African cocoa exports rally on higher prices

(Agrimoney) – West Africa’s cocoa season got off to a strong start, as a rise in farm gate prices encouraged farmers to draw down inventories, Ecobank said.

But the health of the new-season crop has yet to be proved, and Monday saw cocoa prices in London jump briefly to a 4-1/2 year high, helped by fears on the effect of dry weather on production prospects.

And Ecobank said that cocoa prices could “spike” to toward the end of the year, as the African-based bank forecast an uptick in seasonal demand, with the risk of dry winds in key West African growing regions.

Inventory drawdown

West Africa cocoa exports were supported early in the season by increased farmer selling.

The governments of Ghana and the Ivory Coast, the world’s second top and top cocoa growers respectively, set seasonal guaranteed minimum prices based on global markets.

Following a rise in international cocoa prices over the last season, governments lifted farmgate prices at the start of the new season.

In Ghana, where the cocoa season starts in September, bean deliveries at ports reached 198,128 tonnes by October 2, up 118% from the same period last year.

Rising prices

The soaring imports came as farmgate prices were lifted by 20% from last year, to 6,720 cedi a tonne.

“The sharp uptick in deliveries reflects widespread hoarding of beans by farmers and middlemen in anticipation of a higher fixed price,” said Ecobank.

Ecobank also said the surge in deliveries “could reflect the return of rains in recent weeks, after Ghana experienced rainfall 50% lower than the average in September, as well as improved distribution of fertiliser and pesticides”.

Old-crop selling

In the Ivory Coast farmgate prices were lifted by 18% to 1,000 Central African francs per kilogramme.

In the first month of the season, to November 1, port deliveries rose to 280,000 tonnes, 30% up from the same period last year.

But with the surge in exports driven by destocking of old-crop beans, the health of the news season crop remains to be verified.

“It will only be once stockpiles have been run down—during the second half of November—that the health of the current crop will become clear,” said Ecobank.

December spikes

Ecobank noted “fears that West Africa’s crop could tail off sharply in December, owing to the delayed impact of dry weather in June and July which hindered pod development”.

“This could spark a scramble for beans to meet the shipping period for end-December,” the bank said.

And Ecobank warned that prices could spike over the same period “when buying picks up ahead of the Christmas holiday and when El Nino could exacerbate the seasonal Harmattan wind, intensifying dry conditions”.

Prices hit civil war levels

In fact, cocoa prices jumped on Monday, as the March 2016 contract in London changed hands at £2,297 a tonne, the highest level for a second-month contract since 2011, when a civil war in the Ivory Coast sent prices soaring.

Ecobank ascribed a rise in cocoa prices in October to “a recovery in demand from grinders (notably in Asia, whose growth is offsetting North America’s slump) and the expectation of flat or falling production in 2015-16, in response to the impact of El Nino on West Africa’s crop”.

But last week analyst Judith Ganes-Chase noted an easing of supply risks for cocoa, with “smooth sailing for the Ivory Coast presidential election,” while “El Nino threats of crop devastation and worries that Ghana’s production is suffering from structural issues are being proven wrong already with early crop results showing otherwise”.