Ivory Coast Cocoa Export Ban Brings Price Spike

LONDON—Moves by Ivory Coast's declared leader to ban cocoa exports propelled futures to one-year highs on Monday as ongoing political tensions in the world's top producer escalated.

New York ICE second-month cocoa futures soared more than 4% to a one-year high of $3,340 a metric ton. In London, front-month March futures jumped 7% at the open to a five-month high of GBP2,307/ton ($3,692/ton).

The surge comes after Ivory Coast's presidential claimant Alassane Ouattara called for a month-long ban on cocoa exports from the world's top producer in a bid to squeeze the funding of rival Laurent Gbagbo.

On Saturday, the Central Bank of West African States forced an ally of presidential incumbent Mr. Gbagbo to resign, effectively handing the country's purse strings to Mr. Ouattara, who is recognized by most foreign countries as having won a presidential run-off at the end of November.

Dealers said investors are scrambling to take cover in the futures markets as uncertainty over supplies mounts ahead of Easter, when demand for the key chocolate ingredient is high.

"Hearing the words 'export ban' applied to the top cocoa producer has got people worried," said a London-based broker. "Everybody's trying to get some protective buying in."

Ivory Coast is the world's largest cocoa exporter, accounting for about 40% of the world markets. The cash crop is grown mainly by small-holder farmers with less than a couple of hectares of land, yet exports provide almost one-third of the country's gross domestic product. Farmers are expected to produce a bumper crop of around 1.3 million tons this year due to clement weather.

Observers now fear the current export ban could fuel a fresh wave of violence in the West African country. At least 260 people have been killed since the disputed Nov. 28 presidential vote and many in the international community now fear the country may be on the brink of a return to the civil war that ripped it apart from 2002.

The Federation of Cocoa Commerce, the trade organization for cocoa buyers, warned in a letter Sunday to Mr. Ouattara's prime minister, Guillaume Soro, that "the sudden halt in cocoa and coffee exports will have disastrous financial and economic consequences for all Ivorian-approved exporters, as well as for local markets and international markets alike."

In response, Mr. Ouattara's government has altered the rules to allow the shipment of cocoa already approved for export. But observers still fear the ban could have a severe impact on the market. "War can go on without anything happening at all but this is a direct attack on the cocoa markets," said an analyst.

While 68 companies are licensed to export cocoa from the West African country this season, the market is dominated by major international firms. Cargill, ADM and Barry Callebaut between them bought 630,371 tons of cocoa during the 2009-10 season, more than half of the 1,234,727 tons registered. All of the companies declined to make any immediate comment.

Kona Haque, commodities analyst at Macquarie, said international exporters are likely to abide by Mr. Ouattara's dictat in the hope of currying favour with the future leader.

"They'll want to be on the right side of him if ultimately he's going to be the president," she said. "It all depends on how much the industry needs cocoa right now. If they don't have enough they'll find a way to get it out."

February is traditionally the strongest month for cocoa exports from the Ivory Coast as demand for the chocolate ingredient peaks ahead of Easter. Grindings—a measure of demand—have increased in the past year in line with the global economic recovery. Figures released last week show North American grindings rose 4.6% in the fourth-quarter compared to a year ago, while European Union demand in 2010 grew 3.1% from 2009.

"Upside risks are definitely going to be prevalent over the first and second-quarter," said Ms. Haque. She said that while exports have been rapid this season, with declarations at Ivory Coast ports up 43.5% on last year, any fresh disruptions could send prices higher.

"A lot of the best cocoa has already been exported as the industry wanted to make sure they made everything they could ahead of a supply disruption. But if we do start to see supplies truly stopping, they could definitely shoot up."

(Source: http://online.wsj.com/article/SB10001424052748703555804576101492254013756.html?mod=googlenews_wsj)