Saharan Winds Whip Up Costs for Traders Seeking Cocoa Beans

  • Harsh desert winds hurting crops, reducing quality of beans
  • Traders buying cocoa in Europe paying at least 50% more

The cost of securing cocoa in Europe surged 50 percent in the past month after the severest Saharan winds in a generation damaged West African crops.

Traders in the physical market are now paying as much as 50 pounds ($72) a metric ton more for Ivorian beans than the price on the ICE Futures Europe exchange, according to three traders, who asked not to be identified because the deals are private. The dry weather that’s already hurt bean quality in top producer Ivory Coast may also reduce the upcoming mid-crop, the smaller of two harvests.

The Harmattan dust storm, which usually blows over West Africa each year for three months through February, is the strongest since the 1980s, according to Ezaley Philippe, managing director of forecaster Sodexam in Abidjan. While futures fell 11 percent this year in London as funds exited bullish positions, prices may rebound if the storms lead to a smaller harvest, said Carlos Mera, an analyst at Rabobank International.

"Cocoa prices could pop back up in a heartbeat if indeed the mid-crops were severely compromised," said Judy Ganes-Chase, president of Panama City-based J. Ganes Consulting LLC. The weather impact on beans means it’s less likely that stockpiles will increase, she said.

European Stockpiles

Traders who need good-quality cocoa from the main crop ending next month are having to resort to European inventories. Beans from that crop are being sold in Europe at a premium of 45 to 50 pounds a ton over the London price, the traders said. That’s up from 20 to 30 pounds a month earlier. Futures for March delivery fell 0.4 percent to 2,004 pounds a ton by 11:57 a.m. in London.

Ivory Coast got 65 percent less rain than normal in the past 60 days and areas away from the coast received almost nothing, Speedwell Weather said in a Feb. 8 report. Dry weather is forecast to persist into early next week, hurting the mid-crop, according to MDA Weather Services. Production for that harvest starting in April could fall by 12 percent, according to a Bloomberg survey of traders, brokers, analysts and fund managers.

The weather has got so bad that there are no flowers on trees, according to Georges Troh, a 47-year-old who farms near the city of San Pedro.

Plants Suffer

"In our region, many cocoa plantations have burnt because of the heat," said Mathieu Eba Eponon, a 50-year-old farmer and president of the Yeyobie cocoa cooperative in the eastern region of Abengourou, Ivory Coast. “We are talking about 50 hectares of cocoa. Growers are in disarray.”

While quality has been deteriorating and the dry weather is threatening the mid-crop, cocoa deliveries to ports in Ivory Coast have exceeded expectations, Ganes-Chase said. Arrivals at ports totaled 1.096 million tons from the Oct. 1 start of the season through Feb. 7. That’s just 1.9 percent lower than a year earlier, according to KnowledgeCharts, a unit of Commodities Risk Analysis.

"The bullish traders point to the dry weather now that is reported to be impacting the mid-crop production," said Jack Scoville, vice president at Price Futures Group Inc. in Chicago. "However, the arrivals remain strong in Ivory Coast and purchases in Ghana are strong this year as well."

Ivory Coast’s cocoa production in the 2015-16 season will be 30,000 tons less than previously forecast because of the Harmattan’s impact on the mid-crop, Carlos Mera, an analyst at Rabobank in London, said last month.

"Cocoa trees need a lot of water to grow," said Troh, who farms in 20 hectares (50 acres). "It hasn’t rained for many weeks. That’s problematic for us."

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