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Cocoa prices hit 15 year high

Fri, 30 Aug 2002 Source: bbc

Cocoa prices have hit a 15 year high because of speculation that this year's crop will fall short of demand for the third year running. Trade in both London and New York - the main markets for cocoa - has been thin.

Sellers have held onto their stocks in the hope of higher prices if this year's harvest fails to meet demand.

"When you have two years of deficit, and if there is another deficit next year then prices will go up further," Jan Vingerhoeps, interim executive director of the International Cocoa Organisation told BBC News Online.

"It all hinges on the current crop," he added.

Futures contracts to buy cocoa in December hit a new peak of $2,021 (?1,306) a tonne, the highest level since July 1987 when prices spiked to $2,128.

Cocoa prices have shot up more than 65% from the start of this year from $1,200, after being at an all-time low two years ago.

But the price rise is unlikely to affect the cost of chocolate products.

"I do not expect the prices to go up on the High Street as the cost of cocoa makes only about 10% to 15% of a chocolate bar," Mr Vingerhoeps said.

Chocolate high

The jump in prices will be good news for the main producers.

"For them it is very important, the money goes to the countries and the farmers," Mr Vingerhoeps said.

Ivory Coast, which produces about 40% of the world's cocoa, has already started harvesting and trading this year's crop and expectations are that it will exceed last year's harvest.

Ghana, the second largest producer, is also expecting a bigger harvest.

But the larger supply might not meet demand because manufacturers have been running down stocks to critical levels in the hope that prices will fall.

Buyers are now buying not just to maintain production but to replenish the depleted reserves.

Indonesia, the world's third largest producer, has reported a 43% rise in exports in the first seven months of 2002, compared with last year.

Western consumers prefer West African cocoa because the Asian variety contains too much free fatty acid which means that it has to be blended to be palatable.

Source: bbc