Cocoa may slump 12 percent once an end to fighting between two rivals for the presidency of Ivory Coast means exports from the biggest producer can resume.
The shipments account for 34 percent of global supply and the mid-crop, the smaller of two annual harvests, starts this month. Alassane Ouattara, the internationally recognized winner of a disputed Nov. 28 presidential election, banned exports in January to cut off funds to incumbent Laurent Gbagbo. Prices surged to a 32-year high of $3,775 a metric ton on March 4. Should Outtara prevail, prices may fall as low as $2,638, according to the median in a Bloomberg survey of 12 analysts.
Prices already declined 20 percent from last month’s high as investors judged that Ouattara is winning the conflict. The fight for Abidjan, the country’s commercial capital, is now in its fifth day, with Ouattara’s fighters holding most of the city. His forces swept down from bases in the north about a month ago and took much of the country in the last 10 days.
“The end seems to be in sight, and we could see prices tumbling,” said Spencer Patton, the chief investment officer at Chicago-based Steel Vine Investments LLC. “The market will be flooded with cocoa from Ivory Coast once the ban is lifted,” said Patton, the most accurate forecaster in a Bloomberg survey in January that predicted prices would rise.
Beans registered for export at Ivory Coast’s ports dropped 94 percent to 1,610 tons in the 14 days to March 17 compared with a year earlier, according to an industry official with access to the data. Ouattara announced an indefinite ban last week, adding to concern that the disruptions would extend into the mid-crop. Investors are also concerned that beans already in warehouses in the country are deteriorating.
State Oil Company
The European Union in January announced a freeze on the assets of Ivory Coast ports and the state oil company. Cocoa, oil and coffee are the country’s biggest revenue earners, with about 68 percent of the population dependent on agriculture, according to the CIA World Factbook.
“Finally, it looks like the palace and the country will be taken over by Ouattara,” said Roland Jansen, the chief executive officer of Altendorf, Switzerland-based Mother Earth Investments AG, which manages more than $40 million in cash and futures. “This could happen in the next few days and then very soon we will have stabilization of cocoa supplies.”
It may take some time for shipments to resume, said Matthieu Dibaji, a Paris-based broker at Market Securities, a unit of Kyte Group Ltd.
“It will take at least one or two months before any cocoa starts being shipped,” he said. “The European Union will have to bring down their sanctions. Then it will take at least a week for the Ouattara government to set up the cocoa-tax system.”
Global cocoa output will exceed demand by 119,000 tons in the year that began on Oct. 1, the International Cocoa Organization said last month. Production in Ivory Coast may rise 6.7 percent to 1.325 million tons this season, the London-based ICCO estimates.
“There is still sufficient cocoa available on the market to meet demand,” Laurent Pipitone, a senior statistician at the ICO, said March 30 in an e-mailed response to questions.
Olam International Ltd., a commodities trader, has been offering customers cocoa from other countries, Gerry Manley, director and global head for cocoa of the Singapore-based company, said in an e-mail last month.
Hedge funds have reduced their bets on higher prices for three consecutive weeks. Their net-long position shrank 20 percent to 13,514 contracts, according to data from the U.S. Commodity Futures Trading Commission.
“The only real premium on prices right now are derived from concerns regarding political stalemate,” said Erica Rannestad, a commodity analyst at CPM Group in New York. Should that be resolved, “the only other bullish factors would have to be from supply constraints, but that doesn’t seem to be expected in the next year,” he said.