The season of 2014/2015 started with a sudden drop of the price from $3400 at the end of September to $2780 by November 14. Such a dramatic decrease was mostly caused by a large-scale flight of major investment funds and small-time speculators from the cacao market.
During the entire last season speculators, in total, had about 85,000 lots in long positions and about 8,000 lots in short positions. By November of 2015, however, these positions fell to 45,000 and 3,000 lots, respectively.
The main reason behind the drop in speculators’ positions is the good start of the new season in Côte d’Ivoire.
The statistics of deliveries to the ports of Côte d’Ivoire by early November for the last few years are shown below:
2011 – 262,000 tons
2012 – 174,000 tons
2013 – 212,000 tons
2014 – 216,000 tons
The deliveries in the 2014/2015 season in Côte d’Ivoire are at a record high compared to the last three years. It is explained by superb weather conditions in Côte d’Ivoire in April-June 2014 and the fact that the farmers hold on to a part of the interim harvest and started selling it in October at the new (and higher) prices applicable to the 2014/2015 harvest.
The excellent data from Côte d’Ivoire are somewhat marred by delivery numbers in Ghana. Unfortunately, Cocobod has not managed to repeat its performance from last year in this country, and purchases are still down from the last year.
Nevertheless, Cocobod is determined to purchase about 950,000 tons in Ghana this season.
The possibility of Ebola spreading into eastern parts of Côte d’Ivoire and Ghana has disappeared from the agenda, further driving the price down.
Certainly, a strong dollar has also played a huge part. The dollar has strengthened by 9% against the GBP over the last four months and, therefore, the funds have no additional incentives to look for higher returns in commodities.
At the moment, the aggregate of all these factors exerts a downward pressure on the market.
However, bull factors are also starting to emerge.
Over the last three months precipitation levels in Côte d’Ivoire and Ghana have been almost normal or a bit lower in eastern parts of Côte d’Ivoire (see map below).
However, from the second week of November the rainy season has all but stopped. The weather forecast also indicates that the rainy season should end 20 days earlier than usual.
These maps show the extent of the cacao growing areas (green-coloured) with precipitation of 5-7 mm/week instead of the normal 20-25 mm/week.
Another bull factor are diminishing cocoa stockpiles in New York. The size of stockpiles (in bags) by November 1 is shown below for the last few years:
2011 – 3,704,383 bags
2012 – 4,161,406 bags
2013 – 3,754,511 bags
2014 – 3,588,264 bags
It points to the growing consumption of chocolate in North America.
The third factor (which has not been mentioned yet by news agencies) is that El Niño is forming.
The map below shows in red anomalously warm areas in the Pacific Ocean and a cold area close to West Africa that has started to form as a counterbalance.
According to forecasts, warm water in the western part of the US within two months will expand into mildly warm areas (slightly below) and then we’ll have a full-fledged El Niño.
In the years of El Niño the cacao harvest is usually down by 2-3%, resulting in a short-term price surge of 20%.
We expect such price surge in the summer of 2015.
To sum up, we predict the following price range for the 2014/2015 season: minimum 2725-2750 USD/ton or 1850 GBP/ton and maximum ca. 3600 USD/ton or 2300 GBP/ton.
We believe that in the short-term perspective the cacao market will be buoyed by a higher volume of purchases made by investment funds, but this upward trend will remain short-lived.