May 9 - The current review of the cocoa market situation reports on price movements on the international markets during the month of April 2008. Chart I illustrates price movements on the London (LIFFE) and New York (ICE Futures U.S.) markets in April. Chart II shows the evolution of the ICCO daily prices denominated in U.S. dollars and SDRs for the period from February to April 2008. Chart III depicts the link between the ICCO daily prices and the Reuters-CRB Index. Finally, Chart IV shows the recent development in the volatility of cocoa and coffee prices.
Price movements
In April, the ICCO daily price averaged US$2,628 per tonne, down by US$42 compared to the average price recorded in the previous month (US$2,670) and ranged between US$2,375 and US$2,810.
The decline of the monthly average in April compared to the previous month could be misleading as far as futures markets are concerned. Indeed, after a downward correction recorded in both LIFFE and ICE futures markets as from the middle of March, cocoa prices bounced back in April. Prices increased by US$420 on the New York market and by £155 in London, both recovering 90% of the losses experienced in the previous month. Cocoa trading activities in April were also characterized by the small volume exchanged in London (only half of the volume traded in the previous month) and by an inverted futures price structure (“backwardation”) in both markets in the second half of the month. Moreover, after reaching a peak in the previous month, cocoa price volatility (cf. Chart IV) was moderate in April.
Most of the price movements recorded in recent months in the cocoa futures markets have not been cocoaspecific but were part of a wider development in the commodity market. Indeed, as shown in Chart III, cocoa prices and the Reuters CRB Index (averaging prices across various commodities) have followed the same trend in recent months. Correlation between the two has risen from 31% in the October 2006 – April 2007 period to 96% in the October 2007 – April 2008 period. This was partly explained by the development of the euro/dollar exchange rate which affected all commodities.
Supply & demand situation
Data on volumes of cocoa reaching ports in West Africa confirmed expectations of a strong increase in cocoa production during the first half of the season. According to data published by news agencies, the 2007/08 main crop (October – March) had reached 1.066 million tonnes in Côte d’Ivoire, up by around 100,000 tonnes compared to the same period a year earlier. Cocobod reported that 552,000 tonnes (up by eight per cent) of cocoa beans were purchased from Ghanaian farmers in the first six months of the current season. However, with the main crops in West Africa and the mid crop in Indonesia over, the volume of cocoa available on spot markets was rather small in April.
On the demand side, statistics published by the European Cocoa Association (ECA) showed that grindings by its Members rose by almost 4.7% during the first quarter of 2008 compared to the same quarter a year ago. However, with US grindings declining by almost six per cent, the ICCO Secretariat expects the growth of global demand to slow down during the 2007/08 cocoa year.
