ICCO Monthly Review

COCOA MARKET REVIEW JANUARY 2011 The current review reports on cocoa price movements on international markets during January 2011. Chart I illustrates price movements on the London (NYSE Liffe Futures and Options) and New York (ICE Futures U.S.) markets in January. Chart II shows the evolution of the ICCO daily price, quoted in US dollars and in SDRs for the period from November 2010 to January 2011. Chart III depicts the link between the ICCO daily price and the Dow Jones commodity indexes while Chart IV presents prices of European cocoa products since the beginning of the 2010/11 cocoa year. Chart I: Cocoa bean prices on the London (LIFFE) and New York (ICE) futures markets January 2011 3500

2200

3400

2150

3300

2100

Chart II: ICCO daily prices November 2010 – January 2011 3430

2200

3370 3310

2100

3100

2000

US$ per tonne

2050

SDRs per tonne

3200

£ per tonne

US$ per tonne

3250 3190

2000

3130 3070

1900

3010 2950

1800

3000

1950

2900

1900

2800

1850

2890

04 -J an -1 1 07 -J an -1 1 12 -J an -1 1 17 -J an -1 1 20 -J an -1 1 25 -J an -1 1 28 -J an -1 1

New York (at London close) (US$) London (close) (£)

2830

01 -N 05 ov -N -10 11 ov -N -10 17 ov -N -1 0 23 ov -N -10 29 ov -N -1 0 03 ov-D 10 09 ec-D 10 15 ec-D 10 21 ec-D 10 27 ec-D 10 31 ec-D 10 07 ec-1 -J 0 13 an-1 -J 1 19 an-1 -J 1 25 an-1 -J 1 31 an-1 -J 1 an -1 1

1700

US$ per tonne SDRs per tonne Note: The ICCO daily price for cocoa beans is the average of the quotations of the nearest three active futures trading months on NYSE Liffe and ICE Futures U.S. at the time of London close, converted into US$ and SDRs using the appropriate exchange rates.

Price movements In January, the ICCO daily cocoa prices averaged US$3,165 per tonne, up by US$105 compared to the average price recorded in the previous month (US$3,060). Prices ranged between US$2,921 and US$3,412. The cocoa futures markets started the month with a downward trend as a result of reassuring cocoa supplies from West Africa. Indeed, the unresolved political situation in Côte d’Ivoire was not causing any major disruptions to cocoa exports. However, the fall in prices was short-lived. By the middle of the month, the European Union had issued a Council Regulation (No. 25/2011) imposing restrictive measures in Côte d’Ivoire. The European cocoa industry requested clarification from the EU Commission, as the regulation could be interpreted, de facto, as an export ban on cocoa from Côte d’Ivoire. As shown in Chart I, prices in both futures markets edged upwards to £2,191 in London and to US$3,329 in New York by the fourth week of the month. This represented an increase of 11% and 13% in London and in New York respectively over prices recorded at the start of the year. Moreover, there were reports that Indonesia’s cocoa output was expected to decrease, mainly due to the excessive rainfall that had occurred during the summer and autumn of 2010 in Sulawesi, resulting from La Niña weather conditions. In addition, towards the end of the month, a call for a month-long ban on Ivorian cocoa exports by one of the parties involved in the political dispute in Côte d’Ivoire took its toll on prices. Concerns over the possible short-term tightness of cocoa supplies resulted in the backwardation structure of the futures market.

Chart III: ICCO daily price Index, Dow Jones-UBS commodity Index and U.S. Dollar Index 114 112 110 108

ICCO daily price Index

Index

106 104

US$ Index

102 100 98 96

At the end of the month, under the influence of profit taking, the upward trend in both markets halted and prices fell to $2,147 in London and to US$3,268 in New York. As shown in Chart III, the cocoa market decoupled from most other commodity markets during the month under review, as the political situation in Côte d’Ivoire continued to influence prices.

DJ-UBS Index

03 -Ja n -1 05 1 -Ja n -1 07 1 -Ja n -1 1 11 -Ja n -1 13 1 -Ja n -1 17 1 -Ja n -1 19 1 -Ja n -1 21 1 -Ja n -1 1 25 -Ja n -1 27 1 -Ja n -1 31 1 -Ja n -1 1

94

Notes: The US Dollar Index is a measure of the value of the United States dollar relative to a basket of six major foreign currencies. The Dow Jones Commodity-UBS Index tracks price movements across various commodities, including energy, precious metals, industrial metals, grains, livestock, softs (cocoa being excluded) and agriculture. Both indexes are rebased.

Chart IV: European cocoa products in US$/tonnes October 2010 – January 2011

Supply & demand situation On the supply side, the 2010/2011 crop year is said to have benefited from favourable weather conditions. Data from news agencies indicated that cocoa arrivals from Côte d’Ivoire reached 895,000 tonnes by the end of January. In Ghana, seasonal cocoa purchases were higher than those of the previous year as the Ghana Cocoa Board indicated that they were on course to achieve the revised production forecast of 800,000 tonnes for the crop year. On the demand side, the European Cocoa Association reported that cocoa grindings for Europe's fourth quarter of 2010 fell by 2.4%. On the other hand, the US National Confectioners’ Association grindings data for the fourth quarter of 2010 rose by 4.6% compared to the same quarter in the previous year. Chart IV shows that prices of cocoa products increased during the month. With the export ban being enforced in Côte d’Ivoire, reports from European physical cocoa traders indicated that sales of cocoa butter and cocoa powder were stagnant as several major European butter and powder producers were reluctant to make sales offers. Conclusion The cocoa futures markets showed no signs of weakness during the month as news on the Ivorian political impasse continued to dominate cocoa prices in both markets. Although cocoa arrivals from West Africa continued to be abundant, prices of cocoa beans and cocoa products continued to increase during the month. With the increased installation of grindings facilities at origin, there were concerns over the supply of cocoa products. At the end of February, the ICCO Secretariat will release its first crop forecasts for the current year in the Quarterly Bulletin of Cocoa Statistics.

Source: Commodities Risk Analysis LC

International Cocoa Organization Commonwealth House - 1-19 New Oxford Street - London WC1A 1NU - United Kingdom Tel.: +44 (0)20 7400 5050 – Fax: +44 (0)20 7421 5500 – http://www.icco.org