Cocoa prices are set to rise, as farmers in the Ivory Coast hoard beans ahead of an expected hike in the price offered by the country’s cocoa board, Ecobank has said.
The Togo-based bank saw prices set to rise ahead of the start of the new season, extending gains made this year.
Ivorian deliveries.
“Cocoa prices fell marginally in July, trimming recent gains to end the month 1.2% lower, at US$3,327/tonne, cutting the total year’s gains to 10.3%,” Ecobank said.
The bank ascribes the recent correction to traders exiting positions, as well as “the strength of Ivorian deliveries, which has helped allay concerns about the weakness of Ghana’s crop”.
With this year’s season almost complete, the Ivory Coast remains on track to rival last year’s record season of 1.74m tonnes.
Cocoa bean arrivals at Abidjan and San Pedro ports reached 1.682mn MT by August 16th, Ecobank notes, up 1% from the same time last year.
Price expectations
“But 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 West Africa’s new season in October as farmers withhold beans from the market in expectation of higher fixed prices in 2015-16,” Ecobank said.
December New York cocoa is currently trading at $3077 a tonne, below September cocoa at $3090.
Elections coming up
Ecobank expects the CCC’s farmgate price to rise to XOF1,000 a kilogramme ahead of the Ivorian elections in October.
Ecobank says the Ivorian regulator Conseil du Café-Cacao (CCC) is well placed to raise the farmgate prices offered to farmers next season, having forward-sold 1.3m tonnes of the 2015-16 crop, and with global cocoa prices up more than 10.3% this year.
“Last season farmers hoarded over 100,000m tonnes of beans from the mid-crop, and we expect similar volumes to be hoarded [this year]” Ecobank said.
Export scheme retained
And the CCC will be sticking to a scheme to support local exporters despite local opposition, Ecobank reports.
The scheme will see 200,000 tonnes of international contracts assigned to local exporters from the Groupement des négociants ivoiriens (GNI) group.
These contracts have proved unpopular with offtakers due to a perception that the local exporters carry a higher counterparty risk.
This has forced the CCC to resell the contracts at at heavily discounted rates, leaving the body paying a heavy price in order to support a handful of local exporters.
“This is a questionable use of resources, as trading is not a value-add activity in the cocoa value chain,” Ecobank said.
Child labour concerns
The untraceable supply chains of the local exporters is a particular problem given that the world’s leading chocolate makers and cocoa traders have pledged to buy all of their beans from sustainable sources by 2020.
Given this pledge, and the increasing use of child labour in Ivorian production, buyers are becoming more concerned with the source of their supplies.
“As the discount on the local exporter contracts is unlikely to offset the counter-party risk or the lack of traceability, demand from offtakers is likely to remain low, which would prevent GNI from obtaining fixed allocations on contracts for the next five seasons,” Ecobank said.
