June 16 - The current review of the cocoa market situation reports on price movements on the international markets during the month of May 2008. Chart I illustrates price movements on the London (LIFFE) and New York (ICE Futures U.S.) markets in May. Chart II shows the evolution of the ICCO daily prices denominated in U.S. dollars and SDRs for the period from March to May 2008. Chart III depicts the link between the ICCO daily prices and the Dow Jones commodity index.
Price movements
In May, the ICCO daily price averaged US$2,690 per tonne, up by US$62 compared to the average price recorded in the previous month (US$2,628) with a range of between US$2,627 and US$2,798.
After the sharp rise in cocoa futures prices experienced in the last three weeks of April, both LIFFE and ICE Futures markets plummeted by over 5% in the first session of May, to £1,367 and US$2,590 respectively. This development was triggered by the strengthening U.S. dollar against major currencies but it was also a consequence of large trading activities in the options market. The markets recovered during the following days, reaching levels close to those attained at the end of the preceding month. However, futures prices changed course once in mid-May, declining to levels almost 5% lower. Indeed, the U.S. dollar climbed to its highest level for three months against the Pound Sterling, putting pressure on the New York market. Prices in London followed the same course. The declining tendency came to a halt in the last week of May when markets drifted upwards, mainly fuelled by concern over the size of the current mid crop in Côte d’Ivoire and the spread of diseases in Indonesia.
As stated in the previous monthly report, most of the price movements followed the same trend as other commodities from the beginning of 2008. However, as shown in Chart III, this was no more the case in the second half of May, when cocoa price movements were decoupled from price developments of other commodities (as displayed by the Dow Jones Commodity index which tracks price movements across various commodities).
Supply & demand situation
West African countries experienced a strong increase in cocoa output during the main crop period. However, the volume of cocoa reaching ports in Côte d’Ivoire in the first two months of the mid crop period (April-May) has been disappointing compared with expectations. According to data published by news agencies, 1.162 million tonnes had reached the ports in Côte d’Ivoire at the end of May since the beginning of the current season. However, the situation seems more promising in Ghana, with Cocobod still reporting larger weekly volumes of cocoa purchased than in the previous season. In total 626,305 tonnes (up by over 70,000 tonnes) of cocoa beans were purchased from Ghanaian farmers from the beginning of the season to mid May.
Final comments
Most of the analysts of the cocoa market expect the 2007/08 season to experience a supply deficit. The ICCO Secretariat forecasts that it will reach 41,000 tonnes this season. If realized, it will be the second consecutive one, following a much larger deficit experienced in the previous season, at around 300,000 tonnes. Hence market participants will monitor closely the pod setting for the forthcoming main crop. This will be a decisive parameter for the price direction in the coming weeks, as a third supply deficit would put strong upward pressure on the price of cocoa. It should be noted that cocoa markets tend to be very volatile at the beginning of the summer period and this year is not expected to be an exception.
