Cocoa Tests 1979 Peak as Ivory Coast Spurs Supply Risk
Cocoa Tests 1979 Peak Ivory Coast Unrest Spurs Supply Risk
Issouf Sanogo/AFP/Getty Images
Cocoa may climb to the highest price since the late 1970s as political unrest disrupts supplies from Ivory Coast, the world’s biggest producer.
Cocoa may climb to the highest price since the late 1970s as political unrest disrupts supplies from Ivory Coast, the world’s biggest producer. Photographer: Issouf Sanogo/AFP/Getty Images
Cocoa may climb to the highest price since the late 1970s as political unrest disrupts supplies from Ivory Coast, the world’s biggest producer.
Hedge funds have more than quadrupled bets on a cocoa rally since early December after a disputed election left Ivory Coast with two rival presidents. Alassane Ouattara, recognized internationally as the winner, yesterday ordered shipments halted to cut off funds to incumbent Laurent Gbagbo. The ban may send prices to as high as $3,720 a metric ton, a Bloomberg survey of six analysts showed. That would be the highest since January 1979.
Cocoa has jumped 9.9 percent this month, the biggest gain after cotton among the 19 commodities tracked by the Thomson/Reuters Jefferies CRB Index. Cargill Inc., the largest closely held U.S. company, said yesterday it temporarily suspended bean purchases in Ivory Coast. Climbing prices may mean higher costs for Hershey Co., Mars Inc., Barry Callebaut AG, the world’s biggest maker of bulk chocolate.
“Exports are being cut back, so there is a lot of uncertainty,” said Walter “Bucky” Hellwig, who helps oversee $17 billion at BB&T Wealth Management in Birmingham, Alabama. “Anytime there is a disruption in supply, whether it is politically generated or weather related, prices will be pushed on the upside.”
$3.9 Billion
Gbagbo, who was declared the victor by the country’s Constitutional Council, refuses to recognize Ouattara as the winner. Cocoa has risen 19 percent in New York since the Nov. 28 elections. Ivory Coast’s production is valued at about $3.9 billion at current prices, Bloomberg calculations show.
Cocoa shippers in the country risk “national and international sanctions” if they pay export taxes to the industry body controlled by Gbagdo, a minister in Ouattara’s administration said today in a letter to Ivory Coast’s Professional Group of Coffee and Cocoa Exporters.
Hedge funds and money managers have increased net-long positions, or bets on rising prices, to 7,892 New York futures and options contracts in the week ended Jan. 18, data from the U.S. Commodity Futures Trading Commission show. That’s up from 1,586 on Dec. 7.
‘Certain’ Longs
“It is certain that the ban will lead to speculators taking longer positions and, as not many are interested in selling in these circumstances, prices will rise until the situation calms down,” said Javier Almela, the chief purchasing manager at Spanish cocoa buyer Natra SA.
Ivory Coast’s cocoa production represents a third of global supply, and is forecast to expand 1.9 percent this year, according to Macquarie Group Ltd. Shipments by farmers to the country’s ports from the latest harvest are about 2 percent below last season, the bank said Jan. 19.
“We are currently seeking clarification of the situation in cooperation with the relevant industry associations,” Raphael Wermuth, an external communications manager for Barry Callebaut, said in an e-mail.
‘Next Fear’
“People are worried about the ban,” said Spencer Patton, the Chicago-based chief investment officer for Steel Vine Investments LLC. “The next fear is that they may attack the crop, and that means that not only will this year’s crop by damaged, but the nation will lose harvest for the next few years.”
Cocoa for March delivery jumped $23, or 0.7 percent, to $3,335 a ton on ICE Futures U.S. in New York. Yesterday, the price rose to $3,393, the highest since Jan. 26, 2010.
The U.S. supports the proposed month-long ban on cocoa imports from the Ivory Coast, State Department spokesman Philip J. Crowley said on Twitter yesterday. Gbagbo “needs to get the message and step down,” Crowley said in the message.
The U.S. also welcomes Cargill’s decision to temporarily suspend cocoa-bean purchases in the Ivory Coast, Crowley told reporters in Washington.
Mars Inc. said today in a statement that the company is “not opposing” the ban of cocoa exports from Ivory Coast. In the “short term” the disruption won’t affect the chocolate maker’s ability to manufacture products, Mars said.
Archer Daniels Midland Co. said in a statement yesterday it is “assessing the situation,” while remaining “committed” to cocoa farming in the country.
“People are getting very nervous about supplies,” said James Dailey, who manages $185 million at TEAM Financial Asset Management LLC in Harrisburg, Pennsylvania. “There is this pent-up demand for commodities including cocoa, so for 2011 it’s one of the most explosively poised commodities.”
To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net
To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.
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