Tuesday, May 17, 2011

Weakness in the Cocoa Market - May 17th

Weakness in the Cocoa Market
May 17th, 2011

The cocoa market continues to come under pressure, with a string of bearish developments in West Africa.  There are several main points that are weighing on the market.

1 – The four month political standoff that had turned violent, and caused the cocoa trade to grind to a halt, is now over.

2 – The export ban has been lifted in the Ivory Coast, the world’s top producer.

3 – The banking sector has resumed operation in Abidjan, the commercial capital.  This was a prerequisite to the resumption of exports as the traders were lacking the necessary financing to arrange shipments.

4 – Major commodity firms have returned to the Ivory Coast.  Cargill, one of the world’s largest traders announced today it has resumed operations.

5 – Large stockpiles that had built up in warehouses in Abidjan while the export ban was in force have not spoiled en masse.  While approximately 10 percent of the beans stored have suffered rot, the bulk of the stockpiles have maintained their quality.  This was one potentially bullish factor hanging over the market as reliable figures had yet to reach the market. 

6 – Production is forecast to have grown significantly from last year, up 100,000 tonnes in the Ivory Coast, and up almost 300,000 globally. 

7 – Output in Guana has boomed, with forecasts for a crop of 920,000 tonnes, up from 632,000 tonnes last year.  It is commonly believed that smuggled cocoa from the Ivory Coast is responsible for much of this gain, however improved farming techniques have also added to the crop size.

The bull camp points out that there is currently around 500,000 tonnes of cocoa stored in warehouses in the Ivory Coast, awaiting export.  The country typically ships 100,000 tonnes per month, so if could take quite a bit of time for these beans to hit the market. 

All told, the outlook for the price of cocoa is not good. 

-Jaime Macrae, CIM
Account Executive, Friedberg Mercantile Group

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