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In line with various simultaneous events such as rising energy prices, rising inflation coupled with slow growth, the current global economic situation points to plausible stagflation or even recession. Sanctions against the Russian Federation and Belarus due to the ongoing conflict in Ukraine have led to further increases in energy prices. Rising consumer prices, interest rates and the recent outbreak of the coronavirus in China are dampening growth.
At the end of February, monthly inflation rates for all items were 6.2% and 7.9% in the European Union and the United States, which is by far the highest monthly inflation rate recorded in the last ten (10) years.
At this level of inflation, consumers’ purchasing power is eroding. This very often leads to the consumption of everyday goods being prioritized over luxury goods, including cocoa products. At this point, however, it is still too early to determine the true impact of current global macroeconomic factors on demand for cocoa products.
The first quarter of 2022 milling data, to be released in April 2022, will provide a first indication of the direction of global cocoa demand.
The Russian Federation is a leading global supplier of crude oil and gas. The sanctions imposed by the United States and the European Union on the Russian Federation have caused crude oil and gas prices to surge, with the former currently exceeding the symbolic threshold of $100 a barrel.
The rise in energy prices could affect both cocoa exporting and importing countries. On the one hand, the cost of transporting cocoa from plantations to export and shipping ports is likely to increase, making cocoa beans more expensive to purchase in consumer markets. On the other hand, the increase in energy costs is expected to lead to an increase in operating costs for cocoa processors and chocolate makers, which in turn will result in either a reduction in processing margins or an increase in cocoa product prices, or even both.
For example, with inflation in the UK recently rising to 6.2% and to offset rising costs, including energy bills, Mondelēz International (owner of Cadbury Dairy Milk) has announced that the size of the sharing bars will be reduced by 10% while they price stays the same, with inflation and the cost of making chocolate being blamed.
In addition, the impact of rising freight costs on the global cocoa trade cannot be overlooked, as maritime trade plays a significant role in global trade. According to the International Monetary Fund (IMF), “carries more than 80 percent of the world’s traded goods, most of which sail in 40-foot-long steel.”
In order to contain the outbreak of COVID-19 cases, lockdowns have been imposed in most countries, causing various disruptions, affecting the efficiency of the global supply chain system. Port closures/congestion and social distancing, among other things, put pressure on demand for containers. This resulted in a massive nearly 10-fold increase in shipping costs from $1,342 in July 2019 to $10,839 in September 2021
(Figure 3). Notwithstanding the continued increase, container freight rates began to fall since the start of the 2021/22 cocoa year, but remained at historically high levels, reaching $9,430 in March 2022 – perhaps thanks to efforts to return global shipping to normal.
OUTLOOK FOR THE 2021/22 HARVEST IN COTE D’IVOIRE AND GHANA
In Côte d’Ivoire, the 2021/22 semi-harvest started in April with the government’s decision to keep the farm gate price at XOF 825 per kilogram of cocoa beans; identical to the farm gate price of the main harvest. On April 10, 2022, the cumulative cocoa arrivals in Ivorian ports for the 2021/22 cocoa year were estimated at 1.709 million tonnes, an increase of 1.2% compared to the level recorded in the same period last season.
The country’s exports of cocoa beans in the period October 2021 to January 2022 amounted to 764,107 tons, down 15.4% year-on-year. The Association of Ivorian Cocoa Processors (GEPEX) released data showing that cocoa milling in the country had increased by 3.95% year-on-year at the end of February 2022, from 253,000 tons to 263,000 tons.
In Ghana, the latest information shows that purchases of graded and sealed cocoa beans were very low year-on-year (down 34% to 524,000 tonnes as of March 31, 2022), mainly due to unfavorable weather conditions that occurred in the country’s main cocoa growing regions. The government maintained its farmgate price for the 2021/22 mid-crop at the same level announced for the main crop of 10,560 GH¢ per tonne.
INTERNATIONAL COCOA ORGANIZATION l MARKET REPORT l FEBRUARY 2022
Amid global economic uncertainties, cocoa prices have seen virtually no significant price movements.
ICCO monthly average prices for March 2021 and March 2022 were virtually flat at $2,462 per tonne and $2,461 per tonne, respectively. Figure 4 shows the price movements of the first and second positions in the London and New York futures markets, respectively, at the London close in March 2022, while Figure 5 presents similar information for the previous year.
As indicated in Figure 4, contract prices in the vicinity followed two distinct sequences during the first half of the month. They rose on both sides of the Atlantic, reaching their highest settlement values of the month on March 10, 2022 at US$2,330 per tonne in London and US$2,629 per tonne in New York.
Upbeat price-keeping was supported by expectations of a supply deficit for the 2021/22 cocoa year. After that, the prices of the MAR-22 contract halted their upward trend and fell to $2,252 per tonne in London and $2,461 per tonne in New York on the expiry date (March 16, 2022) of said contract.
Fears that the military conflict between Russia and Ukraine could reduce travel through Western Europe and thereby negatively impact the volume of chocolate sales at airports, which are among the most important locations for chocolate sales, weighed on cocoa futures prices out of. In the second half of March, prices of the MAY-22 contract in London were increased by 4% from $2,230 to $2,326 per tonne and in New York by 5% from $2,509 to $2,646 per tonne in response to less favorable weather conditions in the most important cocoa-growing regions of West Africa.
In addition, information that many Ivory Coast cocoa beans were rejected due to quality concerns had a positive impact on the prices of the MAY-22 contract.
HOW HAVE COCOA FUTURE PRICES DEVELOPED?
Prices of futures contracts MAR-2022 and MAI-2022 on the markets in London (ICE Futures Europe) and New York (ICE Futures US). MARCH 2021 and MAY 2021
Futures contracts on the London (ICE Futures Europe) and New York (ICE Futures US) markets.
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