Cocoa Prepared by Foresight October 3, 2018
TABLES Cocoa Bean Price Forecast... P. 4 World Cocoa Supply/Demand, Crop Year... P. 7 World Cocoa Production... P. 8 Cocoa Crops in Major Producing Countries... P. 9 World Grindings of Raw Cocoa... P. 12 Quarterly Cocoa Grind for Major Countries... P. 17 Cocoa Bean Prices: Average Daily Nearby Futures Closes... P. 18 10/12 % Natural Cocoa Powder Prices, NYC... P. 20 Ratio of 10/12% Natural Cocoa Powder Prices to Cocoa Bean Prices... P. 22 Cocoa Butter Prices... P. 24 Ratio of Cocoa Butter Prices to Cocoa Bean Prices... P. 26 CHARTS December 2018 Cocoa Futures... P. 5 March 2019 Cocoa Futures... P. 6 World Cocoa Production... P. 10 World Cocoa Production--Four Largest Countries... P. 11 World Cocoa Grind... P. 13 World Cocoa Production, Grind, & Stock Changes... P. 14 World Cocoa Carryover Stocks... P. 15 World Cocoa Stocks-to-Grind Ratio... P. 16 Cocoa Bean Prices (Nearby Futures)... P. 19 10/12 % Natural Cocoa Powder Prices... P. 21 Cocoa Powder to Bean Ratio... P. 23 Cocoa Butter Prices... P. 25 Cocoa Butter to Bean Ratio... P. 27 PREPARED BY PAUL J. MEYERS WITH ASSISTANCE FROM RAE GILLETT
200 EAST 5 th AVE SUITE 109, NAPERVILLE, ILLINOIS 60563 U.S.A. VA: (540) 450-8054 NAPERVILLE, IL: (630) 210-7475 FAX: (630) 579-9123 Futures Price Update: Cocoa Supply Demand Outlook and Strategy Update December futures prices declined to around $2050 a tonne in early October, $280 below a month earlier, and $30 below a year ago. December futures prices have ranged from $1982-2372 a tonne in the past month. Key Supply Demand Factors: Cocoa arrivals at ports in top grower Ivory Coast were seen at around 1,952 thousand tonnes by September 23, down about 2 percent from a year earlier, exporters estimated. Ghana's Cocobod recently signed a $1.3 billion loan with international banks to finance cocoa bean purchases for the 2018/19 season, its director said. Ivory Coast this week raised the guaranteed price it pays farmers by 7 percent while Ghana kept its price flat, the two countries announced. Plans by the world's top cocoa growers to harmonize cocoa bean prices are unlikely to have much effect on world markets, according to Fitch Solutions analysts. We estimate 2018/19 world cocoa production at 4,715 thousand tonnes, up about 2 percent from a year earlier. Summary of Key Factors: Cocoa arrivals at ports in Ivory Coast reached about 1,952 thousand tonnes between October 1 and September 23, exporters estimated, down about 2 percent from 1,988 thousand in the same period last year. In the week ending September 23, arrivals of 14 thousand tonnes were up from 10 thousand during the same week last season. Above-average rains in the week ending September 30 in most of Ivory Coast's main cocoa regions were expected to strengthen the October-to-March main crop, but overly wet weather in the coming weeks could cause disease, farmers said. The new marketing season in Ivory Coast opened on Monday, October 1. Farmers said they were satisfied with the current state of the main crop, but warned that fungal black pod disease would appear on trees and moldy beans would appear in deliveries if current levels of rainfall persisted this month. In the center-western region of Daloa, which accounts for a quarter of Ivory Coast's output, farmers said they were stockpiling more beans than last season. We estimate Ivory Coast's 2018/19 cocoa main crop at 1,450 thousand tonnes, up 75 thousand from a year earlier. 1
Ghana's Cocobod recently signed a $1.3 billion loan with international banks to finance cocoa bean purchases for the 2018/19 season and is seeking additional funds to boost farm productivity, its director said. He added that Cocobod was in talks with lenders for a $300 million medium-term facility to fight cocoa diseases, expand hand pollination and other agronomic practices aimed at increasing yield. Ghana, the world's second largest cocoa producer, uses loans from international banks every year mainly for bean purchases. It hopes to buy at least 900 thousand tonnes of cocoa from farmers in the season that started this week. Cocobod expects to draw down the first tranche of the syndicated $1.3 billion early this month to give to buyers for the purchases. For the first time in decades, Ghana and Ivory Coast simultaneously announced farmers' producer prices on October 1. We estimate Ghana's 2018/19 cocoa production at 925 thousand tonnes, 15 thousand above a year earlier. Ivory Coast on this past Monday raised the guaranteed price it pays farmers for cocoa by 7 percent to 750 CFA francs per kilogram for the 2018/19 main crop while Ghana kept its price flat, the two countries announced. Ghana's government said it would not change the farmgate price it pays farmers, maintaining it at 7.6 cedis per kilogram, the Minister of Agriculture said. The announcement of the two countries prices on the same day was the first step in an eventual harmonization of prices they hope will enable them to run an OPEC-like cartel. Farmers in both countries cautiously approved the prices. A farmer in Ghana said many farmers expect the price guarantee to be increased next year. Another farmer in southeast Ivory Coast added that even after the increase in prices in his country that Ghana's prices were still higher, which would encourage smuggling over the border. Plans by Ivory Coast and Ghana to harmonize cocoa bean prices are unlikely to have much effect on world markets because of differences between their marketing systems and minimal domestic processing, Fitch Solutions analysts said. The two countries account for about 60 percent of global output, but exert limited influence over international prices. The Fitch analysts said coordinating farmgate prices would be difficult to achieve, citing wide differences in how Ivory Coast and Ghana export their crop, most of which leaves West Africa in a raw or semi-finished state. Talks between Ivory Coast and Ghana followed intense market volatility over the last season. Ivory Coast was forced to cut farmgate prices sharply last season while Ghana incurred losses of more than $400 million. In order to effectively harmonize prices, Fitch said one of the countries would need to overhaul its market structure, but neither country has indicated it is prepared to make wholesale changes. We estimate 2018/19 world cocoa production at 4,715 thousand tonnes, 90 thousand above a year earlier, but about 25 thousand below the record 2016/17 crop. The expected larger world cocoa crop in 2018/19 is mainly due to generally favorable weather in West Africa in recent months. Ivory Coast's 2018/19 cocoa production is forecast to be up 4 percent from a year ago while Ghana's cocoa crop in 2018/19 is likely to be 2 percent above a year earlier. In contrast, Nigeria's 2018/19 cocoa production may be down 2 percent from the previous year while Cameroon's production is forecast to be unchanged from 2017/18. World cocoa grindings in 2018/19 are forecast at an all-time high 4,650 thousand tonnes, 2 percent above a year earlier, and 6 percent above 2016/17 grindings. Strong global economic growth and relatively low cocoa prices will boost global grindings in 2018/19. World cocoa production in 2018/19 is expected to be slightly above world cocoa grindings for the second consecutive year, with the global surplus estimated at about 20 thousand tonnes. 2
Price Risk: West African cocoa main crop prospects are generally favorable as harvesting begins. The outlook for larger main crop cocoa production in Ivory Coast and Ghana will pressure cocoa futures prices in upcoming months. Quarterly cocoa grind data will be released in the next couple of weeks, with increases expected for both Europe and Asia. The likely higher cocoa grindings will underpin futures prices in the months ahead. Historical Price Action: Nearby cocoa futures prices in September averaged $2233 a tonne, up $48 from a month earlier, and $262 above the September, 2017 average. In 6 of the past 10 years, nearby cocoa futures have decreased from October through February. Price Outlook: Nearby cocoa futures prices in October-December are forecast to average $2150-2225 a tonne compared with $2038 a year earlier. For January-March, nearby futures prices are forecast to average $2125-2200 a tonne compared with $2180 a year earlier. Coverage Recommendations: Cocoa, Cocoa Powder, and Cocoa Butter Cocoa Futures: Upper Tier: > $2225 a tonne -- add coverage two weeks at a time to keep 4 weeks out Middle Tier: $2100-2225 a tonne -- add coverage to keep 8-12 weeks out Lower Tier: $1975-2100 a tonne -- add coverage for an additional 4-6 weeks Cocoa Products Price Outlook: 10/12 natural powder prices averaged 90 cents a pound in September, unchanged from both a month earlier and a year earlier. Prices in early October were about 90 cents a pound. Powder prices are forecast to average 86-93 cents a pound in October-December compared with 85 cents a year earlier. Powder ratios in October- December may average 0.85-0.90 times nearby futures. Cocoa butter prices averaged 259 cents a pound in September, down 14 cents from the August average, but 10 cents above the September, 2017 average. Prices in early October were around 244 cents a pound. Cocoa butter prices are likely to average 245-255 cents a pound in October-December compared with 272 cents a year earlier. Butter/bean ratios may average 2.55-2.60 times nearby futures in October-December. 3
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