Fears over the Covid-19 coronavirus have led to quarantines, hoarding, and wholesale selling in markets across all asset classes, said market analyst, Andrew Hecht, author of the Hecht Commodity Report.
Even though risk-off conditions are sending the price of cocoa lower from the recent high, the potential for supply disruptions because of coronavirus is high, he said.
Over 60% of the world's cocoa is produced in Côte d'Ivoire and Ghana and, while confirmed cases of Covid-19 have spread around the world and exceed 100,000 cases, it as yet to reach West Africa.
If it spreads, the mortality rate in the region could turn out to be devastating on a human level and a potential risk of falling cocoa output.
Côte d'Ivoire cocoa grinders processed 235,000 tonnes of beans by the end of February, up from 226,000 tonnes in the same period last season, latest data from exporters’ association GEPEX revealed.
13 Mar 2020
12 Mar 2020
ICCO daily price (SDRs/tonne)
ICCO daily price (US$/tonne)
London futures (£ sterling/tonne)
New York futures (US$/tonne)
In its Cocoa market review for February, the International Cocoa Organization (ICCO) said: “At the time, market participants were anticipating an improvement in weather conditions in Côte d’Ivoire as well as a slowdown in the demand for commodities (including cocoa) as the spread of the Coronavirus created concerns for the world economy.”
Reuters reported that above average rainfall last week in several areas of Côte d'Ivoire’s cocoa-growing regions could boost the April-to-September mid-crop, farmers said the October-to-March main crop was tailing off.
“After reaching a price that was just shy of $3000 per ton, the highest price since August 2016, the price of cocoa futures corrected. The risk-off conditions over the past weeks did not help matters as cocoa was trading at the $2633 per ton level on the nearby May futures contract on March 11 with the continuous contract at the $2718 level,” said Hecht in his analysis for seekingalpha.com.
The universal love of chocolate could make the price action in the cocoa futures market a lot less sensitive to the current risk-off environment, he advised. “The current price correction could be another buying opportunity for the soft commodity.”