Cocoa records little price movement despite stormy global economy

BY ONOME AMUGE

Cocoa prices failed to record any significant price movement in March 2022 despite a distortion in the purchasing power of consumers who were forced to prioritise purchase of essential over luxury products, including cocoa products, as the ongoing Ukraine-Russia conflict continues to inflict economic uncertainties across global markets, in line with various concurring events such as surging energy prices, rising inflation and a slow economic growth.

The International Cocoa Organisation (ICCO), in its cocoa market report for March, said it was too early to extricate the real effect of the current global macroeconomic factors on the demand for cocoa products, noting that the grindings data for the first quarter of 2022 to be published at the end of April, will provide a first indication on the direction of global cocoa demand.

According to the inter-governmental organisation, increase in energy prices could have an impact on both cocoa exporting and importing countries, with costs of cocoa haulages from plantations to ports of export and shipping likely to move up, making the acquisition of cocoa beans more expensive in consuming markets.

On the other hand, ICCO envisages that the increase in energy costs will trigger a rise in operation costs for cocoa processors and chocolate manufacturers, which in turn will result in either a reduction in processing margins or an increase in prices of cocoa products or even both.

Outlook of the 2021/22 crop across markets
In Côte d’Ivoire, the 2021/22 mid-crop started in April with the government’s decision to maintain the farm gate price. In the first week of April, cumulative cocoa arrivals at Ivorian ports for the 2021/22 cocoa year were estimated at 1.7million tonnes, 1.2 percent above the level recorded over the same period last season.

The association of Ivorian cocoa processors (GEPEX) posted data showing that, at the end of February 2022, cocoa grindings in the country had increased by 3.95 percent year-on-year from 253,000 tonnes to 263,000 tonnes.

On the contrary, Ghana’s grinding data showed that purchases of graded and sealed cocoa beans in the second largest cocoa producing country were very low year-on-year, down by 34 percent to 524,000 tonnes as at 31 March 2022. This was attributed to unfavourable weather conditions that occurred in the country’s main cocoa growing regions.

Notwithstanding, the government maintained its farm gate price for the 2021/22 mid-crop at the same level announced for the main crop at 10,560 cedis per tonne.

On the international market, the ICCO average monthly prices for March 2021 and March 2022 were virtually at par at $2,462 per tonne and $2,461 per tonne respectively, but rose on both sides of the Atlantic to reach their highest settlement values of the month at $2,330 per tonne in London and $2,629 per tonne in New York on 10 March 2022.

The MAR-22 contract however halted their ascending trend and plunged to $2,252 per tonne in London and $2,461 per tonne in New York on the maturity date (16 March 2022) of the said contract.

According to the ICCO, the bullish stance on prices for the month was supported by expectations of a supply deficit for the 2021/22 cocoa year.

Also, concerns that the Russia-Ukraine military conflict could reduce travel across Western Europe and thereby negatively impact volumes of chocolate sales at airports, which are amongst the major locations for chocolate sales, took a toll on cocoa futures prices.

Moving on to the second half of March, prices of the MAY-22 contract were strengthened by four percent from $2,230 to $2,326 per tonne in London and by five percent from $2,509 to $2,646 per tonne in New York, in reaction to less conducive meteorological conditions prevailing in the main cocoa growing regions of West Africa, including Nigeria the regions third largest cocoa producer.

Furthermore, reports that lots of cocoa beans from Côte d’Ivoire were rejected due to quality concerns had a bolstering effect on prices of the MAY-22 contract.