Cocoa surges 4% as Ivory Coast bans exportsFrom: www.cnn.com
NEW YORK (CNNMoney) — Cocoa prices surged more than 4% Monday, after the Ivory Coast called for a one-month export ban, potentially cutting off both chocolate-loving consumers and price-sensitive food companies from the world’s largest cocoa supplier.
The tiny African country has been in the midst of political turmoil for more than a month, since incumbent President Laurant Gbagbo refused to relinquish his position after losing the general election to challenger Alassane Ouattara.
Ouattara, considered the legitimate winner by the United Nations and the United States, called for the export ban late last week. The ban could cut off a lucrative revenue source used to pay Gbagbo-loyal civil servants and military officers, ultimately forcing Gbagbo to step down.
The move comes at a cost both to the Ivory Coast, which relies heavily on agricultural commodities such as cocoa and coffee to fuel its economy, and the world’s confectionary makers.
The Ivory Coast is by far the world’s largest supplier of cocoa beans — providing between 30% and 40% of the world’s supply. With all the unrest, prices will likely keep rising.
In fact, PFG commodities analyst Dan Flynn predicts cocoa prices could easily reach $3,550 per metric ton in the next few days. Cocoa is currently trading around $3,311 per metric ton.
And for U.S. consumers and U.S.-based candy companies, the export ban makes an already financially difficult situation worse. Cocoa prices have nearly doubled since 2006, and have been steadily rising since last November, when the trouble in the Ivory Coast began.
On top of that, food companies are under pressure as they try to combat rising ingredient prices without passing on the cost to recession-wary consumers.
“While the rise in cost [in cocoa] is not as sharp, sudden and unexpected as the previous hike in 2008, it undoubtedly re-introduces price pressure, and the requirement to pass on these higher costs to customers and consumers,” wrote Barclays Capital analysts Susanne Seibel and Gabriela Malczynska in a note to investors.
The ban reportedly forced privately-owned food processing giant Cargill, which buys about 15% of its cocoa from the Ivory Coast, to shut down all cocoa operations in that country.
Mars Inc., the world’s largest candy company, said in a statement that it was still working to understand the situation in the Ivory Coast but “we are certain that in the short term this will not impact our ability to manufacture the chocolate products that our consumers desire.”
Hershey (HSY, Fortune 500) and Archer Daniels Midland (ADM, Fortune 500) both said they were monitoring the situation but declined to comment on the specific impact the cocoa export ban might have on their manufacturing capabilities.
Food industry analysts expect the quickly-rising price of cocoa may require food companies to institute price increases — or at least have a reason to follow through with price increases. It comes at a time when consumers have already been dealing with generally higher food and energy costs, with the USDA saying it expects food prices to “accelerate” into the first six months of 2011.
“Food inflation is back, and we expect the leading manufacturers to implement price increases,” said Barclay’s Seibel and Malczynska.
Word of the Day
Origin: Middle English bannen to summon, curse, from Old English bannan to summon; akin to Old High German bannan to command, Latin fari to speak, Greek phanai to say, phōnē sound, voice
First Known Use: 12th century
1 archaic : curse
2: to prohibit especially by legal means <ban discrimination>; also: to prohibit the use, performance, or distribution of <ban a book> <ban a pesticide>
3: bar 3c <banned from the U.N.>
archaic: to utter curses or maledictions
Civil servant: n. a person who works for the government : a person who works in the civil service
Commodity: n. an economic good
Hike: v. to raise in amount sharply or suddenly
Surge: v. to rise suddenly to an excessive or abnormal value
Turmoil: n. a state or condition of extreme confusion, agitation, or commotion
Love those Phrasal Verbs
Call for: to request
- The board members called for stricter economic guidelines due to the world economic crisis.
Cut off: to stop suddenly; discontinue
- If this article is accurate in its information, how can this nation cut off our chocolate supply!
Shut down: to close, esp. temporarily, as a factory; cease manufacturing or business operations
- Due to mismanagement of funds, the department will have to be shut down within the next 6 months.