Cocoa market investors must revisit portfolios after prices fall sharply in New York

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FrancTrade view: Investors, financial market participants and other stakeholders exposed to the cocoa sector are advised to revisit their portfolios after today’s sizeable decline in cocoa prices on the New York exchange.

Prices fall 4% on Friday

Cocoa futures quoted on the New York exchange have fallen to their lowest level in 7 months. The December contract plummeted to as low as 2,774 US dollars per tonne down nearly 4% compared with the previous day’s close. Prices are being undermined by improving prospects for the crop in West Africa, particularly after good rains in Cote d’Ivoire.  Expectations, therefore, for a bumper harvest after last year’s drought is the principal reason for the price slump.


Farmgate prices are vulnerable

While farmers in the region will cheer the onset of rains, increased precipitation might be a double edged sword for the sector. We expect farmgate prices in the region to fall in sympathy with international markets. Already, data from Cameroon’s National Association of Cocoa and Coffee producers shows a drop in farmgate and export prices. More declines are likely.

Weaker export prices will impact government revenues

Additionally, government revenues are likely to be dented due to weaker export prices.  On Wednesday, Cote d’Ivoire said it had raised its forecast for government revenues in 2016 by 6.1% to 6.2 trillion CFA francs partly on account of higher cocoa receipts. Lower cocoa prices will therefore impact national income, although this could be limited by higher exportable volumes.

We therefore believe that investors, financial market participants and other stakeholders who are exposed to the cocoa sector may find it worthwhile to revisit their portfolios in anticipation of weaker prices.

Note: Cocoa prices have averaged 3,000 US dollars per tonne since the start of the year. 

ICE exchange information for deliverable growths: Group A-Deliverable at a premium of $160/ton (including main crops of Ghana, Lome, Nigeria, Ivory Coast and Sierra Leone). Group B-Deliverable at a premium of $80/ton (includes Bahia, Arriba, Venezuela,Sanchez among others). Group C-Deliverable at par (includes Haiti, Malaysia and all others).


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