Ghana Secrecy Fuels Cocoa
Today’s Spotlight Market
Cocoa futures continue to rise, as delayed shipments from Ghana continue to rise.? The West African nation has had a disappointing crop year, and the government has been extremely secretive regarding the status of shipments, which has added an air of uncertainty to the market.? The government of Ghana has refused to acknowledge that there is a near-term supply problem and that the harvest is materially smaller than previously expected.? One of the motivating factors behind the secrecy and silence has been the $1.7 billion in loans the government took out to finance the crop.? The loan is expected to be paid off, but the sharp decline in production may negatively affect the ease and size of future financing.
Fundamentals
Dry weather, along with lower fertilizer and pesticide use, may have resulted in the worst harvest for Ghana in 5 years.? Production in the West African nation is expected to not exceed 700,000 tonnes for the 2014/2015 crop year.? This is a far cry from the 900,000 tonnes in the 2013/2014 crop year.? While Cocoa transactions are private and exact figures are unknown, it is estimated that the government may have oversold 150,000 to 200,000 tonnes of Cocoa that it may not be able to deliver.? The Ghanaian government may try to roll these to forward contracts for the following season.? There is some hope that improving weather conditions in the Ivory Coast may offset some of the lost production in Ghana.? However, a boost in the Ivorian mid-crop is going to completely offset the shortfall in Ghana.
Technical Notes? -? View Today’s Chart
Turning to the continuation chart, we see the front-month July futures contract trading up against resistance near the 3008 level.? If prices are able to convincingly close above resistance here, prices may be able to gain some further traction instead of sputtering out.? Yesterday?s close above the 200-day moving average also could be seen as bullish.? The RSI indicator is currently at overbought levels, which could inhibit further advances.
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