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As we head into the second quarter of 2023, many threads from the beginning of the year remain. Logistics continue normalizing but are still tangled in various ways & regions—not quite returned to pre-disruption but overall, trending positively. The C market tentatively remains more stable, while differentials in our actual sourcing relationships remain largely untethered to it. Mexico season is coming in strong despite labor shortages due to & causing inflation, an issue in Guatemala as well. While logistical challenges remain in Ethiopia at large, our Ethiopia containers are all afloat. Spring has sprung & the coffees that this season conjures in our minds will be here soon. Details on all of this & more below.
Logistics, Port, & Warehouse Updates
Ocean freight costs & transit times are improving for most routes as we head into Q2 2023. In South America port congestion has improved significantly in key transhipment ports like Cartagena (although as you’ll see in the Colombia section, logistics are still challenging for our partners there). Service schedule reliability is improving with fewer rolled bookings & better container availability. In Central America, we are seeing some difficulty with 20’ container availability & expect that to persist for the next couple months. Overall demand for space on ocean vessels is down & costs reflect that. If global demand continues to fall, we could see shipping lines canceling service routes & reducing capacity in response to falling prices.
US ports are returning to normal volumes & processing times, with congestion easing. East Coast ports in particular are running smoothly with very few delays or equipment issues. Oakland & Houston continue to see some delays, but in general the situation is much improved. West Coast labor unions & ports are now entering the 10th month of contract negotiations with no agreement in sight. Teams resumed full time negotiations in February, but uncertainty remains. Cargo volumes at West Coast ports have dropped significantly since pandemic highs due in some part to anticipation of potential labor disruptions.
Domestic trucking rates have leveled out somewhat as fuel costs have come down from last year’s peak, though driver & labor shortages persist. Extreme weather events throughout the country this winter have caused delays with LTL freight deliveries & rail. Despite weather delays, rail transit times have generally returned to normal ranges.
Supply, Demand, & The C Market
Is 173 the new normal for the C market? The biggest news of the last quarter has been the downfall of Silicon Valley Bank & seeming instability in the financial sector. You’d think that would have reverberating effects on the coffee market. However, besides a small spike toward the end of February, the market seems to be more stable than the prior 1.5 years. Maybe it’s due to that recent history of volatility, or varying macroeconomic factors that we’ve addressed in prior updates, but it’s hard to believe or trust that 173 is the new normal or that stability is here to stay.
Daily news of decreasing Brazil inventories & the country lowering its production outlook would suggest an upward trajectory for the market. We’ve said this before, but for those that don’t know, Brazil is the largest producer of coffee in the world. When there’s news of floods, drought, or other affairs that cause fluctuations to the country’s currency (the Real), analysts, speculators, & institutional trading firms all respond, directing the C market’s activity around this one country. For example, news of favorable weather that allows farmers to apply fertilizers & pesticides to farms in Brazil caused the market to dip nearly $.03/lb recently as that would result in more production. News of rain & frost that would result in lower production has the opposite effect.
Honestly, it’s still baffling that news like this in Minas Gerais (Brazil’s largest arabica growing region) can dramatically affect the market basis price halfway around the world or as near as the country’s neighbor, Peru. &, quite frankly, why should it? Why should a smallholder producer in Mexico feel competition against a multinationally-owned estate in Brazil, or the whims of a speculative futures trader in an office thousands of miles away?
As we’ve reported before, differentials in the origins & quality tiers in which we work are no longer in line with C market swings. Details on the differentials we see in our sourcing below.
The Mexico harvest is about 80% complete for the year in almost all production zones. Some farms at the highest altitudes are making their final pass of cherry picking in late March/early April, but most of the coffee is now finished drying at the farms & parchment is landing in warehouses & dry mills for cupping & quality selections. First lots are being milled for export.
The weather has made for a good harvest & farmers are waiting for the first significant rains to kick flowering into action & give relief to the tired plants. It has been a relatively strong harvest throughout Mexico & cherry production was good; that is, what was able to get picked.
The main story around the country (as in many parts of South & Central America) continues to be labor issues, including greatly increased costs & decreased availability of workers. Madelina Lopez, one of the leaders & model farmers in San Pedro Yosotatu, Oaxaca, from whom we’ve been purchasing from for 6 years now, stopped by our office in Oaxaca City the other day & we talked about this reality.
According to Madelina (translated), “I have at least one more round of picking that I need to do in La Loma [her farm in Yosotatu at 1900 masl] to get to my goal of 500 kilos of parchment for the year, but because of my medical issue & physical limitation I have to hire at least 4 people to get the coffee off the trees before it dries up. It’s been really difficult to find labor this year, & the pickers that are available are charging 250 pesos/day.” This is double the price from even just last year, & in all honesty, maybe still not enough.
This is playing out all over Mexico, perhaps most crucially in Chiapas, the largest volume-producing state in the country, which has always relied on migrant labor coming over from Guatemala on temporary work visas. Chiapas is operating with under 40% of their normal labor force for the second year in a row. Because of this, Mexico prices & differentials have firmly remained some of the highest in Latin America.
In paying a premium for these increasingly rare coffees & cup profiles, we want to put all hands on deck to ensure we only select & ship top coffees that represent the best value possible from Mexico. Our first 3 containers of Veracruz are milled & ready to ship, as is the first box from both Chiapas & Oaxaca. Coffees will be arriving by late April & into the early summer.
We have a handful of lots from Veracruz & Chiapas still available from the 2022 harvest in the Annex & DuPuy, Houston that are still cupping really solidly at 85+ points, for steeply discounted prices that could be a steal for blend usage. Fresh crop Oaxaca & Chiapas community lots will be available on both coasts starting in May.
Red Fox has finalized our purchases for the season & all containers are now afloat with first Agaro G1 lots due into NJ in the coming weeks. High-caliber washed lots from both Guji & Yirgacheffe are also en route to the states with ETAs into NJ, CA, & TX beginning late April. We kept our purchases concise in volume and quality this season with the expectation of selling out much earlier.
The flow of coffee out of Ethiopia has been markedly slow as we are now in historically prime export months. Estimates are as much as 25% under March 2022. Differentials are extremely high even by comparison to last season. As mentioned in our previous Q1 Update, competition for cherry has been dominated by the largest players increasing price of entry for coops & smaller washing station owners across the country. The official exchange rate is holding steady in the 53-55 Birr to USD while the black market still hovers around 100 Birr to USD adding another layer of inequity for the smaller players. Long story short is that the market continues to balk at current FOB price levels.
A shortage of containers has also plagued the export season & threatens to get worse as imports into Ethiopia appear to be on the decline.
In political news, Ethiopian Parliament has now taken the TPLF off of the list of terrorist organizations which should bolster the peace agreement signed several months ago.
We have a small volume of both washed & natural in Dupuy Houston from last season which remain in remarkable condition. Please reach out to your reps for enquiries. These coffees are priced to move.
Expect new crop availability from late April.
Our first container of Kamwangi has landed at Continental & those coffees are tasting great. Containers 2 & 3 are estimated to land in the coming month, & the 4th & final container goes afloat this week.
Coffee quality was high across the majority of harvest & with the crop size being slightly larger than expected, prices throughout the season maintained good value. Our exporter partners are reporting client visits returned to near pre-pandemic levels.
Weather patterns throughout harvest have stayed consistently warm & clear. The first significant rains are actually expected to be in the first weeks of April, & should aid with flowering & much needed water for some of the other agricultural products many smallholder farmers grow.
The political situation in Kenya continues to be tense as opposition leader Raila Odingo has continued to schedule weekly protests against William Ruto’s administration. These protests against high cost of living & election fraud have turned violent recently. All the volatility has also had a negative effect on the shilling.
We have a couple bags of Kamwangi AA in Continental now, & a healthy 52 bags of Kamwangi AB available as well. These coffees are creamy, tropical, & structured. Not only are they delicious, they are also fresh crop & can be added to your lineup now.
Harvesting is well underway in Guatemala. As in Mexico, we’re hearing continued reports of labor shortages in the field. One producer we visited said, “Last year we had 40 pickers at this time but this year we only have 17 despite paying twice as much.” Even with these struggles, the quality we are tasting is generally up over last year.
We don’t have any spot Guatemala coffees in the warehouses currently, but we expect to see the first container shipping in April with a late May/early June West Coast arrival.
This harvest we are bringing in coffees from new relationships in La Libertad, Santa Barbara & Jacaltenango in Huehuetenango in addition to our long term partner in San Jose Poaquil.
In the months leading up to the 2023 harvest, producers are preparing for the upcoming season: weeding & maintaining their coffee trees, calibrating depulping machines, maintaining & upgrading wet milling & drying infrastructure, & participating in internal inspections conducted by producer groups to prepare for certification audits. Meanwhile, producer groups are meeting with banks & other lenders to line-up financing for the upcoming harvest & undergoing Fair Trade & 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 & accomplishments, receive their final payments & quality premiums, & elect new board members to replace those whose terms are up.
While Cyclone Yaku, a tropical storm which hit Northern Peru in March, caused significant flooding & damage along the coast of northern Peru, the majority of the coffee producing areas were not affected. The exception is the Selva Central in the departments of Junin & Pasco, which were hit hard by heavy rains that will likely affect the harvest.
We have beautiful & diverse Peru lots from all regions in which we work on the East, West, & Central Coasts. Ideal for filling a variety of menu positions, these coffees are a great investment.
Weather in Colombia continues to dictate the coffee conversation. February & March saw heavy rains across Cauca (Inzá included) & Nariño, measuring as much as 200mm in certain subregions. Some of the rain has brought about positive flowering in the highlands, while in other areas it creates extra challenges for flowering. The hope is that La Niña conditions starting to neutralize will bring improvement in weather patterns going forward this year.
On the logistics front containers are still hard to come by. Delays of 3-4 weeks occur regularly across Colombia’s primary ports in Buenaventura & Cartagena. Due to massive inflation rates transportation costs have increased as much as 20% in certain instances.
Differentials across the country fell slightly from September into the new year though the current expectation is to see more increases as the 1st semester harvest begins in the coming months. Johan Penna from Asorcafe told us, “Prices have actually sustained themselves at 2,300,000 pesos/carga in the greater Inzá region,” also noting that the Asorcafe harvest will begin at their lower elevations in May. Johan expects an even smaller harvest than the association saw in 2022 due to strong rains adversely affecting flowering. We expect to see sporadic ripening throughout 2023 in Inzá. Coffee will trickle into the warehouse beginning later in summer.
We expect an almost identical scenario in Tablon de Gomez, Nariño. Prices remain high according to our contacts in the region & flowering has been damaged by the heavy rainfall in January & February.
We have beautiful lots from Inzá (Cauca) & Tablon de Gomez (Nariño) in all 3 warehouses available SPOT now. These coffees are priced to move. Please connect with your rep about sampling/booking ASAP.
The 2023 harvest season is underway in Rwanda. In the country overall, early cherry picking tends to start in January, peak harvest arrives towards the end of March, & the harvest season wraps up by May or early June. At Kanzu, because of its higher elevation, cherry picking has just started & the harvest continues up until early July. Projections are for a lower-volume cycle of production in the western district this harvest season, but rains are looking good so far.
The National Agricultural Export Development Board (NAEB) set the same price for cherry as last season, 410 Rwf per kilo, despite the drop in the c-market since last year. We’ll know more about pricing dynamics at Kanzu specifically in the next few weeks. We’re heartened to hear that in-country & export logistics seem to have improved significantly compared to last year.
We have a variety of Kanzu outturns 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.
|Interested in sourcing coffee with us? Reach out at firstname.lastname@example.org. To learn more about our work, check out our journal and follow us on Instagram @redfoxcoffeemerchants, Twitter @redfoxcoffee, Spotify, and YouTube.|