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Price of cocoa goes down in world market

06 December 2011 12:40 (UTC +04:00)

Baku - APA-Economics. The sovereign debt crisis in Europe has claimed an unexpected casualty â€“ the price of cocoa.

Europe is the largest consumer of cocoa, the bean used to manufacture chocolate, and worries about a slowdown in the regionâ€™s consumption combined with a bumper crop in west Africa, the main supplier, has pushed prices to their lowest point in three years.

From Belgium to Switzerland, chocolate manufacturers across Europe, which accounts for 40 per cent of global demand, have stepped back from the market in recent months, traders said.

The benchmark Liffe March cocoa contract hit a low of Â£1,414 a tonne on Monday, the lowest level since December 2008, down 42 per cent from last yearâ€™s peak. Consumers would not see a corresponding fall in chocolate prices for several months, if at all, since manufacturers often absorb price swings.

Cocoa prices hit a 33-year high last year on the back of a disappointing crop in the Ivory Coast â€“ which supplies two-fifths of the worldâ€™s cocoa â€“ caused by low fertiliser use and ageing trees, as well as worries that farmers would abandon plantations or switch production from cocoa to rubber. The halt in exports due to the countryâ€™s political chaos earlier this year further added to supply worries.

Prices started sliding when the Ivory Coast returned to the export market following the end of a four-month power struggle between the leaders of two parallel governments. Heavy rainfall caused by the weather phenomenon La NiÃ±a led to a large crop.

As a result, analysts expect overall supply in the 2010-11 season, which has just ended, to outstrip demand by a record 400,000 tonnes, compared to earlier estimates which ranged from a 100,000-tonne supply deficit to a surfeit of 100,000 tonnes.

Traditionally, chocolate manufacturers have bought cocoa at this time of the year, but the political turmoil in the Ivory Coast drove most to cover their needs in the futures market much earlier. According to data from the US Commodity Futures Trading Commission, chocolate and confectionary makers started to buy heavily from the second half of last year. Since June 2010, they have boosted their â€œlongâ€ positions â€“ or insurance against a rise in prices â€“ almost threefold.

For the 2011-12 season which started in October, forecasts range from a small deficit to a small surplus, with analysts and traders hoping that Asian demand will take up the slack left by the US and western Europe.