Cocoa prices to rise, as Ivory Coast production falls

September 29th, 2015

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Category: Cocoa

cocoa beans 450x299(AgriMoney) – Cocoa prices will rise as production in the Ivory Coast, world’s largest grower, falls back, Ecobank said.

The Togo-based bank forecast falling cocoa outputs in the Ivory Coast, as well as Nigeria and Cameroon, while the outlook for second-largest grower Ghana is “clouded by uncertainty”.

The four West African countries account for over 70% of the world’s cocoa production between them.

“With global demand recovering and expectations of a global deficit this season, we expect prices to strengthen further,” Ecobank said, noting the potential for price spikes ahead of the new season starting in October, as farmers hold back beans in expectation of higher fixed prices coming season.

Mixed outlook

“The outlook for Ivory Coast’s 2015-16 season is mixed, following two consecutive record seasons,” Ecobank said.

Ecobank restated its forecast for the Ivory Coast’s main crop, which produces the bulk of export-grade beans, to fall by 100,000 tonnes to 1.1m tonnes.

And there is also potential for a “large drop” in the mid-crop, which runs over the summer and produces smaller beans, mostly sold at a discount to the local processing industry, should weather conditions turn unfavourable.

Cyclical reduction

A fall in Ivorian production is likely, Ecobank said, as cocoa trees “cannot sustain such record-high growth”.

Cocoa trees suffer cyclical fluctuations in yields.

Ecobank said that output for the current season is on track to exceed 1.77m tonnes, ahead of last year’s record crop of 1.741m tonnes.

“Dry weather has also raised concerns, as rain in July and August was down by half from the previous season, although it remains within the five-year average,” Ecobank said, adding that September rainfall would be “a critical factor for the health of the crop”.

El Nino impact

And the prospect of a strong El Nino weather pattern threatens to “severely impact” the mid-crop, cutting total output by up to 5%.

El Nino is associated with dry weather in West Africa.

But Ecobank also saw factors supporting Ivorian production, including an increase in the price paid by the government cocoa body, which will encourage farmers to harvest more beans.

There was also a spate of tree plantings when cocoa prices peaked following a political crisis in 2011, which are now begin to produce crops.

Ghanaian uncertainty

The outlook for Ghana is uncertain, as the world’s second largest grower comes out of a slump in production.

Total production for the season just ending is expected to total around 700,000 tonnes, 23% down from the previous season.

Ecobank forecast a “modest rebound” in Ghana’s crop, to 800,000 tonnes, but noted that Cocobod, the Ghanaian cocoa body, will need to keep back up to 200,000 tonnes of cocoa to cover contracts from the 2015-16 season, left unfulfilled due to the shortfall.

Structural issues

And factors impairing production could remain in place next season.

“Although numerous explanations have been put forward for the collapse in production, stakeholders remain divided over the true causes,” Ecobank said, noting that structural and cyclical factors could persist next season, impairing the rebound.

Cocobod will distribute free fertilizers to farmers, and continue with a mass spraying programme.

But Ecobank warned that “it remains unclear how effective these measures will be, as their success will depend on consistent implementation and good management”.

Nigeria and Cameroon are also facing poor prospects for their 2015-16 cocoa season, Ecobank said, thanks to unfavourable weather.

Ecobank forecast cocoa production in Nigeria and Cameroon at 210,000 tonnes and 200,000 tonnes respectively.

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