While the commodities market has been tanking, cocoa-related exchange traded notes have been strengthening this year, and with potential weather concerns across west Africa, the largest supplying region in the world, cocoa prices may have more room to run.
Cocoa is one of the few commodities that has increased this year. Year-to-date, the iPath DJ-UBS Cocoa TR Sub-Index ETN (NYSEArca: NIB) gained 13.0% and iPath Pure Beta Cocoa ETN (NYSEArca: CHOC) rose 15.8%.
Meanwhile, the broader PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC), which includes a heavy tilt toward energy commodities, decreased 17.7% and PowerShares DB Agriculture Fund (NYSEArca: DBA) declined 16.1% so far this year.
Cocoa has been supported by supply concerns out of west Africa where three-quarters of the world’s cocoa is produced, and the potentially negative impact of the El Niño weather pattern, which typically brings dry conditions across the region, reports Emiko Terazono for the Financial Times.
“What we’ve seen this year is abnormal rainfall patterns,” according to Euan Mann of consultancy Complete Commodity Solutions at a conference organised by the International Cocoa Organization (ICCO).
Looking ahead, market analysts are projecting a cocoa supply shortfall of 100,000 tons for this cocoa season of 2015 through 2016, with some expecting the supply deficit to fall by as much as 250,000 tons.
Edward George, head of group research at Ecobank, believes production from the Ivory Coast, the world’s largest producer, could decline 100,000 tons to 1.65 million tons while neighboring Ghana, the second-largest producer, could see this season’s crop fall to about 720,000 tons from the 900,000 initially pledged due to unseasonal rains and extreme dryness.