El Nino fails to rock prices.

Author:Ahmed, Rafiq
 
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Despite the weather chaos caused by the El Ni[tilde{n}]o factor, prices for African softs -- cocoa, coffee, tea and sugar -- are not expected to rise. Rafiq Ahmed explains why.

The impact of the El Nino weather pattern on soft commodity prices has not been as severe as anticipated. Food prices were expected to rise around the globe this year, following some climatologists' warning that a combination of drought and torrential rainfall may seriously affect the agricultural growing regions of north-east Brazil, south-east and southern Africa, India, south-east Asia, Australia and the southern states of America.

In 1982-83, severe droughts and flooding cost the world about $l3bn in lost output; damage to southern Africa was estimated at $lbn. Despite this precedent, soft commodity prices are likely to remain stable overall this year, thanks largely to ample supplies of sugar, coffee, tea, grains, oilseeds and cocoa.

El Nino is not yet over however, and if abnormal weather systems persist for much longer, soft commodity prices could incur 'risk premiums' because of the uncertainties surrounding the 1998-99 cash crops.

Concern has also been voiced over the possible impact of the recent Asian financial woes on soft markets. As it turns out however the region's spill-over effects are being felt far more by oil and base metals.

Cocoa

The International Cocoa Organisation (ICCO) projects world production of cocoa beans in the 1997-98 season at 2.703m tonnes, against new record consumption levels of 2.821m tonnes. On this basis, the current season is expected to yield a supply deficit of 145,000 tonnes, up from a shortfall of 60,000 tonnes in 1996-97. Total world stocks, ending 30 September 1998, are projected at 1.19m tonnes, a fall of 3.6% from the 1996-97 season. This year's projected stocks are at the lowest levels seen since the late 1980s, and they are equivalent to 42.3% of usage, or five-months of projected global consumption.

West Africa, which accounts for two-thirds of the global crop, has been largely unaffected by El Ni[tilde{n}]o, and indications are for a bumper cocoa yield. The ICCO expects Africa's total crop to be 1.833m tonnes, up from 1.766 tonnes in 1996-97. C[hat{o}]te d'Ivoire, the world's largest producer, accounting for 42% of the world crop total, is likely to yield 1.150m tonnes, Ghana 370,000 tonnes, Nigeria 155,000 tonnes, and Cameroon 125,000 tonnes. By contrast, output among the world's other leading producers, such as...

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