Cocoa Prices Fall as Harvest Begins

(Wall Street Journal) – Cocoa prices are falling as worry about production in West Africa eases.

Ivory Coast and Ghana, the source of about 60% of the world’s cocoa, have begun the larger of their two annual harvests, and supplies are now hitting the market.

“The outlook for the 2014-15 crop is positive, following good weather,” said Edward George, head of research at Ecobank in London, in a recent note. “Cocoa deliveries appear to have started at the same pace as last season.”

Ecobank estimates that deliveries of beans to Ivorian ports reached 164,000 metric tons as of Oct. 26, about 2,000 tons below the same point in 2013.

Cocoa for delivery in December on the ICE Futures U.S. exchange ended Friday at $2,899 a ton, the lowest price since May 14 and down 5% for the week.

Prices have fallen 14% since peaking at a 3½-year high of $3,371 a ton in late September, when fears pervaded the market that the deadly Ebola outbreak in West Africa would spread to cocoa-growing areas. Investors worried that the virus could cut off cocoa farmers and disrupt the flow of beans out of Ivory Coast and Ghana.

“So far the virus has stayed out of the important production areas of West Africa,” said Jack Scoville, vice president at Price Futures Group in Chicago. This has prompted investors to pull out of bets that cocoa prices would continue to rise, he said.

Cocoa bulls outnumber bears by the narrowest margin since Aug. 6, 2013, according to data from the U.S. Commodity Futures Trading Commission. On Oct. 28, money managers, including hedge funds, held 67,386 bets on higher prices, compared with 20,024 wagers on lower prices.

“Ebola is going to be like civil war now,” said Hector Galvan, senior market strategist at RJO Futures in Chicago, referring to fighting between political factions that halted exports from Ivory Coast in late 2010 and early 2011. “It’s not going to be mentioned unless it actually happens, but if it does, it’s going to spike it hard and fast.”

The futures market has also been shaken by reports of weak demand in Asia and Europe, although North American consumption remains strong.

The amount of cocoa processed in Asia, a measure of demand for chocolate, fell 5.9% in the third quarter from the same period a year earlier, while Europe, the biggest per capita chocolate consumer, saw a 1.1% decline, according to regional cocoa associations. North America’s quarterly figure hit a record and beat market expectations.

Chocolate companies from Peru to Italy said this year that their growth has been driven by rising consumption of their products in Asia, so a slowdown in demand there is particularly concerning to the market. Chocolate sales in India are expected to soar 14% this year, according to Euromonitor. China is now the world’s eighth-largest chocolate consumer, up from 10th in 2010.

In addition, a stronger dollar has weighed on cocoa prices. The dollar surged last week as investors responded to clearer signals from the Federal Reserve that U.S. interest rates would rise sooner than in other countries. News that the Bank of Japan will pump trillions more yen into the economy weakened the Japanese currency, adding to the dollar’s gains.

A stronger greenback makes commodities priced in dollars more expensive for buyers using foreign currencies. The shift has curbed buying interest in the cocoa market.