ECOM 

Monthly Report

World Fundamentals May   2019  
 Main Points

 World S&D: The 19/20 crop should come in around 165 mio bags. This reduction is mainly due to a
decline in Brazil Arabica production and some loss of production in Milds producing countries , such as
Honduras and Nicaragua. The reasons for the decline vary. In the case of Brazil- the main driving
force is cyclic and a reaction to an optimal, bumper crop. Brazil farmers have been insulated to some
extent from the other producers of the world – due to Real weakness.

 Most other producers are feeling some affect of low prices. But at this point is difficult to measure
production loss. In the case of Honduras, production loss is anticipated due to lower inputs,
economizing by the farmer.

 Interestingly enough, and we have seen this recently in the S&D, we have a World Deficiit , but a
Robustas surplus and an Arabica deficit.
World Coffee Production: 17/18,  18/19 and 19/20

Country 2017/18 2018/19 2019/20

Brazil 50,900,000 65,200,000 60,200,000

Vietnam 32,300,000 27,500,000 30,500,000

Colombia 13,800,000 14,200,000 14,600,000

Indonesia 11,800,000 12,300,000 12,000,000

Honduras 7,570,000 7,000,000 5,800,000

Others 42,830,000 43,200,000 42,000,000

175.0
169.5

165.0
165.0
159.8 159.2

155.0 153.7
152.3 151.8
150.8

144.1
145.0
138.9 139.1
136.1
135.0

126.2
125.0

118.6

115.0 112.9

105.0
0506 0607 0708 0809 0910 1011 1112 1213 1314 1415 1516 16/17 17/18 18/19 1920

Production Demand
 Brazil

 Brazil farmer Sales for the 19/20 crop for Conillons and Arabicas running around 25-30 %.

 2019/20 harvest - May has been the official start of the Arabica Harvest. Farmers are harvesting in
full speed by now and figures point to around 25 % already off of the trees. “Quality wise” we confirm
the picture of uneven maturation, with a slight better appearance in some area; where we see the
harvest reflecting toward mature / dry beans. There have been some rains, which in some spots
higher incidence of coffee dropping off the tree. Not a serious issue as worse cases are isolated.

 Local market: much more active business with NY terminal around and above a dollar. Exporters
are absorbing current crop offers. The income from stock sales is welcome money to pay for “high
farm harvest expenses”

 FOB market active but still buyers expecting cheaper diffs. Exporters covering shorts still keep the
diffs on fine cups in the single digits.

 Weather forecast show sunny weather for the Next 10 days in Mogiana, South Minas and Cerrado,
which is just a great news. Also no frost risk for the next two weeks
BRAZIL SUMMARY
COMMENTS: • The 4‐week forecast [Chart B] indicates that JUN 
• Observed 30‐day rainfall anomalies [Chart A]  will see a period of improved harvesting 
have show some areas experiencing above  conditions with a dry spell indicated.  The 
normal rainfall (particularly southern coffee  exception being ES & Bahia.
areas inc. Parana).  This is sub‐optimal for 
• Air temperatures are generally expected to 
harvesting activities in these areas.
continue above normal, reducing the likelihood 
• The Seasonal outlook [Chart C] holds onto a  of frost problems.  Warm sea‐surface 
general bias for slightly more rainfall than would   temperatures near the coast continue to help 
normally be expected through the dry season  keep average air temperatures elevated.
(particularly JUL).
[C]
[A]

[B]
6
 Colombia

Colombia: farmers have sold about 75 % of the 2018/19 crop.

 Exports Oct 17 - April 2018 were 8.9 mio bags. This year exports are slightly stronger at 9.2 mio
bags not a large difference.

 Production: 18/19: 14.2 mio and 19/20: 14.6 mio

 Supply Side: The rally of NY market has brought the financial relief for which many producers were
hoping. During the last week of May, local prices paid to producers reached 850.000 COP per carga,
the highest in the past year, thanks mainly to a rise in the Exchange rate close to 3400 ( the highest
since 2016) and the highest Differential basis in 5 years.Differential Basis corrected only a few cents
despite the NY "C' Market rallying 15 cents. Competitors keep paying hefty prices.

 The flow of Coffee is reaching its peak now in Cauca and Tolima and will reach it's peak in Nariño in
about four weeks. Harvest activities in the coffee axis are fast diminishing, with many producers
waiting for the maincrop which is expected to start by August (a month earlier than usual). Weather is
not favorable as too much rain is halting activities including the last round of fertilization for the
maincrop in some departments.

 Other news:- The Howard G. Buffet foundation has granted 2 million USD to the FNC to improve
production in parts of Antioquia. This will benefit 100 producers, and Nespresso has committed to buy
their coffee production.- Colombia imported more than 800.000 bags during the first 5 months of 2019
with 60% coming from Brazil. - COP/USD reached 3398 thanks to President Trump and the fact
that Fitch's credit rating for Colombia was last reported at BBB with negative outlook.- Colombia
Central bank announced that will stop increasing the level of USD reserves. This should give more
support for the peso.
COLOMBIA & CENTRALS SUMMARY
COMMENTS:
• The 4‐week forecast [Chart B] indicates 
Colombian and Central American regions to 
trend drier than normal [Chart B & C].

• The Seasonal outlook [Chart C] suggests an 
continuation of this below normal rainfall trend 
through the 3rd quarter of 2019 in Colombia & 
many Central American regions. 

[C]
[A]

[B]
8
 Central Milds

Nicaragua: Farmers have sold about 90 % of the 18/19 crop and 10 % of the 19/20 crop.

 Production forecasts – 18/19: 2.25 mio and 19/20: 1.90 mio. Expect 20 to 25% decrease in
production for 19/20 crop . Besides being a downward cyclical crop year, we expect it to be even lower
due to the lack of fertilization.

 Export performance: Oct – April Shipment: 17/18 = 1.30 mio vs 18/19 of 1.15 mio …Nicaragua
exports are concentrated between Feb through June.

 Nicaraguan has political unrest for 1 year now. The economy is very fragile and the sources of
finance for producers have reduced significantly. Banks are not issuing any loans, therefore, producers
are reliant on exporting companies like us, to help them get the next crop out.

 How are farmers reacting to low prices? This will be a “maintenance year”. No investments in
farms whatsoever and producers are reducing costs to a minimum. Fertilization has suffered deeply.
 Central Milds

Honduras: farmers in Honduras are basically 100 % sold and have sold close to nothing for next crop.

 Exports Exports this crop year = 6.6 mio vs 7.2 mio bags last year, Exports Oct – May in 2018/19 =
4.65 mio bags vs 4.85 mio last year, catching up on last year.

 Production : 18/19 production revised upward due to strong shipments now, = 7.2 mio bags, and
19/20 crop around 5.8 mio bags.

 Key factors reducing production by 20 %: 50 % weight due to low prices. The market is around
$20 per 46kg below Avg Cost of Production ( $ 115/46 KG FOB), none to low maintenance; 25 %
weight due to coffee rust. Avg infestation = 12 %, with condition to develop further favorable. No funds
to combat this; 12 % weight due to vulnerable varieties; 10 % due to climate, so far very low rainfall
and expected mid summer heat will likely stress plants. Balance due to lack of labor, emigration.

 We observe following scenarios: 1) 5% total abandonment of the farm =zero picking = loss of 14,000
hectares production = farmer are emigrating; 2) 7% semi-abandonment = only picking,zero
maintenance fertilization =20,000 hectares 3) 35% - low agriculture care = zero fertilization but
two/three maintenance activities = picking = 100,000 hectares ; 4) 40% - medium agriculture care =
basic agricultural practises = decent diseases control = one or two fertilizer applications = 120,000
hectares; 5) 13% - good agriculture care = capitalized farmers = up to 5 fertilizer applications = good
disease control = renovation = 50,000 hectares = no new planting at all - only the 13% do renovation

 2018: Annual inflation: 4.2 %, devaluation of local currency 1.5 % vs USD; quiet politically.

 Weather has been very dry on 90mm of rains during the Jan / April. May is back to normal Good
flowering with the May rains.
 Central Milds

Salvador: farmers in Salvador are 80-85 % sold for 18/19 and 15 % sold for 19/20.

 Exports. Oct 17– April 18 = 0.25 mio and for Oct 18- April 19 = 0.31 mio a 23 % increase. The
farmers, due to low prices are waiting until the last moment to fix their coffee forcing millers and
exporters to delay shipping schedules.

 Production : 18/19 is expected to reach 0.57 mio and 19/20 crop is estimated at 0.60 mio

 The new government will take over the direction and management of the country for the next five
years, there is quite a large expectation on the positive changes that will bring their initiatives and also
some uncertainty if it will be achieve. From the export and logistic side we are facing delays beyond
our control, Central America region is implementing new customs requirements (DUCA, Declaración
Única Centro Americana) causing major delays in both export and import products,

 The weather. The raining season has started with steady rains in all the coffee regions of the country,
very uniform and favorable for the next crop.

 How are farmers reacting to low prices ? Farmer are worried that current low market prices are not
allowing them to cover their cost of production, the general word is that if prices continue at this level,
they will have to stop their renovations, plans, investments and just to cover the minimal maintenance
of the farms in order to not loose what they have invested so far, expecting that prices swift more
positively for them in the future.
 Central Milds

Mexico : farmers in Mexico are weill sold with about 95 % sold for 18/19.

 Exports. Oct 17- March18 = 1.46 mio and for Oct 18- Mar19 = 1.88 mio and increase of 29 %

 Production : 18/19 is expected to reach 3.25 mio and 19/20 crop is estimated at 3.25 mio also

 Weather: Very dry, some regions suffering with no rains, but where there have been flowerings, they
have been very good

 How have low prices affected farming? Farmers doing the minimum possible, no new investments,
no renovation and preparing for the worst. No abadoning.

Peru: farmer has sold about 25 % of the crop, 2019/20

• Exports Oct17- April18 : 2.27 mio vs Oct Oct18- April19 : 2.3 mio

• Production: 18/19 crop = 4.54 mio and the 19/20 crop = 4.28 mio

• Local market: big agricultural strke, they are asking, among other things: protect local agriculture by
raising the import tax on rice, wheat, cotton, sugar, etc. ; restore the now broke Agricultural Bank
Agrobanco; invest in new Hydroelectric water projects on the highlands.

• How have low prices affected farming? No investment in the coffee farms, they work in non-
agricultural jobs until coffee maturation; they talk about changing back to Coca.
 Asian Arabicas

Papua New Guinea :

 Exports.

 Production : 18/19 0.8 mio and 19/20 crop is estimated at 0.72 mio

 The internal market has tightened up given both a lower crop and a lower NY C, with many exporters
paying high prices. Former Prime Minister Peter O'Neil resigned on May 29 and Jame Marape was
elected on May 30th. The PNG economy is expected to grow by 3.7% in 2019.

Indonesia Arabicas:

• April exports are 92,986 bags, down 12% vs last April. May and June exports expected to be up as the
bulk of the Mar-May crop is exported. Incumbent president Joko Widodo has been officially declared
winner of the elections.

• Production: 18/19 crop = 1.13 mio and the 19/20 crop = 1.19 mio
 East Africa

Ethiopia :

 Production: 18/19 crop = 6.55 mio and 19/20 crop = 5.90 mio

 Oct-Mar exports of 1.41M bags are in line with the previous year despite a bigger crop. The Oct-Dec
exports are carry-in coffees while from January on new crop is exported. Demand for washed coffees
remains subdued and FOB differentials have come off substantially over the past months. Demand for
Naturals is strong from the traditional markets but business is slowed by relatively high differentials.
Lekempti arrivals into Addis Ababa are therefore delayed.

 In Addis Ababa itself we see production delays due to electricity rationing. The aggravated forex
shortage is responsible for fewer imports, which affecting container availability in Addis Ababa and
vessel calling in Djibouti. the local commodity exchange prices keep trading therefor above export
prices.

Kenya:

 Production: 18/19 crop = 0.75 mio and 19/20 crop = 0.7 mio

• The Kenya Main Crop is coming to an end. We are seeing poorer quality and the auction is going on
recess on the 11th of June for a six week break until July 23rd. Fly crop cherry picking has started; we
expect small size beans because of the prolonged dry spell. Logistics are being slowed down by the
government agency approving exports documents.
 East Africa

Tanzania :

 Production: 18/19 crop = 0.80 mio and 19/20 crop = 0.83 mio

 New Crop Cherry picking is ongoing with the first auction expected in August. We expect to have to
also have auctions held in the coffee growing regions; however farmers have the option to offer their
coffees in the central auction in Moshi. Due to drought early in the year, and this year being an off
cycle year, crop size is expected to be down by about 20%.

Uganda

 Production: 18/19 crop = 4.3 mio and 19/20 crop = 4.5 mio

 Rains are good across Arabica and Robusta regions. The USDA Foreign Agriculture Service reports
that coffee production in Uganda for the 19/20 crop could drop to 3.5M bags due to last season’s
drought. However, given the good rains and good farmer upkeep the damage does not appear as
extensive. As of April, 18/19 exports are down 11% compared to the previous year, mostly attributed
to low prices and the drought. The Uganda Shilling continues to weaken, moving to 3780 UGX/USD.