Insights on the commodity markets in Nigeria are critical as we enter into the 2019/2020 season. All key crops traded on AFEX Commodities Exchange are being considered in view of the demand and supply dynamics as well as a look into possible proactive measures that investors can take. Read below for the AFEX Cocoa outlook for the 2019/2020 season in Nigeria.
Cocoa Outlook Supply-Side Dynamics
The rains for the season have been described as excessive, and could impact quantity and quality of yield for the season. Also, the main crop flowering window is extended, delaying the harvest in most parts – extending into February 2020.
Some volumes are, however, already being transacted in the market with a number of aggregators utilizing mechanical dryers to achieve acceptable moisture levels. We expect the rains to fully come to a halt in the coming weeks and full steam aggregation to commence from November, 2019, with stable moisture content levels of 8% and below.
With the reports of high incidence of black pod disease in Ghana and the introduction of the cocoa price floor by Cote D’Ivoire and Ghana earlier in the year, there is a resultant effect of increased demand for Nigerian Cocoa which will affect price coupled with the closure of land borders in Nigeria through which neighboring countries would easily transport their volumes of cocoa into the Nigerian market to augment supply.
Prices opened in the south west at N650, 000/MT at farm gate at the beginning of October, and are currently at N720, 000/MT. The market for cocoa in Nigeria is highly speculative with traders and merchants speculating as high as N900, 000/MT at the peak of the season in January 2020.
Overall, this season will be characterized by quick price appreciation, scarcity and high incidence of poor quality beans.
Cocoa Outlook Demand Side Dynamics
International buyers are entering into strategic partnerships with Nigerian businesses to aggregate volumes of cocoa from Nigeria. There is an increasing demand for Nigerian Cocoa in the international market stemming from the envisaged shortfall of cocoa from Ghana as a result of the black pod disease reported to plague the crop.
There is also the renewed interest in Nigeria around the agricultural sector as an alternative to crude oil, leading to significant investments and deliberate efforts being made towards attaining quality specifications of the international market, which typically attracts a premium.
A number of the large multinationals have already commenced purchasing and we envisage there will be a differential of up to 40% between opening season price and peak season price per MT at farm gate.
Strategy to Adopt
We recommend an aggressive aggregation strategy backed by provision of liquidity with an objective to achieve volume targets, but at a comparative price advantage to the competition.
The utilization of AFEX’s supply chain network will reduce cost of aggregation as well as provide comfort to the buyers by assuring quality and quantity of products.
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