The month of October started with trading of the December position (KCZ22) at 220. For the first 10 days of the month, trading fluctuated within the range of 217-224. On October 13, the C market dropped by 7 cents as ample rains in Brazil eased concerns over supply issues. Additionally, rising inflation rates made many feel that the projected consumer demand may fall short. This lead to the market declining for a historic 13 days of trading. Friday October 28 saw the market close at a 14 month low of 169.8. Over the weekend, Brazil held its run off presidential election between incumbent Bolsonaro and challenger Lula (who served as president of Brazil 2003-2010). After Lula's close electoral win, Monday October 31 saw the market open and trade up 7.9 cents to close at 177.7.
Weather in Brazil has been overall favorable to coffee production, however there is an unseasonal cold front moving in to Brazil this week (first week of November) that threatens to push temperatures down to 5 degrees Celsius. It is not believed that this will create a danger of frost. The Minas region of Brazil received ample amounts of rainfall in the beginning of the month, however the last week of October saw less than average rainfall.
Strength of the U.S. dollar has also been bearish to coffee prices. Strength in the dollar means more buying power, which tends to reduce commodity prices. Additionally, because coffee is traded in the U.S. dollar, a strong dollar brings more producers to the market because they are able to get more for what they sell when it is then exchanged for their own currency.
Bloomberg reports that shipping giant Maersk expects to see container rates continue to decline due to reduced manufacturing orders over seas. Additionally, port congestion is improving in the United States and Asia. While shipping improves across Asia, a global imbalance in the location of shipping containers continues to impact the ability to ship promptly out of coffee producing countries.
Spot trading is currently occurring in December 22 (KCZ22). Final notice day for December is November 21, at which point all fixations on KCZ22 will need to be finalized and spot pricing will be against March (KCH23). The current switch price (cost of rolling contracts over to KCH23) has reduced from 10 cents (at the end of September) to 1.6 cents at the end of October.
The big takeaway from the market movements over the last few weeks is that we are currently watching the market readjust to the new circumstances of reduced global demand (due to inflation and recession concerns) as well as a forecasted increased supply (due to favorable weather and heavy planting of additional crops).
Amazing Rwanda Bourbons on the Water!
Representing the Pride of Rwanda
- Abakundakawa Rushashi FT: Abakundakawa is one of the best known co-ops in Rwanda not only because they have great coffee but also because they been so successful in improving the lives of their members. Abakundakawa means “we love coffee” in the Rwandan language of Kinyarwanda and that is obvious when experiencing their outstanding quality.
- Hingakawa Women’s Co-op FTO: Hingakawa is the women’s cooperative within Abakundakawa and means “let’s grow coffee” in Kinyarwanda. The group was founded after the genocide in 1995 as an attempt to recover and create a space for women to succeed.
- Ishema Next Generation FT: The most recent group within the Abakundakawa co-op, Ishema means “pride” in Kinyarwanda. Seeing a lack of young people learning coffee production, in 2019 a group of 100 youth members of the co-op banded together to support each other. Since then, membership has bloomed to 400 and has been able to reduce rural migration by the next generation.
Betty's Update on Central America
The international market prices pushed farmers to plant and produce more coffee in all 3 countries: Guatemala, Honduras and Nicaragua. Although the coffee Beans from these new coffee plants will come in a couple of years.
Nicaragua recently adopted a national coffee strategy (2020-2023) focused on improving farm management and farmer incomes. Despite this and the excellent export prices for this past crop, the higher prices on fertilizers, this 2022/23 crop volumes are expected to go unchanged.
Honduras production is expected to have and increase. According to the Honduras Coffee Institute, an increase of around 17%, result of higher productivity due to better farm management in country programs.
Guatemala is expected to keep steady in exports according to Anacafe, although in some regions some producers are reporting an increase in their estimated production.
The major concern in the Central America region is the decrease of available labor for coffee production due to migration, which affects both quality and volume, especially for Guatemala and Honduras.