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April 26, 2011

Cocoa stores in Ivory Coast still useable

by David Brough and Nick Edwards

Almost half a million tonnes of cocoa in Ivory Coast is expected to be exportable even though it has been sitting for a few months at risk of rotting while trade has been paralysed in the top producer, analysts said.

Jonathan Parkman, joint head of agriculture at brokerage Marex Financial, said on April 6 that 100,000-150,000 tonnes of the cocoa was unhedged and that this could have a bigger impact on prices than the resumption of shipments.

Commodity traders routinely use futures to hedge their risk when holding physical cocoa. Increased hedging would tend to weigh on futures prices.

Parkman said cocoa futures could fall by some 5-10 percent below what he called their fair value as exports restarted.

"Most of the reports say the damage has not been too bad," he said, referring to some 450,000 tonnes believed to be sitting in warehouses. "It will be useable."

Keith Flury, senior analyst with Rabobank, also said that he believed the stores were exportable and that any damage was limited. He said he thought the market had already priced in the likelihood that the stores would be exportable.

Flury said he forecast a global cocoa trade deficit of 30,000 tonnes in 2011/12 after a surplus of 168,000 tonnes in 2010/11.

Cocoa trade in Ivory Coast, which accounts for around 40 percent of the world's cocoa, has been halted by an export ban called by presidential claimant Alassane Ouattara, who has now taken power from Laurent Gbagbo. The two rivals engaged in a fierce power struggle after contesting results of a Nov. 28 election, plunging the country into violence that has killed more than 1,500 people. The international community backed Ouattara as the rightful winner of the poll.

The analysts said the departure of Gbagbo from power augured well for mid crop output prospects, as workers who had fled plantations would return. Also, mid crop harvesting is just beginning in early April.

"This is the absolute nadir of the crop," Parkman said.

Flury said cocoa exports could resume within a fortnight of the establishment of a new tax regime as a Ouattara administration seeks to secure income from foreign sales.


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