Cocoa prices likely to move downward – ICCO

Cocoa prices are anticipated to move downward in major markets across the globe, as merchants and producers increased net selling positions over the Q1 of 2022/2023 crop season, data from the International Cocoa Organisation (ICCO) have shown.

The global cocoa market attained a value of nearly US$14.5billion in 2022. The market is further expected to grow at a Compound annual growth rate of 4.7 percent between 2023 and 2028, to a value of US$19.1billion.Cocoa

However, the ICCO in its projection believes the size of net short positions of commercial traders in Europe and the United States over the 2020/21 – 2022/23 season period could be perceived as a demand for ‘insurance’ against price drops.

“Its change over time can be viewed as the evolution of the risk perception of merchants and producers in the cocoa futures markets,” a portion of the projection from its December 2022 cocoa market report read.

“As opposed to the first three months of the 2021/22 crop year, cocoa merchants and producers increased their net short positions on both sides of the Atlantic over October – December 2022. The behaviour of the above-mentioned category of market participants suggests that – while accounting for all cocoa futures contracts currently active – they perceive for now that cocoa prices are more likely to move downward in both Europe and the United States,” ICCO said.

The ICCO observed that in the United States, average net short positions increased by 26 percent from an average of 21,050 contracts in October to 26,563 contracts in December. Meanwhile, in Europe average net short positions went up by 50 percent from an average of 60,794 contracts to 90,897 contracts.

Ghana’s main destination for cocoa beans exports are: the Netherlands, United States, France, and partly Malaysia and Japan.

Europe is the largest importer of cocoa beans worldwide, with 56 percent of global imports. To compare, North America and Latin America together account for about 17 percent of global cocoa bean imports; and Asia for 26 percent.

In December 2022, prices of the front-month cocoa futures contract averaged US$2,514 per tonne and ranged be­tween US$2,392 and US$2,635 per tonne in London; while in New York the first position contract traded at an average price of US$2,515 per tonne and oscillated between US$2,432 and US$2,629 per tonne.

Impact on economy

Cocoa is a significant contributor to Ghana’s economy, as the country is the second-largest producer of cocoa in the world with a 20 percent market share.

It ranks second only to mineral exports in terms of foreign exchange earnings, and makes up about 3.5 percent of GDP and 25 percent of total export receipts. The sector also provides a major source of income for farmers, with two-thirds of their income coming from cocoa.

According to Statista, cocoa was projected to contribute GH¢3.41billion (around US$454million) to Ghana’s GDP in 2022 – with a projected increase to GH¢4.01billion (around US$533million) by 2025, the highest contribution within the period observed.

Ghana’s cocoa export projection

The Ghana Cocoa Board (COCOBOD) is forecasting 750,000 tonnes of cocoa production in the 2022-2023 crop season, higher than the 2021-2022 season.

The country’s graded and sealed (G&S) cocoa arrivals stand at 350,000 tonnes since the start of this year’s harvest on 1 October – up 76 percent from 199,000 tonnes in same period of the previous season.

G&S is cocoa that has been quality-checked and sealed in bags by the regulatory body, and is ready to be shipped.

The cocoa regulator expects that the producer price to be paid at all buying centres will be GH¢384 per load of 30 kilogrammes for grade 1 and 2 cocoa beans, or GH¢800 per bag of 64 kilogrammes. A tonne comprising 16 bags is however going for GH¢12,800 (circa US$1207.10).