Valentine’s Day demand for chocolate has failed to lift cocoa, which has hit multiyear lows on concerns about a glut in west Africa and confusion over the exports from the Ivory Coast.
Cocoa is one of the worst-performing commodities this year, with the London benchmark down almost 10 per cent to £1,562 a tonne. It is trading at its lowest level since July 2013 and is down almost 40 per cent since July last year, when it hit a four-decade high on the back of the UK’s vote to leave the EU. The New York contract has hit an eight-year low of $1,918 a tonne.
“The market is spooked,” said Edward George, head of research at Ecobank, the African lender.
At the same time last year, the price of cocoa was rallying after the El Niño weather phenomenon hit output. There were also worries that continuing growth in demand for chocolate and poor production methods in key growing areas meant there would be a supply shortage of the key chocolate ingredient.
However, the price volatility over the past year has disappointed many traders.
The London benchmark surged last year following the Brexit vote. The contract is denominated in pounds, which meant the commodity rallied in the face of the sharp fall in sterling.
Cocoa is traded on both sides of the Atlantic — in London and New York — but the contract in London has been favoured by physical cocoa traders, who ship their beans from west Africa.
Since its peak last year, prices have plunged on expectations of a bumper crop in west Africa, the key region for cocoa, while the bankruptcy of US cocoa processor Transmar Commodity Group has also weighed on sentiment.
The fall has been exacerbated by Ivorian exporters reneging on their contracts and refusing to buy and export beans as they had not hedged in the hope that the market would continue to rise. “The beans are piling up at ports . . . and we are hearing that there are pods dumped on the side of the roads,” said Mr George.
Cocoa experts said that while the market could continue lower in the short term, weak prices would have consequences on supplies in the long term. There was a “sense that we are now entering a price space which is not conducive to production surplus on a long-term basis,” said Eric Sivry at commodity brokers Marex Spectron.
He added that there was no doubt that with lower farmgate prices looming for growers, they would rethink their options, with some looking to switch to growing rubber or other commodities, or in Ghana, looking to work in gold mines.
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