WEALTH AND INVESTING Cocoa investors cheery as record gains in 2018 extend 30% earnings - BUSINESSDAY
Cocoa rounded off 2018 as a resilient and top performing major commodity on the global scene, gaining about 28 percent in the first month of the 2018/2019 season and investors in local cocoa market are cheery as the price appreciation promises at least 30 percent in earnings. The international boon may ignore some farmers but not investors in contracts, as they are poised to gain more than thrice the local price of N750.
“Considering the price we bought, and the price in the international market, we are looking at a gain of almost 30 percent from what we aggregated over the Q4 2018 period,” said Obianujwu Okafor, communications executive at AFEX Commodities Exchange limited. “The same will be true of most operators in Nigeria’s cocoa market considering that the crop is mostly cultivated for export.”
The local market in 2018 saw a sharp turn from a trend that saw farmers preferring to sell-off to international buyers during year end, stirring price fall. For every week in Q4 2018, after AFEX expanded its transactions in cocoa, prices began to appreciate, in the two main producing states: Edo and Ondo. Prices were mostly stable on higher production and better quality of harvest.
The fourth quarter started at N550 per kilogramme before rising to N750 on a demand pressure created by farmers bid to redeem contract pledges. At the beginning of the season, buyers made upfront payment on contract prices but some farmers made some side sales, leading supply shortage.
On a broader spectrum however, cocoa ended on a poor note owing to the negative impact of flooding on low lands yield. Initial projections were quite bright due to early rain but at the tail end of the year when farmers expected bumper harvest, the fruiting failed to blossom, leading to a cut in the estimate from 320,000 to 260,000.
The bullish position on international prices during the beginning of December came as a new lease of life for prices as front-month cocoa contract had earlier plunged on news that ample arrivals and purchases of cocoa beans were recorded in Côte d’Ivoire and Ghana.
Compared to values displayed at the beginning of November, the nearby contract prices weakened by 8 percent from $2,200 to $2,025 per tonne on London futures markets which prices at par African origins, by the end of the month. Concurrently, prices dipped by 7 percent in New York from $2,264 to $2,106 per tonne during the last trading day of November. Before dropping, the front-month contract traded on a positive note in the course of the first trading week of the period and reached its highest level of the month to settle at $2,254 per tonne in London. At the same time, they firmed by 5 percent and reached $2,381 per tonne in New York.
According to the International Cocoa Organisation, the 2018/19 crop year harvest started strongly in Côte d’Ivoire, with cumulative cocoa arrivals recorded at ports reached 689,000 tonnes, up by 35 percent from 510,000 tonnes seen in the same period last season.
On the demand side, ICCO estimates an increase in world grindings of 3.9 percent during the last crop season. Grindings reached a record 4.570 million tonnes, up by 173,000 tonnes. This estimate reflects the continuous increase in demand which is especially reflected in the steady cocoa processing growth in origin countries. Processing activities grew of 5.1 percent to 1.711 million tonnes in Europe and by 4.3 percent to 1.031 million tonnes in Asia and Oceania whereas Africa’s increase was by 5.7 percent to 951,000 tonnes. In contrast, grindings in the Americas slightly regressed by 0.3 percent from the previous season to 877,000 tonnes.
It might take Nigeria 10 years for Nigeria to land itself in the league of these nations, with 500,000 metric tonnes of production under modest estimate, says Sayina Riman president Cocoa Association of Nigeria (CAN). The country had about 27 cocoa processing plant but is only left with five, producing less than 20 percent capacity.
CAN is hoping to lean on the proper implementation of a 10-year cocoa plan for a revival in the industry. It is particularly looking to anchor growth on a government-driven increase in consumption rate which is at two percent of production. If Nigerians consume 250 grammes of cocoa every two weeks for instance, the country might be importing 50 percent to augment local output to service demand, says Riman.
“One of the issues on the front burner of our plan is to increase local consumption. If 20 percent of production is consumed, cocoa prices will go up, farmers will grow more and we will now know that we can never have a glut for prices to crash on our head. Anytime there is a glut, we will consume it locally,” he said. “That’s why we are advocating that all the beverage industries like Cadbury and Nestle should increase the cocoa content in their beverages because of the health benefits. These companies have five percent cocoa content in their beverage chain.”