Cocoa Poised to Tumble as Maersk Cargo Signals Price Peak: Freight Markets

The departure of a ship laden with about 8,000 metric tons of cocoa from the Ivory Coast port of Abidjan two weeks ago may mean the end of a rally that drove prices to the highest in three decades.

The Maersk Norfolk, owned by A.P. Moeller-Maersk A/S, the world’s biggest container line, arrived in the Belgian port of Antwerp two days ago, ship-tracking data compiled by Bloomberg show. The cargo was one of the first to leave Ivory Coast, which accounts for 34 percent of global output, since an export ban ended in mid-April. Cocoa traded in New York may drop 18 percent to $2,710 a ton by the end of the year, according to the median in a Bloomberg survey of 10 analysts, brokers and traders.

The disruption to Ivorian shipments, caused by the civil war that erupted after presidential elections in November, compounded shortages that meant prices rose in four of the last five years. Exports are resuming as farmers reap the mid-crop, the smaller of two annual harvests that began last month, and will boost supply to Barry Callebaut AG (BARN), which sells chocolate to Nestle SA, Kraft Foods Inc. (KFT) and Hershey Co.

“This first shipment demonstrated that the conditions to load vessels are adequate and may signal that the situation will normalize from now on,” said Javier Almela, chief purchasing officer at Natra SA in Spain, which buys almost 40,000 tons of cocoa a year for processing into chocolate used by foodmakers. “Political issues are giving way to fundamental factors, which reflect the current harvest’s balance.”

Food Prices

Cocoa rallied as much as 34 percent this year on the ICE Futures U.S. exchange in New York, touching $3,775 on March 4, the highest since 1979. Beans for July delivery closed at $3,291 on May 2, still 65 percent above the 10-year average. That’s adding pressure to consumers already contending with food prices the United Nations says rose to a record in February.

While the western port of San Pedro had yet to resume loading cocoa by last week, beans are moving from Abidjan, the commercial capital. There were seven container vessels at the port as of May 3, according to ship-tracking data from AISLive compiled by Bloomberg.

An index reflecting charges for six types of container carriers rose 86 percent in the past year as world trade rebounded, according to the Hamburg Shipbrokers’ Association. That compares with a 61 percent slump in rates for shipping dry bulk commodities such as iron ore and coal and a 55 percent plunge in the benchmark cost of hauling oil on supertankers, according to data from theBaltic Exchange. The London-based bourse publishes daily rates for more than 50 maritime routes.

Banking Services

Shipments from Ivory Coast, where agriculture accounts for 68 percent of jobs, may also accelerate as banking services resume. Citigroup Inc. and Societe Generale reopened branches in the country last week, increasing access to the financing needed to fund trade.

“The banking sector needs to be up on its feet for the cocoa market to function,” said Keith Flury, an analyst at Rabobank in London. “This will help middle-men buy beans and facilitate the movement of product from farms to the ports.”

Cocoa from the mid-crop, which usually ends in September, is piling up at farms because no one has access to the cash needed to buy it, said Alfred Kouassi, a cocoa trader in the central town of Daloa. In the east, beans are being smuggled into neighboring Ghana, according to Bile Bile, the head of a union of farmers’ cooperatives in the town of Abengourou.

‘Back to Normal’

Ivory Coast is “getting progressively back to normal,” CMA CGM SA, the world’s third-largest container shipping line, said in an e-mail on April 26. The Marseille, France-based company had a ship call at Abidjan on April 21.

Cocoa is normally shipped in 20-foot-long steel boxes to preserve the beans. About 600,000 twenty-foot equivalent boxes were shipped from Abidjan in 2009 out of a global trade of more than 450 million boxes covering everything from televisions to fruit, according to Syed Hashim Abbas, an analyst at Clarkson Research Services Ltd. in London. There will be a minimal effect on box rates from the resumption of cocoa shipments, he said.

For Ivory Coast, the impact will be more profound. Farmers will harvest almost 1.33 million tons of cocoa this year, valued at $3.9 billion based on last year’s average price, the London- based International Cocoa Organization estimates. Gross domestic product in the nation, where 42 percent of people live below the poverty line, was $22.4 billion in 2010, according to estimates in the CIA World Factbook.

Ivorian Ports

The resumption of exports will also mean prices once more reflecting the outlook for supply and demand. Global production will rise 10 percent to 3.89 million tons this year, compared with a 2.9 percent gain in consumption to 3.73 million tons, ABN Amro Bank NV and VM Group estimate. That will mean the market moving to a 156,000-ton surplus from a deficit of 107,000 tons a year earlier, the two companies forecast April 27.

More than 500,000 tons of cocoa is available in Ivory Coast and it may take three months to clear the backlog, ABN Amro and VM Group estimated last month. Beans can be stored for as long as 10 years with the right ventilation and if they are pest- free, according to Rik Balcaen, a director at Belgian chocolate manufacturer Belcolade.

Beans piled up as Alassane Ouattara, the internationally recognized winner of the elections in November, ordered an export ban to cut off funds to the incumbent Laurent Gbagbo, who was finally arrested April 11. The European Union also froze the assets of the ports of Abidjan andSan Pedro. The number of beans registered for export slumped 99 percent in two weeks, port data show.

That spurred Barry Callebaut, based in Zurich, to source more cocoa from other producers, the company said last month. The company employs 7,500 people across 26 countries, making chocolate based on more than 1,700 recipes.

Trade Suspension

The more than four-month stand-off between the rivals for the presidency may have longer-term implications for production. A lack of cash meant farmers couldn’t buy fertilizers and fighting drove some of them away from their farms.

The suspension of trade also meant that as international prices surged, domestic ones plunged. Buyers are offering about $790 a ton, said Koffi Kanga, the head of a farmers’ cooperative in the southwestern town of Gabiadji, which produces about 700 tons a year. Lower returns will discourage farmers from replacing ageing trees or buying more fertilizers, curbing yields and tightening supply.

“The 2010-11 surplus may be short lived,” said Kona Haque, an analyst at Macquarie Bank Ltd. in London, who is forecasting a third-quarter average of $3,150. “There will be a small deficit next season and this will be reflected in prices in the third and fourth quarters.”

(Source: http://www.bloomberg.com/news/2011-05-03/cocoa-poised-to-tumble-as-maersk-cargo-signals-price-peak-freight-markets.html)