Pricing Agribusiness Risk

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What Happens In Ghana May Mean Higher Priced Chocolate In A Store Near You

After a bumper crop of cocoa was produced in Ghana during the 2013/14 Cocoa Year (ending 31st September), the 2014/15 year is beginning to look very disappointing and it underlines the problem that the global chocolate confectionery sector has in its reliance on West African production for some 73% of the annual global crop. The Ghana Cocoa Board (Cocobod), a government controlled institution that fixes the buying price for cocoa in Ghana and which regulates the internal marketing of cocoa in Ghana, made purchases of 559,169 mt in the first 28 weeks of the 2014/15 season compared with 750,122 mt in the first 28 weeks of the 2013/14 season, a decline of more than 25%. The data in the table below, for the period 2000-2014 is supplied by ICCO, while the forecast for 2015 is from Hardman Agribusiness.

Ghana Cocoa ProductionThe 2013/14 crop may have been larger than indicated as industry sources estimate that some 40,000-60,000 mt of cocoa beans may have been smuggled over the Ghanaian border into Ivory Coast last year to access better prices. If indeed the actual crop was perhaps closer to 0.95mt, then the expected outcome for 2014/15 is both disappointing and concerning and confirmation that cocoa is an unpredictable crop.

The reasons given for the Ghanaian crop short fall against expectation for 2014/15 (Cocobod was anticipating some 850,000 mt) are diverse, but an outbreak of Black Pod disease is thought to be a significant factor (cocoa is notoriously susceptible to pest and disease), along with insufficient use of fertiliser, poor crop protection practices and a declining cocoa labour force. With cocoa related consumer goods expected to achieve global revenues of some $120bn annually and demand expanding by 6% pa, the erratic performance of the world’s second largest producer (21% of the 2013/14 global crop) is cause for concern throughout the downstream sector and undoubtedly a factor behind the strengthening price of the commodity over the past 6 weeks.

Cocoa Commodity FutureMay 6th 2015, a Reuters report cited European traders as suggesting that the shortfall in the Ghanaian crop could mean that Ghana might be unable to supply around 150,000 to 200,000 tonnes of cocoa which reportedly it has sold and may seek to roll those contracts forward to next season. If true, this can be expected to keep the commodity in the focus of traders and consumers. With cocoa butter and cocoa mass comprising 30%-33% of a typical chocolate bar, weak production in Ghana, if not offset by increased tonnages elsewhere in the tropical belt, could ultimately reflect in the price of a bar.