A spreading fungal infestation over Latin America’s cocoa crops could potentially decimate global supply and push cocoa prices, along with related exchange traded notes, higher.
The iPath DJ-UBS Cocoa Subindex ETN (NYSEArca: NIB) is down 5% year-to-date. The iPath Pure Beta Cocoa ETN (NYSEArca: CHOC) is a recent addition to iPath‘s ETN lineup.
Frosty pod rot, a fungal infection that destroys cocoa pods, is making its way across Latin America, reports Jean Guerrero for The Wall Street Journal. Experts attribute the rising spread of frosty pod rot to abnormal temperatures and rainfall.
So far, the fungus has not found its way into Brazil, the largest cocoa producer in Latin America and fifth-largest globally, but signs of frosty pod rot have been found in the neighboring country of Peru.
In Mexico, the 12th largest cocoa producer, production has plunged by half since 2005 after the fungus landed from Guatemala. Producers have a hard time containing the spread of the disease due to the humid areas the crops are found in.
A little over 20 years ago, the “witches’ broom” fungus destroyed 70% of cocoa production in Bahia, Brazil within 10 years. “The impact of witches’ broom was very serious in Brazil, but if the frosty pod rot arrives, the effect would be catastrophic,” remarks Wilberth Phillips, head of the research center Catie. The leading concern is that the fungus could find its way to West Africa, which accounts for more than 50% of the world’s cocoa supply.