By Caroline Henshaw
Moves by Ivory Coast's declared leader to ban cocoa exports propelled futures to one-year highs as political tensions in the world's top producer escalated.
New York ICE front-month cocoa futures soared to a one-year high of $3,340 a metric ton before settling at $3,312, up 4% for the day. In London, front-month March futures jumped to a five-month high of £2,307 a ton ($3,692/ton) and settled at £2,190 a ton, up £42.
The surge comes after Ivory Coast's presidential claimant Alassane Ouattara called for a month-long ban on cocoa exports from the world's top producer in a bid to squeeze the funding of rival Laurent Gbagbo.
On Saturday, the Central Bank of West African States forced an ally of presidential incumbent Mr. Gbagbo to resign, effectively handing the country's purse strings to Mr. Ouattara, who is recognized by most foreign countries as having won a presidential run-off at the end of November.
Dealers said investors are scrambling to take cover in the futures markets as uncertainty over supplies mounts ahead of Easter, when demand for the chocolate ingredient is high.
"The market is concerned not only over the prospect of an extended interruption to the flow of cocoa from the Ivory Coast...but also that mounting pressure from the international community towards Gbagbo may produce unexpected consequences as the situation moves towards the end game," said Jonathan Parkman, joint head of agriculture at Marex Financial Limited.
Ivory Coast is the world's largest cocoa exporter, accounting for about 40% of the world markets. The cash crop is grown mainly by small-holder farmers with less than a couple of acres of land, yet exports provide almost one-third of the country's gross domestic product. Farmers are expected to produce a bumper crop of about 1.3 million tons this year.
Observers now fear the export ban could fuel another wave of violence in the West African country. At least 260 people have been killed since the disputed Nov. 28 presidential vote, and many in the international community worry the country may be on the brink of a return to the civil war that ripped it apart from 2002.
The Federation of Cocoa Commerce, the trade organization for cocoa buyers, warned in a letter Sunday to Mr. Ouattara's prime minister, Guillaume Soro, that "the sudden halt in cocoa and coffee exports will have disastrous financial and economic consequences for all Ivorian-approved exporters, as well as for local markets and international markets alike."
In response, Mr. Ouattara's government has altered the rules to allow the shipment of cocoa already approved for export. But observers still fear the ban could have a severe impact on the market.
"War can go on without anything happening at all but this is a direct attack on the cocoa markets," said an analyst.
While 68 companies are licensed to export cocoa from the West African country this season, the market is dominated by major international firms. Cargill, Archer Daniels Midland and Barry Callebaut between them bought 630,371 tons of cocoa during the 2009-10 season, more than half of the 1,234,727 tons registered.
Cargill confirmed Monday that it has suspended its cocoa purchases from Ivory Coast.
"We are working with others in the industry and with the authorities to clarify and resolve the situation as quickly as possible," the U.S. company said.
ADM said it was still considering whether to suspend its purchases, and Callebaut declined to make any immediate comment.
Kona Haque, commodities analyst at Macquarie, said international exporters are likely to abide by Mr. Ouattara's dictate in the hope of currying favor with the future leader.
"They'll want to be on the right side of him if ultimately he's going to be the president," Ms. Haque said. "It all depends on how much the industry needs cocoa right now. If they don't have enough, they'll find a way to get it out."
February is traditionally the strongest month for cocoa exports from the Ivory Coast as demand for the chocolate ingredient peaks ahead of Easter.
Grindings-a measure of demand-have increased in the past year in line with the global economic recovery. Figures released last week show North American grindings rose 4.6% in the fourth quarter compared to a year ago, while European Union demand in 2010 grew 3.1% from 2009.
"Upside risks are definitely going to be prevalent over the first and second-quarter," said Ms. Haque. She said that while exports have been rapid this season, with declarations at Ivory Coast ports up almost 44% from last year, any fresh disruptions could send prices higher.
