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Business News Mon, 22 Jun 2020

Shaky outlook for cocoa prices during rest of 2019/20 crop season

The continuous backwardation position being adopted on the international cocoa market is adversely affecting Ghana’s chance to sell the commodity at a premium on the futures market.

The current market situation has placed the price outlook for the cocoa futures market in a murky spot, largely due to an envisaged disruption in the shipments of cocoa beans.

The latest data released by the International Cocoa Organization (ICCO) indicates that the position adopted by the market during the first half of the crop season still remains in place, hence the futures market is expected to continue to witness lower prices in the coming months to the end of the crop season.

“Both London and New York futures markets were in backwardation -pronounced in London – and experienced volatility,” the ICCO said in the report.

Currently, Ghana sells its cocoa on the futures market in order to secure financing from an international syndication of banks for the purchase of cocoa from local producers.

In backwardation of commodities, the futures spot price, which is the front month price, will be higher than the next month’s price and so on. This is usually the result of some disruption to current supply of that commodity.

“During May, the front month cocoa futures contracts prices (spot prices) averaged US$2,431 per tonne and seesawed between US$2,355 per tonne and US$2,514 per tonne in London. Concurrently in New York, prices for the first position of cocoa futures contracts averaged US$2,411 per tonne and stayed between US $2,342 per tonne and US$2,481 per tonne,” the report said.

The recent forecasts for the 2019/20 cocoa season published by the ICCO Secretariat in its latest issue of the Quarterly Bulletin of Cocoa Statistics reveal anticipation of a lower growth in grindings compared to the previous cocoa season.

In May 2020, market participants were envisaging potential disruptions in the shipments of cocoa beans following the Ivorian Government ’s announcement to extend the state of emergency in the country to curb the spread of the coronavirus pandemic.

Indeed, as at June 7, 2020, cumulative cocoa arrivals, since the start of the2019/20 crop season, were seen at 1.881 million tonnes, down by 6.9 percent from 2. 021 million tonnes reached during the same period a year earlier. In Ghana, the Ghana Cocoa Board (COCOBOD) published data showed that Ghanaian graded and sealed cocoa for the 2019/20 crop year decreased by 1.6 percent year-on-year to reach 714,523 tonnes on May 15, 2020.

This could be a major setback for Ghana’s external sector as the country ius relying on firm world market cocoa prices to make up for lost potential revenues from crude oil sales resulting from the ongoing slump in prices on international markets. However the effects of ongoing backwardation will not adversely affect the US$400 per ton Living Income Differential (LID) negotiated by Ghana and Cote d’Ivoire, who between them account for 60 percent of world production, which is a premium above the market price, that will be strictly reserved for the cocoa farmers themselves.
Source: goldstreetbusiness.com
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