Cocoa news:
In recent weeks Hershey Company, one of the world’s largest chocolate manufacturers, has adopted an unconventional cocoa beans sourcing approach (Wink 2020). Indeed, in mid-November, the multinational acquired this commodity through ICE Future exchange.
The deals with middlemen account for the majority of cocoa beans sourcing globally. By adopting this new approach, the manufacturer is avoiding usual premiums. It represents a major change in the Hershey strategy. Traditionally, the company is using physical sellers to supply beans, not ICE Future exchange.
Coffenews:
A manager of Tanzania Coffee Board (TCB) has declared to be positively surprised regarding the impact of the COVID-19 on the commodity (Tempa, 2020).
As shown below, the Coffee Futures prices have not seen significant variations. Currently, the new pandemic only affects the transportation of the commodity to overseas markets but it saved the export prices. In 2019, the price at local Tanzanian auctions was around 119$ for a 50kg arabica bag. It was not far below the 133$ on November 5 of this year.
However, for the same quantity of coffee, the export prices were only about 116$. The situation is also similar regarding the more affordable coffee variety, the robusta. Local prices are higher than the export prices.
According to the same TCB manager, this situation can be explained by the quality increase of Tanzanian coffee, the drop of coffee consumption due to the COVID-19 and recent decreases in price for the rest of the market.
Cocoa price
Due to the situation mentioned above, the Cocoa’s forward curve has slightly increased the backwardation it was in. The curve on 18 Nov. 2020 was already pricing in the situation and as it has not been resolved the near term contract has only slightly moved. The spot contracts have also partially priced in the additional 400 USD / MT required by Ghana and Côte d’Ivoire amounting to 2636 USD / MT which is 206 USD over the price prior to Hershey’s ICE deal.
Cocoa forward curve comparison, as of 09/12/2020
Cocoa historical price, as of 09/12/2020
Coffee price
The coffee’s forward curve has only slightly moved lower compared to the previous bulletin and its shape has not changed. The lack of major events, with the overwhelming situation of lock-down due to COVID 19, is not perturbing the long-term market. Interestingly, Starbucks just released its forecast for 2021 with an increase in consumption of up to 12%.
Coffee forward curve comparison, as of 09/12/2020
Coffee historical price, as of 09/12/2020
Recommendation
Cocoa
The second COVID-19 wave hitting Europe has not impacted as much as fear the demand for cocoa. In addition, the new vaccine homologations submitted by several pharmaceutical companies (Yahoo, 2020) could lead to a decrease in the pandemic in developed economies. Thus, the decline of the COVID-19 can allow an increase in demand because the employees would return to their workplaces. Finally, if Hershey Company continues with its new sourcing strategy it could push the prices higher for the following months.
Coffee
As previously described in this bulletin, there was a lack of important events in relation to this commodity from the last 18 November bulletin 18 Nov. However, as for the cocoa, the vaccine campaigns which are about to begin in numerous countries including the US and Western European countries could positively influence the world demand.
Disclaimer
This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product. The analysis contained herein does not constitute a personal recommendation or take into account the particular investment objectives, investment strategies, financial situation and needs of any specific recipient. It is based on numerous assumptions
Reference
- “CJ: NMX Historical Data”. NASDAQ, 2020, https://www.nasdaq.com/market-activity/commodities/cj%3Anmx/historical. Accessed 09 Dec. 2020.
- “KT: NMX Historical Data”. NASDAQ, 2020, https://www.nasdaq.com/market-activity/commodities/kt%3Anmx. Accessed 09 Dec. 2020.
- Futures, Cocoa. “ICE Futures And Options”. Theice.Com, 2020, https://www.theice.com/products/7/Cocoa-Futures/data?marketId=5932293. Accessed 09 Dec. 2020.
- Futures, Coffee. “ICE Futures And Options”. Theice.Com, 2020, https://www.theice.com/products/15/Coffee-C-Futures/data?marketId=5673521. Accessed 09 Dec. 2020.
- Ico.Org, 2020, http://www.ico.org/ Accessed 09 Dec. 2020.
- Icco.Org, 2020 https://www.icco.org/ Accessed 09 Dec. 2020.
- Temba, Florah. “Tanzania Coffee Prices Rise Despite Impact Of Covid-19”. The Citizen, 2020, https://www.thecitizen.co.tz/tanzania/news/business/-tanzania-coffee-prices-rise-despite-impact-of-covid-19-3214982. Accessed 9 Dec 2020.
- “US Stocks End At Fresh Records On Vaccine Progress, Extending Rally”. Au.Finance.Yahoo.Com, 2020, https://au.finance.yahoo.com/news/equities-mixed-focus-vaccine-virus-033442598.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAALqSfEEZSSRWhA52irBjuuBXUNh302fBSGYymUtUZljigqtm_AvTTfEBOfhZetNu-ihpMjLq8_LnUvFxg5ZHvE1VL1hQjslfFcQcenFUbK3lfnZDWnn8dMJ_g0G1-ByTJoXvyhvv6jKRTwSS2kk6pg1ozfdwwOWnGYtpbz-6aDqh. Accessed 10 Dec 2020.
- Winck, Ben. “Hershey Drove A Record Spike In Cocoa Prices After Reportedly Sourcing Beans From The Futures Market Instead Of Physical Sellers”. Markets.Businessinsider.Com, 2020, https://markets.businessinsider.com/commodities/news/hershey-cocoa-futures-record-spike-commodity-futures-market-ice-exchange-2020-11-1029831388. Accessed 9 Dec 2020.