Cocoa Prices Skyrocket As Ivory Coast Election Dispute Spawns Export Ban

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Political turbulence in the Ivory Coast yesterday (Monday) shot cocoa prices higher, as Alassane Ouattara, the internationally recognized leader of the country, called for a one-month ban on exports.

The export ban by the world's largest producer of cocoa beans comes as the new leader hopes to choke off funding for the incumbent, Laurent Gbagbo, who has refused to concede defeat.

Cocoa, the main ingredient in chocolate, is the main source of income for the government of Ivory Coast and an export ban would cut the funding Gbagbo relies on to pay loyal civil servants and the military.

Cocoa futures on the Liffe commodities' exchange in London were up 3.9% Monday to $3,554 (2,223 pounds) per ton, the highest since early August, after trading as high as $3,661 (2,290 pounds). Cocoa traded as low as $2,830 (1,770 pounds) in November.

Cocoa prices have been rising steadily since November's election, and rocketed up 12% since Jan. 5 on concern that unrest would disrupt supplies. Analysts have predicted that they could continue to accelerate unless the deadlock in Ivory Coast is resolved.

However, retail chocolate prices are destined to rise even if the political situation in Ivory Coast stabilizes in the next few weeks, Marcia Mogelonsky, U.S.-based global food analyst for Mintel, told Bloomberg News.

"The prices will go up because cocoa is now more expensive," and the price of sugar is also rising, Mogelonsky said.

Manufacturers had held the line on prices during the recession, she added. But more recently, manufacturers have, in effect, been raising chocolate prices by shrinking the size of their products.

Another cocoa analyst said prices may shoot up as much as 10% in the coming months.

"I can see the speculators seeing this as a potential to make a quick profit in an extremely
bullish environment in commodities
," Shawn Hackett, president of Hackett Financial Advisors in Boynton Beach, Florida, told Bloomberg in a phone interview yesterday, adding that prices may surpass the 30-year peak reached in December 2009.

Ouattara's administration officials insist Ivory Coast's main producers have agreed to the ban, but it remains uncertain whether Ouattara will succeed in imposing a nationwide ban, creating confusion across the industry.

The world's largest cocoa traders, including Cargill, Archer Daniels Midland Co. (NYSAE: ADM), Barry Callebaut, Olam and Armajaro, held an emergency conference call on Sunday evening with the Federation of Cocoa Commerce (FOCC) and the European Cocoa Association (ECA), three people with knowledge of the conversations told the Financial Times.

In a joint statement, Brussels-based ECA and the FOCC in London said they hoped for a quick resolution of the political tensions.

"Time, patience and a commonsense approach to the difficulties and delays that may arise are required, but most importantly, all those whose interests are impacted should remain calm in order that we sustain no long term damage to Ivorian farming communities and the cocoa industry," the two industry groups said.

Ivory Coast exported $2.53 billion worth of cocoa in 2009, according to government statistics. Ivory Coast's production has been declining, from 38% of global production in 2007-2008 to 33% in 2009-2010, according to the International Cocoa Organization.

Gains in cocoa futures may help stoke global inflation. Food prices increased 25% last year after Chinese demand strengthened and Russia's worst drought in a half-century devastated grain crops. The poorest nations paid as much as 20% more for imports, according to the United Nations.

World food prices rose to a record in December on higher sugar, grain and oilseed costs, the U.N. said, breaching levels reached in 2008 that sparked deadly riots from Haiti to Egypt.

An index of 55 food commodities tracked by the Food and Agriculture Organization (FAO) rose for the sixth consecutive month in December to 214.7 points, above the previous all-time high of 213.5 in June 2008, the agency said. The gauges for sugar and meat prices vaulted to new records.

Sugar prices jumped for the third year in a row in 2010, and corn gained the most in four years, according to figures compiled by Bloomberg. Food prices may continue to soar unless the world grain crop increases "significantly" in 2011, the FAO said Nov. 17.

Farmers will have to boost global food production by 70% by 2050 as the world population expands to 9.1 billion people from about 6.8 billion people in 2010, the FAO said.

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