Ivory Coast’s shift to selling next season’s cocoa crop in advance has rattled global markets for the chocolate ingredient, keeping a lid on prices just as the market was recovering from three-year lows.
Cocoa for March delivery ended Friday at $2,300 a ton on the ICE Futures U.S. exchange, gaining 3.4% from the previous trading session mostly on hopes of a stronger economy following better-than-expected January jobs data in the U.S. The front-month contract ended 4.4% lower for the week.
Last week, Ivory Coast, the source of more than one-third of the world’s supply, launched a series of auctions to sell a portion of its 2012-13 crop, part of the eight-month-old government’s plan to overhaul the industry and ensure a floor price for farmers. The overhaul is a condition for debt relief from the International Monetary Fund, agreed to by President Alassane Ouattara, a former IMF official.
But market participants have received few details on the auctions since the sales began Tuesday. Ivory Coast’s coffee and cocoa board said the auctions went “very well,” but it has refused to say how many bidders were involved, how much cocoa was being sold or what range of prices were bid.
“The haste with which this new system is being introduced, with forward sales occurring at the same time as current sales of the 2011-12 crop, and the lack of clarity about the reform process, is putting off the major players from taking part,” Edward George, soft commodities analyst at pan-African banking group Ecobank, said Tuesday.
Major commodity firms including Olam International Ltd., Cargill Inc. and Armajaro Holdings, as well as chocolate maker Barry Callebaut AG, declined to comment on whether they bought cocoa in the auction.
“There still appears to be a lot of unresolved components,” said Kip Walk, head of cocoa at Blommer Chocolate Co., a large U.S. cocoa processor that supplies major candy makers and food companies but didn’t participate in the auction.
Futures prices stumbled initially on the auction news, as some cocoa buyers sold futures as a hedge. The 2012-13 crop won’t be ready for delivery until late October at the earliest; if prices fall in the intervening eight months, cocoa buyers could use their hedges to offset the difference between what they paid for the beans and the current market price.
Ivory Coast has said the auctions will go on indefinitely. This could further sway futures markets.
“The question is when and how the players are going to hedge,” said Keith Flury, soft commodities analyst at Rabobank in London. “If there are large auctions, this could translate to increased selling on the [futures] market.”
In addition, the government’s program could raise the prices paid to cocoa growers, which could encourage greater production, Mr. Flury said. A larger supply of cocoa would depress futures prices, which gained for much of last year on the assumption that cocoa demand will outstrip supply.
In December, Olam predicted global cocoa production in 2011-12 would fall 100,000 metric tons short of demand, a number the International Cocoa Organization said seems “credible.” The cocoa organization also estimated that Asian demand for chocolate would grow 10% in 2012, with strong growth in China, Indonesia and India.
—Alexandra Wexler in New York contributed to this article.