BusinessDay 07 Jan 2019

Monday 07 January 2019
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BUSINESS DAY
Cocoa investors cheery as 2018 gains lift earnings by 30%
Temitayo Ayetoto
Commodities
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 triple 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 selloff
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
‘
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
’
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.”