Softs enjoy demand surge: currently, supply and demand fundamentals for agricultural commodities are broadly favourable to farmers in the developing world. Moin Siddiqi forecasts how world markets for Africa's agricultural commodities might move over the coming months.

Author:Siddiqi, Moin
Position:Commodities
 
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With the exception of coffee, the prices commanded by Africa's cash crops--such as cocoa, tea, sugar and groundnuts--have all risen on world markets, albeit modestly, over the past year.

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They have been underpinned by increased consumption, reports of inventory rundowns and less over-production.

Cocoa and coffee represent the principal cash crops of sub-Saharan Africa and account for one-third of aggregate non-fuel exports.

The main threat to agricultural crops could arise from the El Nino weather phenomenon, which brings unseasonable cool waters to the western Pacific leading to heavy rainfalls and floods in the eastern Pacific, with an increased chance of drought and forest fires in parts of sub-Saharan Africa and South-East Asia.

COCOA

The International Cocoa Organisation (ICCO) is forecasting a total 2003/04 crop of 3,347,000t--an all-time high. Global grindings, a good measure of world consumption, stands at 3,166,000t indicating a production surplus forecast (allowing for 1% bean weight-loss) of 148,000t, compared with last season's 64,000t over-production. Stocks will probably end the year (on September 30, 2004) at a total of 1,326,000t representing a stocks to grindings ratio of 42%, or five months of annual consumption.

The African cocoa crop of 2,398,000t constitutes 71.6% of the global aggregate, compared to 15.8% and 12.6%, respectively, grown in the Asia/Oceania and the Americas regions.

Cote d'Ivoire, the largest producer of cocoa, recorded a harvest of 1,360,000t, followed by Ghana with 670,000t (the highest on record), Nigeria with 180,000t and Cameroon with 150,000t. Higher yields across West Africa (up 192,000t on 2002/03 season) reflected favourable climatic conditions and higher farm-gate prices which raised husbandry levels and the use of fertilisers.

On the consumption side, the top five countries in 2003/04 were: Holland (443,000t), the US (409,000t), Cote d'Ivoire (305,000t), Germany (220,000t) and Brazil (205,000t), according to the ICCO. Most grinders in Europe and North America generally prefer African cocoa to the poor quality, unfermented beans of Asia, especially those grown in Indonesia that contain an excess of free fatty acids which must be blended in order to be palatable.

West African supplies are key to the world's market price for cocoa. The US crop analysts Informa Economics note: "Because of building global stocks, futures are expected to decline to the sub-$1,300t area by December 2004 and into 2005 when new crop origin sales from Cote d'Ivoire, Ghana, and Nigeria begin to materialise. Expect immense price choppiness through September, as origin hedging is likely to be light and pod count information may add to the volatility during this time."

According to experts, the 2004/05 crop should be similar to the current period, assuming conditions remain normal in West Africa. The US CROPCAST service projects global cocoa production at 3,310,000t, of which...

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