Bloomberg News

Ivorian Cocoa Farmgate Price Seen Falling as Bear Market Nears

February 25, 2013

Cocoa farmers in Ivory Coast, the world’s largest producer, may get less for their beans when the next harvest starts in April as futures on NYSE Liffe in London are approaching a bear market, a Bloomberg survey showed.

The amount paid to farmers, or the so-called farmgate price, will decline to 664.50 CFA francs ($1.34) a kilogram (2.2 pounds) from 725 CFA francs now, the mean in the estimate of six traders, processors and analysts showed. Two traders surveyed said the price will remain unchanged. Growers may get less as futures declined 17 percent since a high in September. Cocoa for delivery in March was at 1,437 pounds ($2,170) a ton by 2:39 p.m. in London. A 20 percent decline, or a close at 1,388 pounds a metric ton, would mean a bear market.

Farmers will start gathering the smaller of two annual crops in April. Beans from the so-called mid-crop are smaller and the price paid to farmers is usually lower at this time of the year, according to Commodities Risk Analysis in Bethlehem, Pennsylvania. Ivory Coast cocoa sector reforms last year mean farmers now get 60 percent of the international price. That guarantee can be reduced to no lower than 50 percent in times of strong price slumps.

“It’s normal that the bean count goes up during the mid- crop. The smaller beans have more shell and less fat,” said Steven Haws, founder of Commodities Risk Analysis, who has followed cocoa since 1979. “It’s possible that some farmers may be expecting the fixed price to remain unchanged, but I’d guess most are used to getting a lower price during the mid-crop.”

Under Pressure

Cocoa prices will remain under pressure in the “short- term” because of sales from producing countries, Aakash Doshi, a strategist at Citigroup Inc. in New York, said in an e-mailed report dated Feb. 15. Ivory Coast is lagging behind with sales of its current crop, according to Kona Haque, a London-based analyst at Macquarie Group Ltd., Australia’s largest investment bank. The country planned to sell 70 percent to 80 percent of its 2012-13 crop before the season started Oct. 1.

“We all know the price will be down. During the mid-crops, beans are smaller. So that would make sense,” said Moussa Zoungrana, head of a group of cocoa cooperatives in Duekoue. “If they maintain the price, that would be a political miracle. The better quality of our cocoa beans will soften the decrease. A 100 CFA francs decrease will be acceptable.”

Rubber Trees

Farmers in Ivory Coast are switching from cocoa to other crops including rubber because of more stable incomes. Cocoa production in 2012-13 will be 1.45 million tons, little changed from 1.475 million tons a year earlier, Macquarie estimated in a Jan. 18 report. Rubber output will climb to 300,000 tons this year from 230,000 tons in 2012, Albert Konan, executive secretary of the Rubber Development Fund, said in December. Rubber produces its crop year-round while cocoa is harvested twice a year.

“We wish the price remained stable, but we objectively know the price will be reduced for the mid-crop,” said Mamert Kablan Angora, a farmer in Niable, near the border with Ghana. “I guess they can’t reduce it too much so as to not discourage farmers to keep producing cocoa.”

To contact the reporter on this story: Isis Almeida in London at Ialmeida3@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at Ccarpenter2@bloomberg.net.


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