The coronavirus pandemic has caused a deflationary spiral in cocoa prices, along with other commodities in March and April, according to seekingalpha.com, and its continued spread could continue to impact production and logistics for the soft commodity, said analyst Andrew Hecht in his Hecht Commodity Report.
“If the spread of the virus takes a heavy toll on the African nations, chocolate manufacturers could experience supply problems over the coming months causing the price to move higher. Cocoa production and logistics depend on human labor as the business is the leading employer in the region.”
The global deflationary spiral that started in mid to late February stopped the rally in the cocoa futures market. After trading to a high of $2998 per ton during the week of February 10, the highest price for the soft commodity since 2016, cocoa turned lower, said Hecht.
On the market, cocoa futures hit a low of $2183 per ton in mid-March when most other markets were hitting lows on the back of the global pandemic, Hecht reports. Cocoa dropped 27.2% as price momentum, and relative strength metrics fell to oversold conditions.
He said the price action in the cocoa futures market on the Intercontinental Exchange has been mostly bullish throughout the first two decades of this century, and there are some similarities in the price action in the cocoa market over the past months and back during the global financial crisis in 2008.
Lockdown in Nigeria affects cocoa supply chain
Meanwhile, the Cocoa Association of Nigeria has said that between 5,000 and 6,000 tonnes of cocoa beans are stuck at the Lagos port and warehouses across the country, because of lockdown restrictions disrupting transport and port activities, president of the group, Mufutau Abolarinwa, told Reuters.
“Around 5,000 to 6,000 tonnes of beans were stuck at Lagos port and warehouses in the country. The cocoa mid-crop output is expected to be weak as measures to curb the spread of the coronavirus hindered farmers and exporters, creating a backlog of unshipped beans,” he said.
Cocoa farmer, Oko Aja, said. “We are supposed to be spraying now to avoid black pod disease once the rains start. But because of coronavirus, labour is scarce, and we don’t know whether we would get chemicals or not.”