Cocoa Export Ban Sends Cocoa Prices Surging, Ivory Coast Violence Expected
As we highlighted yesterday, and predicted a week ago, following the Ivory Coast's halt of cocoa exports, futures in the substance have moved to one-year highs on Monday as "ongoing political tensions in the
world's top producer escalated." The WSJ reports that "New York ICE second-month cocoa futures soared more than 4% to a
one-year high of $3,340 a metric ton. In London, front-month March
futures jumped 7% at the open to a five-month high of GBP2,307/ton
($3,692/ton)." We hope that our prediction that JP Morgan is the mastermind behind this most recent key commodity market implosion, made surely in jest, remains that way and that no cocoa ETF is currently being prepared by JPM without anyone's knowledge, until it is of course, too late.
From the WSJ, as to why yet another food price-based conflict is imminent:
On Saturday, the Central Bank of West African States forced an ally of presidential incumbent Mr. Gbagbo to resign, effectively handing the country's purse strings to Mr. Ouattara, who is recognized by most foreign countries as having won a presidential run-off at the end of November.
Dealers said investors are scrambling to take cover in the futures markets as uncertainty over supplies mounts ahead of Easter, when demand for the key chocolate ingredient is high.
"Hearing the words 'export ban' applied to the top cocoa producer has got people worried," said a London-based broker. "Everybody's trying to get some protective buying in."
Ivory Coast is the world's largest cocoa exporter, accounting for about 40% of the world markets. The cash crop is grown mainly by small-holder farmers with less than a couple of hectares of land, yet exports provide almost one-third of the country's gross domestic product. Farmers are expected to produce a bumper crop of around 1.3 million tons this year due to clement weather.
Observers now fear the current export ban could fuel a fresh wave of violence in the West African country. At least 260 people have been killed since the disputed Nov. 28 presidential vote and many in the international community now fear the country may be on the brink of a return to the civil war that ripped it apart from 2002.
Kona Haque, commodities analyst at Macquarie, said international exporters are likely to abide by Mr. Ouattara's dictat in the hope of currying favour with the future leader.
"They'll want to be on the right side of him if ultimately he's going to be the president," she said. "It all depends on how much the industry needs cocoa right now. If they don't have enough they'll find a way to get it out."
And the funny thing is that the cheap liquidity demand side speculators did not even yet enter the cocoa market. We expect that to happen soon enough.
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