Wednesday, May 4, 2011

Normalcy Returns to the Cocoa Market

Normalcy Returns to the Cocoa Market
May 4th, 2011

One of the last remaining barriers to normal trade out of the Ivory Coast seems to be resolving, with Citigroup and Societe General reopening bank branches in the country last week.  While the export ban was lifted in mid-April following the capture of ex-President Gbagbo, the cocoa trade was unable to resume as the financial markets remained un-operational.  The return of the banking sector will provide local traders with access to the financing required to resume shipments. 

A return to normalcy may put pressure on cocoa prices, which are still 65 percent above the 5-year average.  The sharp increase in the price of cocoa was largely due to the stalled trade in the Ivory Coast, which is the world’s largest supplier of the beans, and accounts for 34 percent of global output.  The supply of cocoa is plentiful, growing 10 percent from last year to 3.89 million tons, compared to consumption of around 3.73 million tonnes, bringing the market to a surplus of around 156,000 tonnes from a deficit last year of around 107,000 tonnes. 

Farmers in the West African country have just begun to reap the mid-crop, the smaller of the two annual harvests, which typically puts seasonal pressure on prices.  There is also more than 500,000 tonnes sitting in warehouses in the commercial capital of Abidjan available for export.  The backlog may take up to three months to clear.  Currently there are seven container vessels at the port in Abidjan ready to load cocoa.

-Jaime Macrae, CIM
Account Executive, Friedberg Mercantile Group

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