As we enter Q3, the C market is down with further drops possible on the horizon, while its volatility continues to create complexity. Local prices that have been elevated for years are now beginning to follow suit as the all-important Peru season concretizes, but again, volatility plays a key role. Our warehouses are flush with the latest & greatest as well as a diversity of prime lots from the 22-23 crops, holding their own on quality & priced to move in order to make room for newcomers. As always there are plenty of wrinkles domestically & across the coffee world, which we’ll delve into in depth.
To get the scoop on logistics, the C market, & every origin in which we work, read on or click here to listen.
Supply, Demand, & The C Market
Have C prices started to return to pre-pandemic levels? C market prices over the last quarter certainly seem to be headed that way. Microeconomic factors seem to be following suit with differentials falling behind the C market. Anecdotally, we’ve noticed many roasters have hit a wall on pricing after last season’s spike. Historic buyers of 86+ cupping community lots either never raised prices or don’t want to raise them again & have swapped some of their higher-end community/producer separated parts of their programs with more cost effective regional style lots. While we recognize price sensitivity, we won’t start sourcing subpar qualities or be anything but a top payor of coffees where we source. However, we’ve shifted our strategy for acquisitions with a more polarized selection weighing more volume in our 84/85 pt coffees & 87/88+, reducing the volume of the middle band between those scores.
In terms of the C market itself and the factors that inform it, while daily volatility has continued this past quarter, we’ve seen an overall decline from around $2/lb to nearly $1.60/lb at time of writing. With global exports down year over year, inventories at a 7-month low, & Dutch agro-bank Rabobank still predicting an overall production deficit, favorable weather forecasts in Brazil still undercut other indicators & drive the C price down. Earlier in June the US Climate Prediction Center declared an El Niño event that would normally imply an increase in coffee prices due to heavy rains in Brazil (lower supply). However, we’re still seeing a decrease in overall coffee prices & no negative weather outlooks in Brazil.
From an early-June USDA report, “World coffee production for 2023/24 is forecast 4.3 million bags (60 kilograms) higher than the previous year to 174.3 million. Higher output in Brazil & Vietnam is expected to more than offset reduced production in Indonesia. With additional supplies, global exports are expected up 5.8 million bags to a record 122.2 million primarily on strong shipments from Brazil. With global consumption forecast at a record 170.2 million bags, ending inventories are expected to remain tight at 31.8 million bags.”
Logistics, Port, & Warehouse Updates
West Coast ports have seen recent effects from labor negotiations between the Pacific Maritime Association (PMA) & the International Longshore & Warehouse Union (ILWU). Earlier in June, there were reported slowdowns & shutdowns at terminals at Port of LA, Port of Oakland, & other key West Coast ports, increasing wait times for arriving ships & delaying container offloading. As of June 14th, a tentative deal was reached on a new 6-year contract between dockworkers & their employers, ending 13 months of talks. The agreement, covering workers at ports stretching from California to Washington State, is still subject to ratification, but is expected to ease worries of greater supply chain impacts.
The ports of LAX & Long Beach have also seen trucker strikes recently, as drivers have been fighting back against AB5, a California law that restricts businesses from classifying workers as independent contractors rather than employees. Trucking capacity has improved, in general, & otherwise port operations have been relatively smooth. The biggest concern right now is warehouse inventory. Many roasters are sitting on excess inventory, meaning that less space is available on the warehouse floor for new inventory. If warehouses fill up it will have a domino effect going back to the ports & could cause new delays.
Harvest has begun across the lower to intermediate altitudes in Cusco, Puno, Amazonas, Cajamarca & the Selva Central as planned. Coffee collection moved quickly at the onset of harvest but has moved slowly since, as uncertainty & speculation about local market prices grows. As the C continues to drop we expect to see more delivery over the course of July into August. Local prices tend to move slowly in conjunction with the C, though a general lack of demand from the largest buyers (SBUX, Nespresso, etc) will change that reality swiftly. Offers will return closer to an orbit of “normalcy” as we inch closer to fall & the conclusion of harvest, though an unfavorable exchange rate hinders the economics behind FOB offers as the USD weakens. Inflation continues to be a major issue for producers as their costs of business have firmly increased. Don’t expect prices to reach 2019 levels even if the floors fall out on the C over the course of July as some expect.
While El Niño has wreaked havoc up and down coastal Peru, the coffee areas across the Andes have yet to be affected.
Our team spent May & June out in the field visiting our most important relationships across the producing regions north to south. We will continue to do so in August. Our Lima lab opens July 15th as we expect to begin shipping new crop come August.
We have a strong supply of fresh, organic certified Cusco & Amazonas in all 3 warehouses and have re-priced all lots to move quickly. Please come to us with bids.
Early prognoses indicate a smaller first semester harvest from Inzá as coffee plants rebound from the extensive, wet La Niña season the past couple of years. Harvest may be down as much as 30% from 2022. Heavy rains & lack of sun have led to a lack of bean development while preventing strong flowering that would trigger a higher-yield harvest. Expectations are high for better quality in the second semester harvest beginning October & running into the new year. Current local prices are around 1,700,000 Colombian pesos/carga, a strong indication of offers coming back into orbit after 2 years of expensive coffee. We expect prices to drop even further.
Our friends in Tablon de Gomez, Nariño are also expecting a limited crop this year with prices higher than Inzá currently dipping under 1,600,000 Colombian pesos/carga. Weather is the culprit here too, with forecasts as low as 40% down from 2022.
Red Fox will begin shipping new crop come September.
Financially, Colombia is currently seeing some of the worst inflation rates on the planet. Production costs remain high while local prices & national differentials plummet. While La Niña weather conditions finally show improvement, producers face monetary hardship at the farm level.
On the logistics side, decreased export levels have led to improved container availability & on-time shipments from Ports of Buenaventura, Cartagena, & Santa Marta.
We have a position of Inzá coffees from last harvest that we are looking to move at a discount. Coffees are still in excellent condition. Please come with bids. We have decaf in-store in great condition as well.
This year’s harvest season in Rwanda is wrapping up after a devastating rainy season in much of the country. Heavy rains in April & early May caused widespread flooding, landslides, & loss of life in the country’s northern & western provinces. Now the weather has improved, & is mostly sunny. The crop volume is forecast to be similar to last year. It is estimated national production will be about 21,000mt. Internal prices remained competitive throughout the cherry buying period this season.
We are currently cupping Kanzu offers for approval & aim to send our first outterns for milling in the next few weeks, with an eye towards early shipments & arrivals.
We have a variety of Kanzu lots available in both NJ & CA warehouses now—lots that highlight the bright & sweet profile that we love from Nyamasheke. You’ll find dark fruits, sweet cream, cherry, red plum, & caramelized sugars galore.
Harvest has completely wrapped in all regions & all of our coffees have been milled & exported. First shipments have arrived to warehouses in the US with more arriving stateside shortly.
One of the big stories we have been following all year is the continued strengthening of the Mexican Peso. At 17 to 1 USD, it is the strongest it has been in many years. This is due in part to new manufacturing & trade initiatives & agreements with various private companies & countries (China), including a planned new Tesla plant outside of Monterrey in Nuevo Leon.
Security issues continue to worsen in places not previously known for violence, particularly in the southern state of Chiapas. 2 different cartels vying for power have engaged in violent confrontations along the border which have spread to coffee growing regions.
The first container that stripped into Continental, NJ brought some exemplary producer & community lots from the Pluma, Sierra Sur region in Oaxaca, specifically the Pompilio Garcia, Linda Vista, & El Aguacate lots from San Agustin Loxicha & nearby town of Yogondoy. These fresh arrivals show tons of bright, juicy tangerine flavors & have some ripe red fruit & dried cherry, red grape notes up front as well, amber honey sweetness, chocolate & super clean finish.
Also in Continental is a fresh crop organic-certified lot from Capitan, Chiapas, with lots of dried purple fruit & baking spice, super balanced, sweet & clean. We also have our very first available offerings from the state of Puebla, including the Cesar Huerta producer microlot & two community lots from Zapotitlan on the western slopes of the Sierra Negra opposite Veracruz. We are really stoked to be able to showcase this rising region & its distinct, unique profile with these lots. Our first Annex arrivals from Sierra Sur should be in any day with more top microlots arriving in July. Don’t sleep on these, the limited amount of Mexican offerings will go quickly this year.
In Ethiopia, demand continues to be minimal due to high minimum prices, slowing the flow of coffee from interior to dry mill to port. Security issues & limited container availability have also affected shipments. Minimum prices have dropped ever so slightly but remain high even as the C price plunges. Exports are now at record lows as Ethiopian imports into the Northern Hemisphere’s largest consuming countries are down anywhere from 25-45%.
The rainy season has begun across the country. We have yet to receive reports on maturation progress for next season’s harvest.
We are flush with top G1 lots from Agaro (Duromina, Nano Genji, Kolla Bolcha) on all 3 coasts. G1 Guji & Yirgacheffe are also now available at Continental Terminals NJ & the Annex CA with G2 Guji & Yirgacheffe available on all 3 coasts as well.
Kenya’s fly crop is now arriving in Nairobi warehouses, though during a time of great political upheaval. The government is aiming to change regulations & disable certain large multinationals from controlling the majority of the coffee bought & sold in Kenya. Some believe this is a response to promised pricing coming from politicians during last year’s presidential campaigns.
There’s talk of a secondary auction parallel every 3 days, & that all payments would be done through a centralized system down to the farmer in Kenyan shillings. This is all speculative as the Kenyan government has yet to finalize anything.
Historically, licenses for marketers/exporters are renewed on July 1st of each year, & our partners in Nairobi are anxiously waiting to see what plays out. We may be seeing a change in Kenyan coffee regulation going forward.
We just stripped in our last container of Kenyan coffee into Continental, & this year there’s no shortage of stunners. From Kirinyaga we’ve got lots from Kamwangi, Kiri, Konyu, & Karani all boasting the classic blend of currant, tropical fruit, & dark berries. From Murang’a County we’ve got Kahete & Kangurumai with flavors of guava, citrus, & honey. We’ve also got Karindundu from Nyeri (apricot, brown sugar), Gicherori from Embu (honeydew, lime, white grape), & Ndundu from Kiambu (pineapple, vanilla, cream).
Harvesting in Guatemala has wrapped up for the season & containers have arrived or are due into port any day.
From a sourcing partner we work with in Guatemala: “The principal obstacles for the 22-23 harvest were the increment of the total cost production due to the global inflation. We saw inflation reflected in fertilizer prices, tools, & other needed production inputs. Due to migration of Guatemalan people to the north of the continent, we’re seeing a labor deficit and accompanying cost increases. For the 23-24 harvest we’re facing delays in rain distribution due to El Niño.Coffee flowering was amazing, so if the rain patterns correct soon we’ll probably see an incoming harvest with similar behavior to the 22-23 harvest.”
On the political front, Guatemala had a presidential election recently, which is now headed for an August run-off. Early results put the center-left candidate in the lead but also appear to show widespread voter frustration over the exclusion of an early favorite. Concern over corruption is a major focus of this election cycle.
On the east coast at Continental, NJ we have 58 bags available of returning Chimaltenango favorite, San Jose Poaquil. This coffee has a balanced profile with subtle dried fruits & deep sweetness.
Huehuetenango producer lots are now available in Oakland in very limited quantity. Many of these lots have already been contracted but there is volume available from Las Camelias, Las Bromelias, & single producers Victelio Martinez & Arturo Gabriel. These La Libertad coffees all have a brighter profile with citric & malic acidity & flavors ranging from green apple, fresh fig & musk melons to toffee, amber honey & salted caramel.
|Interested in sourcing coffee with us? Reach out at email@example.com. To learn more about our work, check out our journal and follow us on Instagram @redfoxcoffeemerchants, Twitter @redfoxcoffee, Spotify, and YouTube.|