Ivory Coast cocoa regulator suffers huge loss

Ian McIntosh

More than 80% of the contracts bought by Ivory Coasts’ local cocoa shippers will not be executed  due to failed speculations that prices would rise.

Local exporters also told industry regulator Le Conseil du Cafe-Cacao that they can’t honor commercial agreements for about 350,000 metric tons of beans because after prices plunged, exporters can only ship about 50,000 tons.

Ivory Coast usually sells 80 percent of the bigger of two annual crops before the season starts in October. Local exporters that bought cocoa while betting on higher prices are now facing massive losses, prompting some of them to default on deals. Cocoa futures traded in London tumbled by more than one-third since reaching a six-year high in July, partly as traders forecast the global market would return to surplus.

The defaults have meant that the regulator already had to re-auction 180,000 tons of cocoa, the person said. Because beans have to be re-sold at a lower price, the CCC is now seeking compensation from exporters who couldn’t fulfill their commercial agreements, according to a copy of a letter obtained by Bloomberg that was sent by the CCC to a buyer in recent weeks.

The regulator wants to recover damages for as much as 100 billion CFA francs approximately USD162 million in losses as beans are re-sold at lower prices. The losses mean the CCC may have to tap a stabilization fund that is stored in Ivorian bank accounts and that’s designed to mitigate price risks from the auctions. The sharp drop in prices could also force the regulator to use money kept at the Reserve Fund, stored with the Central Bank of West African States.

Ivory Coast has “sufficient resources” and hasn’t yet used either the stabilization fund or the Reserve Fund to support cocoa sales after some exporters defaulted, Massandje Toure-Litse, the head of the CCC, said on state-owned television RTI last week. The Reserve Fund has less than 200 billion CFA francs, government spokesman Bruno Kone said last week.

Cocoa futures for March delivery fell 1.5 percent Friday to 1,598 pounds approximately USD1,996 a ton in London, the lowest close for a most-active contract since 2013.