as a cost of goods. Looking at them as a case study, Starbucks’s share price is still sitting more than double where it was in March of 2020 and the company continues to exceed earnings forecasts. Once they reach the point where they need to pass on their increase in cost of goods to the consumer, earnings reports will show us how elastic their customers are, but one way or another, we expect that coffee consumers will see these costs increase even in the large specialty/high-end commodity tier through at least Q1 of 2022 with an impact on consumer prices through 2022. We’re hearing from buyers at larger-midsize companies we work with as well that price rises are either imminent or already happening. So while it may not be an ideal situation, we’re all in it together.  

Peru

Political instability was one of the hallmarks of Q3 in Peru, but Q4 is looking smoother. In July, the newly elected president, Pedro Castillo, was sworn in. The transition of the new government began with some early turbulence as it faced challenges to consolidate a cabinet of ministers. Due to political instability, the dollar rose against the national currency. Since the first presidential runoff in April 2021, the exchange rate increased by 13%. During this last month, it’s stabilized somewhat. As far as Covid, the vaccination plan has been successful with massive vaccination campaigns in the capital and other cities. Current estimates show over 9.3 million inhabitants fully vaccinated, about 28% of the population. 

Coffee season in Peru is at its peak. The harvest is wrapping up in the north, the Selva Central, and parts of the south of the country, while the highest altitude farms in Cusco and Puno are at peak harvest. Our QC and logistics teams are in full swing. The lab crew in Lima cupped through 689 offer samples representing 6,800 bags of exportable coffee thus far, with new samples arriving in the lab each week. We milled our first lots in August, and our first container has already arrived. There are another 12 containers shipping or booked to ship in October.

We were unsure of what to expect on both the volume and the quality fronts as we headed into the 2021 season. Coffee prices in Peru have been on the rise since May, with producers accessing record high upfront prices for wet, unselected parchment. This purchasing system is very different from that of the producer organizations Red Fox works with, where coffees undergo a physical evaluation to make sure they are adequately dried and meet minimum yield requirements, and pricing is based on preset cup quality standards. Also, member producers receive a base payment upfront and receive a second payment at the end of the season once the coffee is sold. With such a competitive local market, we were unsure that producers would have the needed incentive to do all of the work that is required, from selective harvesting through to drying and storing coffee properly, to deliver quality coffee.

Heading into the season, we raised our base price across Peru so that producers would receive more than the local market even in this elevated year, but there was still a risk of producer attrition considering our expectations on the quality front and the fact that not all the payment would be upfront. The sourcing team spent the month of July on the road and we were able to visit nearly all of our supplier partners. During meetings with leadership and members, we reinforced our long-term commitment to these relationships and to ensuring a stable market year after year. For the most part, it felt like we were collectively on the same page, and the quality of the offer samples in the lab confirms that: 79% of the samples we’ve received thus far have been approved. There are certainly a small percentage of producers who are selling their coffee to the local market, but the overall volume delivered and quality of the coffee speaks to the commitment of the producers and groups we work with as well as the strength of the sourcing model. 

The ports in Peru have been among the hardest hit by the container shortages. In addition to the exorbitant increase in the cost of a shipping container, it is incredibly difficult to get bookings because the demand is so high: coffee is Peru’s number one agricultural export, and every exporter is trying to move their coffee at the same time. We have worked with our logistics partners to leverage their relationships with the shipping companies and are requesting bookings early and often (we made 59 separate booking requests to obtain bookings for our first 15 containers). While coffee is not moving as quickly or as smoothly as in previous years, it is moving, and our first container has already arrived.

As always our producer relationships are at the front of our minds. These middle-supply-chain challenges have an immediate impact on their lives; delayed shipments directly equate to delayed payments from us to the exporter and thus the producers themselves. On top of that, financing costs multiply for both producer groups and producers themselves as these late payments hang in limbo waiting for shipments to leave Ports of Callao and Paita. We use very strict physical protocols like water activity, GrainPro storage for parchment, physical location for parchment storage, and more, though needless to say delayed shipments are a risk on the quality front as well. We’re doing everything we possibly can to minimize these potential impacts on producers, associations, and quality. 

Colombia 

It’s been an arduous calendar year in Colombia, to say the least. Between the pandemic hitting new peaks, political decisions leading to nation-wide protests, 90+ day long port closures, and intense peak harvest season rains, almost everything has gone wrong. The FNC (Colombian Coffee Growers Federation) has entered all producing zones with astronomical prices for both wet, unselected parchment and dry parchment. Because of these high prices for any quality of coffee, strip picking has become the norm across the country, creating a very literal lack of supply of high quality coffee.  

After an early August field visit with Aleco, Red Fox quality analyst Fabian moved between Inzá and Nariño for the following seven weeks to complete selection on three full container loads that are now headed to port for shipment to Houston and New Jersey.  Our offerings will be in extremely limited supply through the season and sold at a premium dictated by the scenario noted above.

From our dry mill partner in Popayan, Frederic Boppe:

Supply: There is little coffee around, so we can’t yet confirm our estimates regarding the upcoming crop. Nevertheless, here is what we can highlight:

  • For the 21/22 crop, we need dry weather, but rains might directly affect the mid-crop (4/22 – 6/22) more than the main crop.
  • Our crop size estimate remains 12.55m bags, which is about 5% lower than the 20/21 crop. But, we’ve heard from producers that they expect reductions of about 15% in the southern regions of the country.
  • We’ve noticed that due to the high prices and producers’ need for liquidity, producers are picking coffee cherries earlier, which brings quality issues such as inconsistency in the cup, primarily a raw astringency.
  • The flow of coffee is relatively normal [with coffee moving from the producing regions into the dry mills at a regular pace—effectively, everyone is desperate to deliver ASAP with prices so high.]
  • In Nariño, harvest is finishing and we estimate a reduction of 35% of the production compared to last year. Quality has been affected by the high prices (less care in picking and post-harvest processes). Our work in the field with the producing communities is key, directly with producers, to train and share good practices. We’ll wait to estimate the forecast for the next crop until we see the flowering that will happen in October (delayed compared to 2020/2021).
  • In Huila, harvest is starting in the southern area and because of last month’s climate conditions, the harvest is not expected to be concentrated as usual and we will have a constant flow of deliveries up to January/February.

Weather: It has been one of the wettest and cloudiest Augusts in the last 10 years. This is not favorable for next year’s mid crop and is delaying the start of the main crop. As a continuation of last month, we are expecting an increase in rainfall between 10% and 60% during September. This is not expected to be favorable for crop potential as it makes the trees more vulnerable to pests and diseases.

Logistics: The logistics situation keeps worsening: lack of food grade containers, few spaces, cancellation of vessels, increases in freight costs, and more. We estimate that the shipment delay is between one and two months. We expect that things will go back to normal in the early months of 2022. Shipping lines don’t have enough containers to cover the needed bookings, which is causing late cancellations. Shipping lines are not adequately communicating the situation of low availability of containers, so pushing to get accurate information is becoming the heart of the work of our logistic team; we are obtaining bookings but they must be requested well in advance, and sometimes encounter changes in programming even when planned well in advance. Buenaventura, Cartagena and Santa Marta are all facing the same issues.

So far so good with Asorcafé in Inzá and your producers of El Tablon de Gomez in Nariño, the operation is running smoothly.

As we said, the above all comes directly from Popayan-based dry mill partner Frederic Boppe. 

Rwanda 

Harvest in Rwanda is all but finished with most of the country’s coffee having passed through dry milling by now. Overall, volume from this year’s harvest was down about 20% from last year, and prices were high. NAEB, Rwanda’s National Agricultural Export Development Board, set the minimum price for cherry at 243 FRw (Rwandese Franks, the local currency), but competition among washing stations and traders drove prices over 360 FRw, a new record. 

Next year’s crop is off to a promising start with the rainy season having begun in early September, triggering flowering for the next harvest. If current weather patterns continue and flowering can be sustained to full fruit, we can look forward to a good 2022 harvest.

While Rwanda saw a surge in Covid cases through the summer along with the re-introduction of restrictions and curfews in Kigali and other departments, cases have been dropping and restrictions have eased. In September, the country hit the target of fully vaccinating 10% of its population, with over 1 million people fully vaccinated, and was recently commended by the WHO for its vaccine rollout.

Moving coffee out of Rwanda this season has been beyond challenging. Containers are extremely limited and shipping lines are cancelling bookings left and right. In the past, relatively quick routes from Mombasa to the US east coast were widely available, but this year all ocean carriers are routing even East Coast-bound shipments through ports in Asia, due to the high demand for moving cargo in and out of Asian ports. This means longer routes with multiple transshipments and greater chances for cancelled bookings and missed connections in over-capacity ports. Certain shipping lines are holding all US-bound containers without any prior notice, others are instituting “no sail weeks” where all vessel departures for a given route are being cancelled for multiple weeks in a row. 

We are pushing tirelessly to get our beautiful Kanzu lots afloat in spite of these conditions, but the arrival and availability in the US for these lots is still unpredictable and will be later than in prior years.

Ecuador 

Much like what we saw last year in Ecuador, steady rains, overcast days, and increased humidity over the past nine months have considerably decreased expected volume. 

In Northwest Pichincha, this means that the harvest is a few weeks from its usual time period for our long-term partners Arnaud Causse, Hernán Zúñiga, and Andrés Dávalos, Mateo Patino, and Gilda Carrascal at 1600 Estate. Despite these environmental setbacks, we hope to start cupping offer samples soon and get coffees moving from Ecuador to the states during the next quarter.

On the Covid front, in late May President Guillermo Lasso announced a plan to vaccinate 9 million people in 100 days. The country successfully accomplished this goal of 9 million vaccinated people on July 31. With an adult population of nearly 12 million people, Ecuador is currently ahead of the US in percent of population vaccinated. Despite the high vaccination rate, masks are still required in all public spaces, outside and inside. Residents have even been asked to wear masks when driving alone in a car. New cases of Covid-19 are at their lowest since March 2020. 

From the current crop, we still have two 50kgs bags of washed Typica from Rocio Zamudio at Continental that arrived in early 2021. This lot is a great option for an East Coast customer looking to fill a small espresso slot.

Mexico 

The rainy season across Mexico the past few months has brought stronger rainfall than the last few years—nothing that will have a negative impact, but rather an indication for a stronger harvest overall, especially in Veracruz. Harvest will begin in early December at lower altitudes. 

Ernesto Perez from APG coffees in Veracruz is seeing interest and competition already heating up from multinational traders and expecting prices to be significantly higher than last year, since many large buyers who got lower volumes out of Brazil and expect those conditions to persist through next year will look to Veracruz to secure coffees. 

Another condition he’s seeing is a national spot deficit for Mexican commercial roasters who recovered after pandemic slowdowns and see increased demand. They’re now trying to import from other countries to fill the gap and finding that challenging for the same shipping and importing challenges facing the world, so that demand will put a lot of pressure on local supply in the coming harvest. Balancing that, he does expect the harvest to be very good due to the biannual cycle, renovations coming to fruition, and the aforementioned strong rains.

Pepe Arguello from Finca Santa Cruz and Cafeco cooperative in Chiapas (who was going for his second dose of vaccine as he updated us) has also noted that the very strong rains this summer will produce a larger crop this year. One challenge he’s expecting is potential labor shortages in the harvest.  

In Mexico Covid news, the Delta variant has swept through Mexico as in the US. Just under 96.8 million vaccine doses have been administered in an almost nine-month-long vaccination rollout after more than 712,000 were given as of Sept. 21, health authorities reported. Almost 62.5 million adults—70% of the eligible population—have received at least one dose. Of that number, 42.2 million are fully vaccinated.

Ethiopia 

A very significant portion of our internal conversation turns to Ethiopia at this time of year as we begin preparations for the season just out on the horizon. Gathering accurate information is never easy this time of year as cards are often kept close to the chest on the supply side. Pricing has yet to be set with posturing a recurring theme.  

As we’re sure many of you are aware, the political situation continues to be tragically messy. Prime Minister Abiy appears to be bent on keeping peacekeepers out of the country, expelling a handful of top U.N. officials at the end of September. Aid trucks are not allowed into the Tigray region either. Violence has been triggered in producing regions, most specifically Jimma and Guji. Hopes of resolution may be nearer in Jimma than Guji. We wait for word from our contacts as to how this will play out as harvest kicks off in the next 5-6 weeks. There is also news of coffee trucks being hijacked en route to the Port of Djibouti.

From our trade partner Eden Kassahun in Addis Ababa:

For the general update, logistics issues continue to be a factor and security is another concern. I hope it will improve when the harvest is closer as many of them would be focused on collecting cherries—especially in Guji and Uraga areas.

While yields are up in Jimma we expect cherry prices to rise as well. Cyclically speaking, we expect a downturn in the southern harvests of Guji and Yirgacheffe. Cherry prices should soar in the more coveted regions as well. We await word from our strategic partners in Uraga, Haro Welabu, Hambela Wamena and Worka in the coming weeks as to what exactly to expect.  

Though we’ll be more diligent than ever in moving quickly in regards to selection, shipping, and logistics, we expect this may be the most difficult Ethiopia season on our record when it comes to shipping coffee. Our logistical strategy is now nearly in place and we are ready to push containers out to port as soon as possible come Q1 2022. We’ll have a strong Ethiopia update in place come January to help guide your expectations if not a supplement altogether prior to year end.  

In the meantime we currently (as of 9/30/21) have the following uncommitted Ethiopia SPOT positions:

The Annex, CA: 171 bags 

Dupuy Houston, TX: 143 bags 

Continental Terminals, NJ: 490 bags 

These coffees are in excellent condition. We recommend taking a second Ethiopian position if you’re looking to ensure Ethiopian stock through Q1 into early Q2.

Kenya

With the fly crop now concluded, our partners in Kenya are looking ahead to the imminent main crop. As always, we will look to act quickly on the earlier side of the season and move 2-3 full container loads in Q1 2022. 

From our trade partner Kennedy Keya in Nairobi:

Survival is the word! Covid, chaotic logistics, we don’t know what’s next, but we are fine in Nairobi.

The fly crop is coming to an end. It took longer for cherry to ripen and parchment to dry because it has been cold since May—this is our winter. Now, warm weather is returning with some light showers around Nairobi and coffee growing regions. We’re estimating a normal main crop of about 30,000 metric tons. We also expect good quality. Cherry picking will start towards the end of October in areas around Nairobi like Kiambu, Thika, and Muranga. Areas close to the mountain at higher elevation—Nyeri, Kirinyaga, and Embu—will start to pick cherry in November. We will have samples available in January for February shipment.

Logistics continue to be a challenge. It is becoming more difficult to find containers. When you find a vessel, space is an issue. Vessel sailing schedules are far apart. Some shipping lines that had weekly sailings out of Mombasa and Dar es salaam have cut down to only one sailing per month. And at times they decline to load exports citing lack of connecting vessels in Asia or the Middle East. We are adopting a wait and see attitude hoping to see normalcy return.

As we said, the above all comes directly from Nairobe-based trade partner Kennedy Keya.

Guatemala 

With good steady rains, our partners in Guatemala are looking forward to a larger harvest for the 2022 crop, but they’re also already expressing fears of another year with migrant labor shortages. “The problem will be when harvest comes along if there will be enough pickers and people to work at the farms,” said an exporter we work with closely. Last harvest, labor shortages were driven by travel restrictions put in place to help stop the spread of Covid while many migrant workers are staying home or seeking opportunities elsewhere. 

On that front, Guatemala, Central America’s biggest country with about 18 million residents, has posted nearly 480,000 coronavirus infections and more than 12,000 deaths, according to official data. As of early September, 1.3 million or about 7% of Guatemalans have been fully vaccinated. Although President Alejandro Giammattei proposed a series of measures including more restrictive sheltering in place and curfews to help stop the spread of Covid on September 2, their Congreso de la República refused to pass them. 

From the current crop, we currently have two Guatemala lots available: 16 bags from Felipe Martinez’s farm Los Arroyos in Huehuetenango warehoused in CA, and 20 bags from smallholders in the San Jose Poaquil community in Chimaltenango warehoused in NJ. 

Get in Touch

As always, if you have any questions, concerns, or thoughts, let us know. We’re here to help. 

Colombia & Peru Update, August 2021

As promised, we’re coming to you today with another origin and shipment update with specific focus on the current and anticipated situation in Colombia and Peru, typically our two largest and most critical sources from the Southern Hemisphere. The C Market has been a rollercoaster ride for the past 60 days, the South American harvest is as volatile as we’ve seen it with the Brazilian frosts and competition for parchment in both Colombia and Peru, and the global shipping situation showing no signs of improvement as the 2021 finish line appears on the horizon.  

Fret not. We will be flush with Peruvian coffee on all three coasts come fall as well as preparing shipments for Korea, Japan, Australia, and Europe. Colombia, Ecuador, and Rwanda will follow suit from the Southern Hemisphere harvests. Our primary objective is to get fresh coffee into your roasteries as quickly as ever.

With that said, you may have noticed that the time we would usually have opened forward booking for Colombia has passed. As we’ll delve into below, the current harvest and shipment situation in Colombia will leave all green coffee sources competing at higher prices for much smaller volumes of quality Colombia coffee. Because of that, we strongly recommend forward booking the majority of your South America volume in Peru, rather than Colombia. We will not be able to offer a substantial amount of Colombia coffee to forward book this year and the quality we’re seeing out of Peru will absolutely meet the full scope of your menu needs. In order to give you the time to outfit your single origin and blend menu accordingly, we’re extending forward book pricing through September 15. To talk through your menu with us or make a commitment, get in touch. 

Supply, Demand & the C Market

The C Market price surged 30+% in July before backing off to the $1.80/lb zone. Three frosts in Brazil have been the driving force in conjunction with dwindling green coffee stocks across both the global north and the Brazilian reserves themselves. The current Brazil crop could be down as much as 10% (roughly four million bags). Long term damage assessment is still in process, though experts forecast even heavier losses in the 2022/23 season due to these three frosts and the horrible drought situation in 2020. The extent of the damage won’t be fully known until after the first rains trigger flowering in the months ahead. It is highly likely that another market spike is tethered to those fall reports.  

Colombia 

Along with a C Market in flux, the Colombia harvest outlook also appears bleak for the upper end specialty segment. Due to an overly wet harvest season and aggressive internal competition for parchment, clean, sweet, complex 85+ coffee is incredibly difficult to come by. We expect our own purchases to be down somewhere in the neighborhood of 50% from this first semester’s harvest versus 2020. Fabian is currently vetting weekly deliveries to the Asorcafe warehouse in Inzá, Cauca and will soon move on to cup through Nariño warehouse deliveries. Our supply will be extremely limited through year-end 2021. Expect pricing in excess of $4.50/lb ex-warehouse on all of our offerings this season.  

Peru 

We are knee deep in the Peru buying season with our first eight containers headed to dry mills in Piura and Lima. Coffees from across the north—Amazonas and Cajamarca—were first-in first-out of our Lima lab this year and will therefore hit the water first, along with Cusco coffees from our primary partners at Valle Inca. With vessels scheduled for September departure, we expect our first arrivals to land in October in both New Jersey and Houston, TX. Our first Incahuasi containers hit the water in September as well.

Our strongest cooperative partners remain competitive in their respective regions, both in quality and quantity. Due to Valle Inca’s location in Yanatile and Lares, they’ve faced the most competition for parchment, but Prudencio’s history with his producer members has proven stalwart. 

Shipping & Logistics

Transporting coffee remains the specialty segment’s most critical 2021 impasse. Container availability is bleak. Vessel availability is a crap shoot and tremendously expensive. Routes have been cut down, equating to longer transship times. Covid-related port restrictions have led to container ships sitting off the coasts of their destinations for potentially multiple months.  

We elected to address the worst situation, Port of Oakland, by landing a healthy dose of our South American offerings in Houston. We will store more coffee at Dupuy Houston than prior years and will also move coffee from Port of Houston directly into The Annex. All East African offerings will land in Port of New Jersey and be railed across the country. Ensuring fresh delivery is critical to us and we’re constantly evaluating and adjusting plans to get coffees to their destination as quickly as possible.

As always, as in all things, we’re here for you—so get in touch to ask us questions, talk, or anything else you need. 

Red Fox Coffee Merchants Origin & Shipment Update: Q3 2021

Hello friends, coming to you as we enter the third quarter of 2021. We’ve put together a report on the current state of coffee affairs in the areas of the world in which we work. With the supply and shipping disruptions we’ve seen over the last year and which we know will echo into the future, we want to help keep your finger on the pulse of global coffee traffic and hopefully make your job a little easier. This report contains some details as well as some broad strokes—if anything here piques your interest or leads to more questions, we’re always here to talk, so get in touch

This quarter, we’re seeing many disruptions and complexities borne out of civil unrest, with the two most notable for our upcoming harvest and shipping season being Peru and Colombia. The other component that’s affecting global shipping operations on an extremely broad scale is the confluence of the global container shortage and widespread port and trucking slowdowns due to Covid-19. Much more on all of that below. 

Logistics, Port, & Warehouse Updates

We continue to see widespread disruptions in our supply chains as we enter the second half of 2021. Globally, ocean freight rates have skyrocketed. Routes between East Asia and the US West Coast have been the most impacted. Efforts to combat a Covid outbreak in Shenzhen, China in June caused the port of Yantian to vastly reduce its operating capacity for nearly a month, resulting in a huge backlog of shipments waiting to berth, soaring freight rates, and a further reduction in the supply of available containers for all shipping routes. There is ongoing uncertainty in bookings and volatility in transit times across the industry, and little indication that this will ease before 2022.

 Congestion at US ports has seen some mixed improvement, mostly on the East Coast where cargo is moving a little more fluidly through the NY/NJ ports. West Coast ports, which have seen a huge surge in imports this year, are still over capacity, with ongoing labor and equipment shortages contributing to congestion. The port of Oakland continues to see major delays, with boats sitting on the water waiting for a berth for up to 2-3 weeks after arrival. 

There is also a general state of congestion across the domestic trucking industry. LTL freight carriers (shipping services for relatively small loads) are dealing with massive shipping volumes alongside continuing shortages of drivers and equipment, and their networks are strained. Transit times and costs are increasing across the board. Carriers are capping the number of warehouse pickups and cutting locations out of their service maps to cope. Warehouses are struggling with inconsistent pickups, last minute cancellations, and a general backlog of shipments. We recommend that roasters plan ahead for longer transit times and higher freight costs, and encourage everyone to get their orders in the pipeline with time to spare.

On the warehouse front, we do have some positive news to share: Continental Terminals, Annex (formerly The Annex) has completed their move to a new facility in Alameda, CA. With the move complete, they are now returning to their 24 hour notice to process and ship orders, meaning pickups from the warehouse can happen a full day earlier than under their previous 48-hour turnaround. 

Supply, Demand, & The C Market 

Supply and demand have hit their most volatile moment in close to a decade, with dwindling stocks in the Global North, container shortages, reduced route availability by container carriers themselves, and a 2+ month long trade disruption in Colombia at the core of the issue.  The C market has risen sharply in the past 60 days, coming in just above $1.50/lb for the past couple weeks. While we don’t expect another rise in the immediate future, many in the trade suspect another spike later in the year around Q4. The situation is developing and no one here has a crystal ball, so we will take this as it comes (or doesn’t) down the line.

The immediate impact of the four aforementioned market dynamics has significantly affected parchment buying across South America, Colombia & Peru most acutely. The FNC, Nespresso, and other large buyers have entered producing regions with extremely high prices for ‘clean’ (sound, nondescript) coffee leading to the most competitive buying market we’ve entered ourselves in our 7+ years in business.  As the first semester harvest now enters its peak season we expect to be paying upwards of 50c/lb FOB for our offerings from Inzá & Nariño. Port closures in Buenaventura/Cartagena have trickled down to Peru in that the Colombian supply shortage has created chaotic buying across the country with prices for ‘rubbish’ (wet, unselected) parchment almost doubling from last year. At least one of the major Peruvian exporters has received US $2.6M in loans from the government helping them to incapacitate competition in certain areas of Cajamarca, San Martin, Cusco, and select other departments.  Red Fox expects to pay 20-30c/lb FOB more for certain relationships and maintain a level of price stability with others. More to come on the Peruvian state of the trade below as well as in our early August supplement.  

Peru 

On the political front, the country had a disputed presidential election, where two candidates with very different political positions clashed in June. Socialist candidate Pedro Castillo won the presidential election after clinging on to a narrow lead. On the other side, his rival Keiko Fujimori, who refused to concede, has challenged the results, claiming electoral fraud. The political situation has revealed deep gaps between voters, along economic and racial lines, as well as ideological ones. Because of the political instability and speculation regarding the new leftist government, the price of the dollar rose against the national currency during June. This only aggravated extant concerns about the country’s financial stability.

On the coffee front, harvest has already started. The price of coffee is up an estimated 85% over last year, regardless of quality and physical standards. According to comments from cooperative managers we work with, there’s an overall concern regarding what this means for coffee quality this year. The price rise stems from a combination of factors including the increase of the dollar against the national currency, the uncertainty generated by the lack of mobility of Colombian exports, the increase of the commodity price, and the instability of the political future of the country. 

Hugo Cahuapaza of Coopbam in Amazonas, Northern Peru, reports that the harvest in the lowest altitudes is already at 100%, while the middle sector has reached almost 80% and the highest zones are just getting started. The rainy season has been unusually prolonged, but producers are taking steps to achieve preset standards in coffee drying. Hugo also told us that the political and financial instability aren’t currently affecting the producers, who continue to carry out their daily activities, since they’re not used to depending on state support anyway.

Cajamarca-based Santuario manager Ismael Alarcon expects a higher production volume this season, approximately a 20% increase over last year. As in all of Peru, Cajamarca has also seen coffee prices rise, which, combined with the greater competition in the market, has led to an increase in labor costs. 

Albino Nuñez of Pangoa in Selva Central reports that business continues as usual and that harvest is at its peak right now. He and other members view the season with optimism since they’ve noticed an improvement in quality and expect an increase in the volume produced this year.  

Stay tuned for a Peru supplement in the coming months going into more detail as we get into the field and start the actual purchasing process—the situation here is developing and we’ll keep you on top of it. 

Available Lots: 

While Peru spot coffee continues to make its way into roasters and mugs, we do still have a number of solid lots from community to producer ID available on both coasts and in DuPuy Houston. We’re cupping all lots regularly and they’re still at the top of their game.

Colombia 

The political chaos surrounding tax reform that has mired the country for the past two months appears to be nearing its end, at least for the moment. Ports have reopened as of late June, though diminished availability/routes with container carriers and the ensuing backlog of coffee in dry mills across Colombia creates an outlook of slow shipments and deliveries into fall.  

COVID-19 appears to be hitting it’s peak in Colombia at the moment recently passing 100,000 deaths due to the virus.  A dearth of vaccine availability keeps the outlook bleak for the immediate future.  

From our dry mill/export partners in Popayan: 

“Things are getting back to a certain normality and coffee flow/purchases are decent. There is congestion at the ports which will take weeks to sort and freight rates are increasing. May shipments were 0.5m bags and June has shipped 0.2million bags so far (June 14th). Differentials [countries’ standard differentiated price for clean coffee in relation to the C market] are continuing to increase due to rains having an impact on the next mid crop. We might need to reduce our production expectations to around 12m bags.

Despite the strikes having ended and the road corridors to ports being reactivated, the situation has not improved much. Ports are facing high congestion due to the increased volume now coming through from different areas. 

  • Buenaventura has been operating since mid-June, but the main problem is low availability of vessels. During May, only two vessels were available in Buenaventura and as the operation just started to normalize, the combination of limited vessels, limited trucking routes, and the backlog of coffee in the dry mills means continued delays. 
  • Cartagena’s been highly congested since the end of May because of space limitations, low storage capacity, and lack of containers. Until mid-June, the trucks were taking eight days to enter port (literally waiting in a nearby parking slot, waiting to enter the port’s installation), which caused the loss of the vessels. It also led to carriers refusing to travel to this port unless a daily stand-by rate is set to include waiting times.
  • Santa Marta is facing the same situation as Cartagena with the difference that until this week (June 21st), entry to the port is taking 12 days.
  • For all ports, the main concern now is truck availability due to the increase of inland freights and because the preference goes to transportation of imported goods (often paying four times more than usual freight), followed by lack of space in the vessels.
  • As a final comment for the logistic side, we are 85% confident that the situation will smooth out for August.”

As far as the first semester harvest itself is concerned we are hearing consistent reports of heavy competition for parchment across the country. Whereas Red Fox leveled up farmgate pricing to producers from $1.35mill pesos/carga in 2020, the FNC (National Federation of Coffee Growers of Colombia) is opening at $1.6mill pesos/carga for clean coffee now. Expect a significant increase in your Colombian coffee costs this year regardless of your source.  

Inzá, Cauca has been pummeled by late season rains as peak harvest begins at altitude. Volume expectations for the fly crop are plummeting on a weekly basis. 

From Geovanny Liscano, Producer and Asorcafe President: 

“I can tell you that internal prices are very high at the moment. Nespresso is at 1.6mill pesos per carga.”

From Danilson Oidor, Producer and Asorcafe Member: 

“It’s a strange year, we’re harvesting very little. There are a lot of rains which has led to a lack of cherry maturation.”

From Raquel Lasso, Producer and President FUDAM

“Narino is now approaching its peak season harvest at altitude. The parchment market across the department is also at a competitive high. Climate change seems to be rearing its head in ways that are clear to anyone looking. While the flowering was solid, heavy rains during the fruits’ maturation cycle caused a lot of fruit to drop from the trees prematurely. There will be immediate repercussions in the season’s yield due to this.”  

From Gildardo Chincunque, Producer and Parchment Collector, Tablon de Gomez:

“The harvest has begun but the baseline price in the region is 13,000/kilo or 1.650.000 pesos/carga [for clean coffee*].” 

*This is compared to the 1.3mill pesos/carga we opened at last year for 85+ scoring coffee.  

Rwanda 

Harvest in Rwanda is coming to an end, with high-elevation Kanzu wrapping up about a month later than washing stations at lower elevations. Rainfall and conditions were favorable for quality and volume this year, with total production in the coffee sector expected to be up 10-15% over the prior season. Competition for coffee cherry was intense, and internal prices paid to farmers increased to almost double what they were last year. 

Logistics are expected to be challenging this season. Empty containers for export are scarce and difficult to secure. Landlocked Rwanda moves all cargo by truck to the ports in Mombasa, Kenya or Dar Es Salaam, Tanzania. Travel restrictions and Covid testing requirements for truck drivers crossing the borders are slowing down the movement of coffee to port, such that what might be a five day drive under normal circumstances can now take up to three weeks.

With outbreaks surging in neighboring Uganda and DR Congo, new cases of Covid-19 in Rwanda have risen exponentially in the past weeks. The country is now recording its highest number of daily cases since the beginning of the pandemic. Access to vaccines remains low, with just under 2% of the population fully vaccinated, and there are concerns that the highly contagious delta variant will soon be widespread in the region. The Rwandan government announced new restrictions for the capital Kigali and eight other districts that go into effect July 1st, including a 6pm curfew, and the closure of schools and universities, non-essential offices, and restaurants. Travel between districts is restricted to essential services.

Available Lots:

We are currently evaluating offer samples from the first Kanzu outturns and will push to get containers moving as early as possible, in light of the expected shipping challenges. We aim to have coffee on the water in July/August for Sept/Oct availability.

Ethiopia 

Civil unrest continues to be the central theme in Ethiopia with the Tigray conflict at its core.  Restrictions against the press have made honest, relevant news hard to come by. In the midst of all of this Ethiopia held its elections for Prime Minister with many challenging the election’s fitness. Final results have yet to be announced.

As shipping season is now on its backend the trade is scrambling and struggling to find empty containers and available vessel departures for remaining shipments. Exporters scramble to allocate their final washed G1 lots which often get sold as G2 in the twilight of the shipping season. We also hear chatter on the export side of major internal market disruption due to larger exporters hiking prices to meet their contractual obligations. Akrabis (coffee traders/wet mill owners/parchment collectors) have ignored certain agreements to sell at higher market levels.

Both Kedir Jebril and the Kata Muduga Union are completely finished for the season with stock shipments and look ahead to the coming crop.  

Available Lots:

We’re well stocked with fresh washed lots from Agaro and Guji on all three coasts as well as including DuPuy Houston. Naturals from Nansebo and Bensa arrive to both California and New Jersey later this month.  

Mexico 

With the harvest completed across Mexico, almost all volume has been sold or contracted with milling being finalized on remaining parchment and final shipments moving to port by early July. Limited direct shipping routes, container/ship space availability, and frequent rollovers from most or all shipping lines have continued to slow the export and import processes, but we’ve been working with shippers to get coffees out with more fluidity and success. Rainy season has settled in across the southern growing region. After a contentious and highly anticipated election season, the country continues to struggle with containing Covid and getting the population vaccinated in a timely manner. However, most businesses are operating at full capacity and the economically important tourism sector has picked up in recent months.  

Available Lots:

Mexico arrivals continue to fly off the shelves almost as fast as we can bring them in, but we do have an array of lots in Continental NJ, and DuPuy Houston. Newly arrived at Continental, we have Familia Garcia Lopez, from Casimiro and family in the Loxicha area of the Pluma region in Southern Oaxaca, with 29 bags available. We also have a new offering this year which just arrived with 18 bags available. Coming to us from a producer group in a remote part of the Mixteca region, Garra de Jaguar is dynamic and sweet with tons of dried fruit notes.

Ecuador

Due to excessive rainfall at the beginning of the year, producers we work with are expecting a decrease in production this year in Ecuador, and particularly the Pichincha region. Arnaud Causse of Las Tolas and Terrazas del Pisque in Pichincha tells us he’s expecting a 20% decrease in production this year and a delayed peak in production as well. He also said he’ll be focusing less on natural processed coffees this year due to the lack of sun and excess humidity. In other areas of the country, such as Napo, where high amounts of rainfall are normal, there are high expectations for a great year for production and processing. 

According to media sources, about 11% of the population are vaccinated. The country still requires masking and recommends residents to stay home as much as possible. There are mobility restrictions across the country which producers expect to impact this year’s harvest.

Kenya 

From our friend Kennedy Keya at C. Dorman:

“Kenya main crop sales in the auction market ended in April. About 420,000 bags (60kg) were traded. Farmers were a happy lot with many factories paying on average equivalent of $0.70 per kg of cherry. We have been on recess for two months. Auctions resume tomorrow with only 8,000 bags on offer. It has been chilly resulting in slow parchment drying. We estimate about 160,000 bags from the fly crop this year. Auctions will be held every two weeks until volumes stabilize. The next main crop to be harvested from October is expanding well. If weather patterns don’t cause any damage we expect decent volume of the main crop, about 25,000 metric tons. 

The Covid situation is stable with new infection rates ranging from 5% to 10% daily. But again, numbers of those tested are too low. Life is picking up though many sectors of the economy are struggling, for example the tourism and hotel industries.

The port is operating at a slow pace. A big challenge is getting empty containers. Imports have been low. However, we are able to meet the shipment schedule by placing vessel bookings in advance. Some shipping lines, for example Hapag, are not accepting bookings for nearby shipments. They say their vessels are fully booked.”

Available Lots:

We have a small handful of truly superb Kenyas available on both coasts. 

Guatemala

Guatemala continues to struggle with over 1500 new Covid-19 cases reported daily. Like many countries, the majority of cases are not reported due to lack of testing, especially in rural areas. Our source in Guatemala City tells us “Covid is pretty much the same here, not getting any better.” 

Harvest has wrapped up in Guatemala. Like just about everywhere we are sourcing, there have been shipping delays, mostly due to lack of available containers.

Available Lots:

We contracted two containers this year with one going to each coast. The east coast bound container had an ETA into NJ 6/28, and has just a few bags from Santa Barbara, Huehuetenango available plus a larger lot from San Jose Poaquil in Chimaltenango. We expect to see this stripping into Continental around the second week of July.

The west coast Guatemala container has an ETA to CA of 7/6. We are continuing to see delays with containers getting picked up and stripped into The Annex, so best guess is end of July availability for these coffees including a 20 bag single producer lot from Los Arroyos in Huehuetenango. 

Yemen 

Both the ongoing Civil War and Covid issues have decimated the coffee industry. Moving coffee to port internally, loading onto passing vessels, and the larger global shipment situation have led to shipment periods of upwards of 60 days. Thankfully, the coffees we purchased this year have already landed and we have an extremely limited quantity available. 

To learn more about our work, check out our journal and follow us on Instagram @redfoxcoffeemerchants, Twitter @redfoxcoffeeSpotify, and YouTube.