unknowns: the risk of political unrest disrupting supplies and the demand hit from COVID-19.
Bigger crops in West Africa would add to a global surplus at a time when consumption is under pressure from the pandemic. As the new season gets under way, focus is increasingly turning to Ivory Coast’s Oct. 31 presidential election, with sporadic protests breaking out since Alassane Ouattara said he’ll seek a controversial third term.
London cocoa futures hit a six-month high recently on concerns about unrest, before giving up some of the gains, and Rabobank International warned there’s potential for supply interruptions.
“There’s no doubt the Ivory Coast election is at the forefront of people’s minds,” said Jonathan Parkman, deputy head of agriculture at Marex Spectron Group. “The outlook for production is reasonably positive. I don’t think I can say the same for the outlook for demand.”
Here’s a recap of what to keep an eye on as the main-crop harvest gets under way:
Election Risk
At least a dozen people have been killed and many more injured since Ouattara announced in August he’ll run again, with opposition politicians calling for “civil disobedience” to block him from contesting the vote.
Elections have roiled the cocoa market before. Ivorian shipments were disrupted during a power struggle when Ouattara was elected following a disputed 2010 vote, which left thousands missing or dead and sent cocoa futures up about 20% in three months.
Weather Conditions
While recent rains prompted some worries about crop diseases, Ivorian farmers are generally happy with how trees have fared ahead of the main-crop. In Ghana, showers have eased a drought that threatened output.
A La Nina weather phenomenon could also lead to mild weather in West Africa and a weak Harmattan — the dusty winds from the Sahara that blow from December to February — creating favorable conditions for crops.
Supply Outlook
Top grower Ivory Coast should produce 2.2 million tons of cocoa in the season that starts Thursday, according to the median estimate in a Bloomberg survey of 10 traders, brokers and analysts. That compares with a 2.13 million-ton forecast by the International Cocoa Organization for the previous season.
In Ghana, the survey shows output will recover to 850,000 tons, helping to widen the global surplus to a four-year high of 200,000 tons. Processing beans into products used in confectionery is expected to rise 0.9%, although a wide range of responses highlighted the uncertainty over demand.
“Manufacturers are uncertain what holiday demand will bring,” said Judy Ganes, president of J. Ganes Consulting. “Chocolate is an impulse purchase and you don’t have people going into stores as frequently.”
Farmer Pay
Ivory Coast and Ghana are introducing a $400-a-ton premium on beans this season to boost farmers’ income. While better pay will improve conditions for growers and may help to sway voters in elections, there are worries that it will contribute to a market surplus as demand growth struggles to keep pace with potential production.
Ghana last week said it will raise its farmgate price by 28%, and Ouattara announced a 21% increase for Ivory Coast’s main-crop at a ceremony on Thursday to mark the new season. The country is also setting aside 355 billion CFA francs ($636 million) to support the new price.
The hike is possible “thanks to the cooperation between Ghana and Ivory Coast and the willingness of buyers to pay this price,” Ouattara said.
Source: Business and Financial Times (B&FT)
