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ICCO MARKET REPORT SHOWS DIFFERENTIALS CONTINUE TO BE SUBDUED

The ICCO released their October market report, which is aimed at informing traders and participants in the financial markets, challenges us with such terms such as “backwardation.”

The organisation summarised the key takeaways as:

  • Prices of the nearby contract tumbled by 9% and 6% in London and New York respectively in October.
  •  Compared to their levels seen a year ago, monitored stocks of cocoa beans in exchange licensed warehouses went up by 19% in Europe and by 51% in the United States.
  • Since the beginning of 2021, gradings of cocoa on the London exchange reached 150,430 tonnes against 108,590 tonnes during the corresponding period of the previous year, while in the United States they soared from 25,143 tonnes to 112,066 tonnes.
  • Origin differentials generally remained low year-on-year.
  • Even though grindings increased year-on-year in Europe, North America and Southeast Asia for the third quarter of 2021, this was not sufficient to absorb excess production.

Reading through the report, I found the most interesting takeaway to be the continued downward curve of origin premiums.  Some countries like Côte d’Ivoire have complained that the country premiums were reduced to counter the Living Income Differential. This may be true, but it looks as though differentials across the board have been substantially depressed. Nigeria for example recording a 72% drop from US$390 to $109 per tonne. 

Source: ICCO.org

In Europe, the differential for Ghanaian cocoa averaged US$333 per tonne in October 2021, down by 50% compared to US$672 per tonne recorded in October 2020. Similarly, the origin differential decreased by 59% from US$527 to US$215 per tonne for Ivorian cocoa beans.

While a 72% drop from US$390 to US$109 per tonne was recorded for the Nigerian country differential of cocoa, the country differential of Ecuador declined by 19% from US$472 to US$384 per tonne.

On the U.S. market, cocoa beans from Ghana recorded a differential of US$420 per tonne in October 2021 against US$614 per tonne during October 2020. Over the same period, the premium applied to Ivorian cocoa beans fell by 33% from US$481 to US$320 per tonne.

Premiums received for Ecuadorian beans in the U.S. dropped by 39% from US$231 to US$142 per tonne. In the same vein, a 40% reduction from US$407 to US$244 per tonne was recorded in the origin differential for Nigeria.

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