West Africa’s cocoa giants are gearing up for what looks like another big harvest, putting further focus on whether a post-COVID-19 demand recovery can absorb a glut built up over the past year.
The main-crop harvest officially began on Friday in Ivory Coast and begins next week in Ghana, the world’s two top exporters of cocoa, accounting for about two-thirds of global production.
While their combined output is expected to fall in the new season, it would remain historically large, according to the countries’ regulators and analyst estimates.
Too much supply weighed on prices since the pandemic began, although signs of improving chocolate demand have helped London futures rebound 17 percent since the middle of July.
The global market is seen moving into a shortage or being balanced over the coming year, with Asia remaining a key driver, Rabobank said.
Ivory Coast on Friday reduced its main-crop farmgate price 18 percent to 825 CFA francs (US$1.46) per kilogram compared with a year earlier.
Ghana, which has seen unsold beans pile up following slower overseas demand, kept its minimum price steady at the equivalent of US$1.71 per kilogram, Ghanaian Minister of Food and Agriculture Owusu Afriyie Akoto announced on Friday.
The second-biggest grower is to start its new season on Friday next week, he said.
The gap between the farmgate prices in the two countries could encourage smuggling.
It might create an arbitrage where intermediaries buy beans in Ivory Coast and then sell them at a higher price in Ghana, Godfred Bokpin, a finance professor at the University of Ghana, said by telephone from Accra.
Another big talking point in the market has been how the sector will fare with a US$400-a-ton premium brought in a year earlier to support farmers.
The charge came into effect just as lockdowns hurt consumption, prompting intermediaries to pay less than the government-set minimum price and accusations that some big chocolate companies tried to skirt the premium.
The International Cocoa Organization pegs the global surplus at 230,000 tons (208,653 metric tonnes) for the season just ended, although the market might be tighter in the next year.
“It’s estimated at the moment that demand will outweigh supply, or for the market to be fairly well-balanced,” Rabobank analyst Andrew Rawlings said. “Asia has been the force of the demand engine and it is likely to continue to be. The US has also had quite a good recovery, although the European Union is kind of lagging.”
Ivorian and Ghanaian farmers have mostly been pleased with the weather as they head into the larger of two annual harvests, which runs to March.
The Ivorian regulator said output for the 2021-2022 season might ease by 200,000 tons to 250,000 tons from a potential record of about 2.2 million tons a year earlier, Kone said on Friday.
Ghana expects to produce 950,000 tons, down from an estimated all-time high of 1.06 million tons.
Rabobank projects Ivory Coast’s production at almost 2.2 million tons, and 850,000 tons for Ghana.
“The outlook continues to be very good,” said Drew Lerner, president of World Weather Inc. in Overland Park, Kansas. “With La Nina coming back in the fourth quarter, we will probably see a continuation of mainly favorable conditions.”
While Ivory Coast’s regulator insists the US$400 premium introduced a year earlier would not change from its current form, some analysts and traders say the mechanism remains unclear.
“The sum being referred to is an arbitrary sum and it’s disingenuous the way it’s referred to as a living income differential, because there’s no specification as to what the farmer’s going to get at any one point,” said Jonathan Parkman, deputy head of agriculture at Marex in London.
Other commodities:
‧Gold for December delivery on Friday rose US$1.40 to US$1,758.40 an ounce, up 0.4 percent for the week.
‧Silver for December delivery rose US$0.49 to US$22.54 an ounce, up 0.5 percent weekly, and copper for December delivery rose US$0.10 to US$4.19 a pound, down 2.3 percent weekly.
Additional reporting by AP
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