Cocoa gains more than 7% on the wave of increased risk of bean shortage in West Africa

In today's session, futures are pricing in the risk of a cocoa bean shortage, knocking the price up nearly 7%. 

Ghana, the second-largest cocoa producer, has said it is considering limiting sales of cocoa beans. A decision on how much of the future crop can be sold as so-called “premium cocoa” will be made after the entire harvest is complete, and the producer itself has announced that it will “distribute the beans fairly” among buyers. These reports magnify the risk of cocoa bean shortages this year in the eyes of the market. 

Although the current weather in West Africa (where nearly 70% of all cocoa production comes from) appears to be conducive to a successful harvest, the shadow of risk to overall production is cast by concerns about progressive disease problems in cocoa trees. In Ghana, as reported by Bloomberg, there are concerns about the spread of black pod disease. 

In the case of Cameroon, farmers point out that heavy rainfall is making it difficult to apply chemicals to the fields that can protect the crop from the spread of disease. On the other hand, in the central part of the country, colder weather makes it more difficult to dry the grains properly, which in turn can contribute to a lower quality of the final product. 

Reports from Côte d'Ivoire offer little optimism, and farmers are seeing a return to increased production, hoping that the specifics used will sufficiently protect trees from diseases and fungi. 

The overall picture of West African cocoa production sends a rather negative outlook regarding overall production. The fight against disease remains hampered by weather conditions, and the spread of fungi on the one hand means that crops may be lower, while on the other hand it calls into question the final quality of the beans themselves. 

Cocoa is gaining more than 7% today, bouncing off the consolidation zone near $7500 and back above $8000, thus piercing the 100-day exponential moving average (EMA100). The first significant resistance level is drawn on the chart near $8600. Source: xStation