Hello February,

The end of summer is approaching already, and if you feel like you haven’t been outside to enjoy it, you’re not alone.
 
While most of the country has ceased mandatory lockdowns and restrictions, the general public is ‘sheltering in place’ of their own accord as we see the worst wave of Covid-19 cases throughout the pandemic in Australia.
 
But slow customer engagement is not the only issue on the forefront of roasteries’ and cafes’ radars – the seemingly never ending transport matter is still lingering and causing supply disruptions.
 
Container Transport Alliance Australia (CTAA) director Neil Chambers says many industry players are facing the "hardest conditions they have ever encountered" with the domestic and international logistics placed under enormous strain from staff shortages, terminal congestion and significant competition to secure vehicle booking slots. Container transport operators have tirelessly kept international container supply chains functioning over the past two years with distancing and other health measures in place to keep staff and customers safe, but the Omicron variant has changed the game. Many Container Transport Operators across Australia have experienced up to a 20% reduction in staff due to infections and isolations. This shortage affects heavy vehicle drivers, warehouse staff, forklift drivers, container unpack crews and administration as well as at international container stevedore terminals and at empty container parks.
 
Vessel berthing delays at container terminals across Australia are of significant concern, impacting all of the major stevedore companies, with delays of between 2 and 9 days being felt most acutely in Sydney and Melbourne, and a recent heat wave in Western Australia affecting productivity in Fremantle. Container yards have reported significant congestion – operating at 70 to 130% over capacity. This is compounded by delays in customer deliveries, and the constant need to stage empty import containers through transport yards while trying to secure de-hire slots at clogged empty container parks or container terminals that have reached capacity to receive returns.  Very few shipping lines are providing any relief to importers or forwarders from hefty charges for late empty returns, despite congestion at their contracted container terminals or empty container park providers being a major contributor to the supply chain delays and excess costs. In an attempt to counter the congestion, weekend labour scheduling has been increased, however this comes at a significant cost to transport operators in overtime and staging costs. Additionally, Covid labour constraints and fatigue management rostering obligations really limit driver and staff availability for off peak rostering.
 
Adding to the delays and increased cost of transport is the threat of shipping lines transferring many import shipments away from contracted freight rates and conditions to “spot rates”, (which also come with stricter import container detention time frames). It appears that international shipping lines are racking in millions of dollars in container detention fees and exorbitant transit rates. Coupled with this, the ongoing lack of space on vessels, means that bookings continuously get pushed out, meaning importers need to acquire new freight rates, and therefore risk a further increase in costs and charges.
 
All this coupled with the volatile C Market means we need to be prepared for a turbulent year ahead.
 

MARKET REPORT

The month of January has come and gone, and with it any hope the downward trend we saw during late December-21 would continue into the New Year.
The New York “C” was within touching distance of 220 US cents/lb at the start of the month, but then shot straight back into the 230s almost overnight before continuing to a month-high level of 245 US cents/lb by the mid-month. There was the inevitable correction following the sharp rise, but this was met with very strong support at 230 US cents/lb, indicating the 220s are off-limits for the time being.
 
Indeed, in spite of all the intra-day volatility experienced last month, one could say prices were range-bound for most of January as a result of the market’s hesitance to venture too far in either an upward or downward direction.

This “stability” is likely the result of a lack of any meaningful fundamental-related news (i.e. pertaining to any changes in demand and/or supply). However, one does get the feeling this is about to change, as some early crop reports from Brazil’s coffee areas are starting to trickle into the public domain.  These will help shed some light onto what might actually be coming off the trees this upcoming season, following the disastrous frost and drought double-whammy meted out to the world’s largest arabica-producing nation. There may be conflicting reports, which will probably result in sharp moves for the C price in either direction, so be prepared for some fireworks over the next few weeks.

 

At this stage, although it is far too early to draw any conclusions with regards to Brazil’s crop estimates, we stand by previous commentary stating it’s hard to imagine the C price plummeting back to sub 200 US cents/lb (let alone pre-frost levels) any time soon. The fact is, the damage was most certainly done in Brazil and now it’s a matter of determining whether it’s “Little-Bad” or “Big-Bad”.

One last thing to point out: It’s important to also understand that Brazil’s woes do not exist in a vacuum, as their shortfall places considerable strain (and props up prices) on other origins. Therefore, if other origins experience issues with their crops, it can be felt by the market more intensely than usual, as they will be adding to an already tough situation.

WHERE IS THE COFFEE PRICE GOING?

This is the biggest question of 2022! Let’s take a look at some factors contributing the current price increase and what’s in store for the year.
 
As Brazil is the largest producer of coffee globally, they contribute most dramatically to the changes in coffee pricing. We need to consider what’s happened in this origin since their frost in July 2021. Typically, in January and running up to the Brazilian carnival period in the end of February, farmers spend time assessing the volume and quality of the coffee crop on their trees. Many farmers will then make a determination by March on what volume they think they will harvest from their crop (harvest is roughly from May to September). Next month will be somewhat critical in the way the farmers in Brazil will report the volume of crop they expect to have. The frost damage is still relatively unknown, so once Brazil issues their report it will set up the Coffee market internationally for the next 12 months. We can speculate on the direst scenario such as Brazil confirming a bigger loss than expected, causing them to react conservatively and not sell as much coffee – which could fuel more speculative fund money involvement in the Coffee market and we could see the prices rise even further.
 
But this year there are many other influential factors that have now become more important to the way prices are set, and will add to the unexpected volatility to the market. We have much of Europe and America reawakening from Covid pandemic lockdowns - and this is likely to increase consumption again in those regions.  And as mentioned above, we still have global shipping and logistics in a terrible mess which looks to be disruptive for all of the 2022 year.
 
The impact of Central America and in particular Colombia on the cost of coffee comes from the shortfall in their expected export targets, coupled with wet weather reducing the volume of current coffee crop further. Much of the world’s washed Arabica producers are estimating they will also produce a smaller crop this year than the last year. This means the next 12 months will see high demand for washed Arabicas and prices will hold very firm.
 
Many of these issues are unprecedented and uncontrollable so the international coffee market will react very quickly and unpredictably to any supply issues. This may be somewhat magnified by the matter of limited stock holdings of raw green coffee in consuming countries, which has been a result of all the shipping and logistical issues we are facing.  With all of these pressure points in the market at the moment it feels as if there is a more positive strength to prices than a negative for at least the next 12 months.
 
We urge you all to keep in contact with your Bennetts Account Manager to ensure you are up to date with price changes and stock availability. We are here to help, and believe strongly that open communication will build good business relationships.

 Happy Roasting,
The Bennetts Team