Cocoa Prices Jump As Ivory Coast Extends Export Ban

LONDON (Dow Jones)--Cocoa markets surged to 32-year peaks Tuesday after the internationally-recognized president of top producer Ivory Coast extended a month-long ban on exports in a bid to squeeze out his rival.

Benchmark May futures on the ICE exchange rose to a high of $3,608 a metric ton as traders jumped into the market. In London, the May contract rose to GBP2,355/ton, its highest point since July 2010, when prices hit 33-year peaks, closing up 2.3% on the day at GBP2,338/ton.

Kona Haque, commodity analyst with Macquarie, said she now expects U.S. prices to target $3,700/ton as the ongoing crisis escaltes. "Despite favorable weather and attractive prices, the short term outlook for cocoa supplies out of Ivory Coast has turned sharply negative," she said.

A bitter struggle for political control in the west African nation has sent cocoa prices rallying since December. The country's first election in a decade descended into a bloody standoff after incumbent President Laurent Gbagbo refused to cede power to internationally-recognized winner Alassane Ouattara.

Fresh clashes erupted between supporters of the rival presidents Monday, with army gunfire killing one civilian and injuring more than a dozen, as African leaders launched a new bid to break the impasse.

Dealers now fear the country's cocoa industry may bear the brunt of the ongoing crisis as Ouattara has extended his call for a ban on cocoa exports until March 10, according to media reports citing his government's spokesman.

Dominant international exporters from Ivory Coast Cargill, Archer Daniels Midland Co. (ADM) and Barry Callebaut AG (BARN.EB) have already suspended their operations there, according to traders.

"Cocoa will stay in the hinterland, which means a sharpening of quality issues and--above all--severe social consequences for the rural communities," said Rodger Wegner, managing director of the German Cocoa Trade Association.

The move will put greater pressure on the smallholder producers which make up the vast bulk of the country's cocoa industry.

Farmers are already facing problems with financing and storing the upcoming crop, due to be harvested between April and May, as banks have closed branches and warehouses are full to overflowing with unexported supplies.

Around 300,000 tons of cocoa are currently held in the country, including around 100,000 tons at the ports, but observers warn stocks may deteriorate rapidly as they are being kept in poor conditions.

"We had a civil war there for 10 years and cocoa always found its way out, but this is probably the worst situation we've seen there in a long time," said a London-based trader.

Trade has also been severely hit by European Union sanctions barring ships entering the country's main ports. French shipper CMA CGM, the main carrier of Ivorian cocoa to Europe, earlier this month said it had suspended visits to Ivory Coast by ships from its subsidiary DELMAS.

Shipping services "have almost completely ceased, thereby inhibiting both export of products such as cocoa, and import of foodstuffs such as wheat and rice," said the European Cocoa Association and the Federation of Cocoa Commerce in a joint statement.

However, with a large Ivorian crop of around 1.3 million tons predicted for this season leaving a world surplus of over 40,000 tons, dealers said prices are set to plummet as soon as the political tensions ease.

"We're likely to see a fall like we've never seen before in cocoa as soon as this mess is over," said a different trader.

(Source: http://online.wsj.com/article/BT-CO-20110222-713079.html)