COCOA MARKET REPORTFEBRUARY 2022
RUSSIA – UKRAINE CONFLICT: THE GLOBAL COCOA MARKET AND FACTORS TO
WATCH OUT FOR
The Russian Federation and Ukraine play an integral part in the global economy as both are major exporters of commodities (crude oil, natural gas, different metal ores, etc.) as well as being important actors within the global agricultural sector (wheat, fertilizers, edible oil etc). The halt or even a reduction in the exports of one of these commodities
will fuel inflation on a global scale which will add up to the inflation resulting from the supply chain disruptions stillcaused by the COVID-19 pandemic. Nevertheless, at this junction, it is difficult to evaluate the economic and financial
impact of the conflict. It is unknown how long it will last; when the current sanctions will be lifted; and whether othersanctions will be imposed. These tragic events and their global economic spill-over effects will also have an impact on
the world cocoa market.

RISK TO COCOA DEMAND
Major cocoa processors and chocolate brands have operations in these countries. In the midst of this military drama,
it is difficult to envisage the impact on the operation of facilities, potential damage and of course safety of personnel of these companies. The charts in the Annex depict the trade flow of cocoa beans and products for Russia andUkraine during the 2020/21 season. The importation of cocoa beans and cocoa semi-finished products to Ukraine(40,000 tonnes in cocoa beans equivalent in 2020/21) and to the Russian Federation (165,000 tonnes in cocoa beansequivalent) are expected to decline in the rest of 2021/22 season for a number of reasons. In Ukraine, the conflict isaffecting the safety of any economic activity. In addition to this, the disruption of the power supply and various logistical problems make any manufacturing process even more challenging. In the Russian Federation, the depreciation of
the rouble on the one hand, and the sanctions applied to some part of the Russian banking system on the other hand
could reduce the demand for cocoa, as the payment of import contracts would be difficult; and create big uncertainties for cocoa processors and chocolate manufacturing companies.

RISK TO COCOA PRODUCTION
The significance of fertilizer as an essential input for cocoa production cannot be ruled out. Most cocoa trees in producing countries are old and the soil nutrients for many cocoa farms are depleted so the dependency on fertilizer forcrop development is a requirement. However, in recent years, fertilizer prices have soared and likely to further increase
due to the ongoing Russia-Ukraine conflict. The Russian Federation is a major global supplier of fertilizers. Indeed,
Russia is a primary producer of the main fertilizer nutrients – nitrogen, phosphate and potassium. Trade disruptionin Russia could affect global fertilizer availability and consequently global agriculture including cocoa production. According to fertilizer trade statistics published by IHS Markit, several cocoa producers import fertilizer from Russia andBelarus. Côte d’Ivoire and Ghana which represent together more than 60% of the global cocoa production importa large share of nitrogenous and potassium fertilizers from the Russian Federation and Belarus. Fertilizer trade will beaffected as sanctions imposed on the Russian Federation and Belarus such as banking restrictions would hamper thepayment of fertilizer sales. Many countries are prohibiting ships from Russia to enter or pass through their territories.
Freight charges are also rising. Thus, should this situation persist, cocoa smallholders who are already struggling withhigh prices of fertilizers will be unable to afford them. In addition, the shortage of fertilizers on cocoa farms will no
doubt affect the quantity, quality and size of cocoa beans. There is the likelihood that the cost of cocoa production for
the next cocoa season will increase and consequently affect prices.

1 //INTERNATIONAL COCOA ORGANIZATION l MARKET REPORT l FEBRUARY 2022

FUTURES PRICE DEVELOPMENTS

futures contracts on the London (ICE Futures Europe)and New York (ICE Futures U.S.) markets

Figure 2: Prices of the MAR-2021 and MAY-2021
futures contracts on the London (ICE Futures Europe)and New York (ICE Futures U.S.) markets

US$ PER TONNE /////////////////

US$ PER TONNE /////////////////

Notwithstanding the upward trend observed in prices during the first ten days of February 2022, the global cocoa
market was bearish during the month under review. Prices of the front-month cocoa futures contract averaged
US$2,345 per tonne, down by 5% compared to the average price of the nearby contract (US$2,467 per tonne)
recorded at the same period of the preceding crop year, and ranged between US$2,203 and US$2,461 per tonne
in London. In New York, the average price of the nearby contract settled at US$2,636 per tonne, up by 3% compared to the average price of US$2,568 per tonne recorded in February 2021, and oscillated between US$2,503 andUS$2,778 per tonne. Figure 1 shows the price movements of the first and second positions on the London andNew York futures markets respectively at the London closing time in February 2022, while Figure 2 presents similar
information for the previous year.
Figure 1: Prices of the MAR-2022 and MAY-2022

At the earlier stage of February 2022, prices of the MAR-22 contract followed an upward trend on both sides of theAtlantic, strengthening by 4% from US$2,356 to US$2,461 per tonne in London and by 7% moving from US$2,608
to US$2,778 per tonne in New York (Figure 1). This positive stance was stimulated by information that dry weather
was prevailing in the main cocoa producing regions of West Africa. Thereafter, prices halted their climb and from 11
February onwards, the MAR-22 contract traded lower on both the London and New York markets. Hence, pricesof the first position contract tumbled by 10% on both markets, moving from US$2,446 to US$2,203 per tonne inLondon and from US$2,768 to US$2,503 per tonne in New York. As at the time of writing, market participants wereconcerned that the war in Ukraine and the subsequent economic sanctions announced by the West could cause astrong increase in prices of Russian-led commodities, including crude oil and gas, which in turn could negatively affect
the global economy.

2 //INTERNATIONAL COCOA ORGANIZATION l MARKET REPORT l FEBRUARY 2022

ANNEXCHART I
Sources of Russian imports during the 2020/21 season///////////////////////////////////////////////////////////////////////////////////////////////////////

CHART II
Destinations of Russian exports during the 2020/21 season///////////////////////////////////////////////////////////////////////////////////////////////////////

3 //INTERNATIONAL COCOA ORGANIZATION l MARKET REPORT l FEBRUARY 2022

CHART III
Sources of Ukrainian imports during the 2020/21 season///////////////////////////////////////////////////////////////////////////////////////////////////////CHART IV
Destinations of Ukrainian exports during the 2020/21 season///////////////////////////////////////////////////////////////////////////////////////////////////////4 //INTERNATIONAL COCOA ORGANIZATION l MARKET REPORT l FEBRUARY 2022