Speculators are adding to bullish cocoa wagers at the fastest pace in two years as dry weather threatens crops in parts of West Africa, the source of 70 per cent of global supply.
About a fifth of the growing regions in Ghana, the top producer after Ivory Coast, got half the normal rainfall in the past 45 days, according to MDA Weather Services. Showers have also been sporadic in Nigeria, the region’s next biggest grower.
The International Cocoa Organization is already predicting that production will trail demand in the season that ends in September. Prices rose more than 7 per cent from the depths of the bear market in February and net wagers that the rally has further to go expanded 73 per cent in the past four weeks.
“What people have latched on to is there might be some disappointment on the supply side because of possibly weather-related issues in some of the larger producers,” said Sameer Samana, a senior global strategist at Wells Fargo Investment Institute in St. Louis, which manages $1.6 trillion. “Weather will be an unpredictable factor in the short-term and could drive further price increases.”
Producers in Ghana are bracing for the smallest harvest in five years as a fungus that kills pods compounds the effects of dry weather. Ecobank Transnational Inc. cut its forecast for the nation’s output this season to as low as 730,000 tons last month, trailing governments estimates.
In Nigeria, southeastern parts of the country are the most stressed from a lack of rain, and if dryness persists, it will probably lower the quality for the mid-crop collected from June through August, according to World Weather Inc. Too little moisture could also lower yields for the main harvest starting in September, said Drew Lerner, the Overland Park, Kansas-based president of the forecasting company.
Ivory Coast could sustain supply even if production falls elsewhere. Bean deliveries to ports in the country are ahead of last year’s pace, arriving at the fastest speed in a decade, according to data compiled by KnowledgeCharts, a unit of Commodities Risk Analysis in Bethlehem, Pennsylvania.
“We’re expecting a little bit of a drop in cocoa” prices, Carlos Mera Arzeno, senior commodities analyst at Rabobank International, said by phone 1 May. “There’s always crop concerns in the market. I think the market has already priced in a lower crop in Ghana.”
Global consumption will outstrip production by 17,000 tons this season, according to the International Cocoa Organization. The market is swinging to deficit from a surplus of about 30,000 a year earlier, data from the group show.
Bloomberg News,edited by ESM
