News surrounding a higher minimum support price for cocoa in Ghana and Ivory Coast to lift grower income is adding fuel to the current speculatively led bull rally in cocoa.
Last month in Accra, cocoa regulators from these countries met with industry participants to announce that they would suspend forward-selling of the 2020/21 cocoa crop until an agreement was reached on higher minimum prices. Following that meeting, a subsequent meeting in Abidjan was scheduled to work on details behind the pricing scheme.
An announcement on Jul. 9 has provided further insight behind the minimum price, which is now being branded as a living income differential (LID). Government regulars are instituting a minimum US$400 for every metric ton of cocoa sold by these two countries starting in 2020/21. All contracts for all categories of bean will include this premium regardless of market level. Likewise, the governments of both countries are targeting 70 percent of bean sales to achieve a minimum US$2,600 per MT FOB to be paid to farmers. If prices exceed $2,600, then bonus payments will be made to farmers, and proceeds above $2,900 would go toward funding a cocoa stabilization fund.
Although major cocoa buyers have tentatively agreed to these new minimum pricing guarantees in theory, it is unclear if the market will readily absorb and concede higher prices. However, with Ivory Coast and Ghana controlling as much as 60 percent of total global production, this development has certainly raised the market’s expectations.