As Ivory Coast prepares to collect a record cocoa crop, the market is bracing for two key 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 Internationalwarned 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:
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 weredisrupted 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.
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.
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 showsoutput 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.”
Ivory Coast and Ghana are introducing a $400-a-tonpremium 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 weeksaid it will raise prices by 28%, and Ouattara will likely announce new prices as the season starts.
— With assistance by Marvin G Perez, Baudelaire Mieu, Manisha Jha, and Ekow Dontoh
Source: Read Full Article