Cocoa prices are set to rise further before October, as merchants in Ivory Coast, the top producer and exporter of the bean, move to corner more of the market, Ecobank said.
The Togo-headquartered bank sees prices rising ahead of the start of the next West African growing season, thanks to continued supply squeeze and rallying global demand, as well as the prospect of higher farmgate prices in the coming season.
“With global demand recovering and expectations of a global deficit this season, we expect prices to strengthen further, with potential spikes in the run-up to the new season in October as farmers withhold beans from the market in expectation of higher fixed prices in 2015-16″ said Ecobank.
Cocoa prices hit a four-year high last week, thanks to a disappointing crop in the world’s second largest producer Ghana.
Ecobank’s forecast follows similar predictions from Commerzbank earlier this month, and VSA Capital in July, which all expected new highs before the end of the year.
Exporters lobby
The prospect of supply squeeze comes as domestic exporters lobby for a state-mandated control over a larger share of exports in the world’s largest cocoa grower.
A new umbrella organisation is lobbying for the right to export up to 20% of the Ivorian crop, at 340,000 tonnes.
In 2014, this would have amounted to nearly 7% of global supply.
Ecobank says that there would need to be government price incentives for buyers to take out this volume of contracts with local exporters.
Counterparty risks
“Ivory Coast’s cocoa exporters are seeking a fixed share of export contracts for the next five years under a new umbrella organisation, Groupement des négociants ivoiriens (GNI),” Ecobank said.
GNI, along with rival Ivorian exporter organisations, is lobbying the national cocoa body for fixed allocations to protect their share of exports from overseas competition.
Ivorian exporters have been cut out of the market, because the requirement for significant cash downpayments and other assurances favours international trading houses.
However, there are concerns about the counterparty risks posed by local exporters, and the danger of unfulfilled contacts.
As a result, Ecobank said “we expect off-taker interest to remain low for these international contracts, unless enticed by discounted prices in the auction”.
Domestic grinding
The move comes as Ivory Coast continues to pursue beneficiation policies designed to redirect the profits of cocoa exporting and processing toward domestic groups.
This month Ivorian ministers have been discussing changes to the nation’s tax regime for cocoa grinders.
The Ivory Coast is already the world’s largest cocoa grinder, having edged out the Netherlands, and the government has reaffirmed its target of grinding half of its crop domestically by 2020, from around 30% at the moment.
Stagnating industry
But the industry, which is given access to the smaller and lower-grade “light crop” beans, requires government support to remain profitable.
As Agrimoney.com reported in May, grinders have been complaining that taxes are too high, and the expansion of grinding is stagnating.
“The issues at hand are the supply of beans to grinders, the determination of real yields of beans to semi-finished cocoa products, the calculation of the droit unique de sortie (DUS) and facilitation of exports,” Ecobank said.
“The government is aiming to finish negotiations by the end of this year, meaning that the changes could be applied as early as the second half of the 2015-16 season.”
