Cocoa prices continue to seemingly stall now a full week now into the one-month export ban imposed by the UN-backed government of Alassane Ouattara, strengthening the case for at least an intermediate top.  May Cocoa surged 7.5 percent last week to an intraday high of £2,307 a ton in London on first word of the impending physical flow disruption, though it just as quickly pared gains and finished up just 2 percent at £2,160.  While later that week the price closed at a six-month high of 2,269, it currently sits at 2,175/ton and–to the degree that the overall market is in surplus (the FT noted that “even taking into account the problems in Ivory Coast, there may be a surplus of about 50,000-100,000 tonnes, breaking four consecutive years of poor crops, the longest shortage period in the cocoa industry since 1965-69″) thanks in part to an above average October-February harvest not only domestically but also in neighboring Ghana (which supplies roughly twenty percent of global supplies, or half that of the Ivory Coast; see chart right), the 33-year high of £2,714 realized last year will likely stick.  Lackluster demand growth will also tend to be bearish for short term prices: Rabobank wrote to clients in December, for instance, that “the slow rebound in growth [in the U.S. and Europe] after the financial crisis is a function of confectioners’ using substitutes such as palm oil and reducing product sizes to support margins” and is likely to continue in 2011.

Political uncertainty aside—a prolonged struggle could disrupt this spring’s mid-crop which in turn could fundamentally disrupt hitherto hedged trading houses and production makers—a long-term secular rise in cocoa remains viable given the lack of infrastructure and investment to date in the Ivory Coast.  Analysts note that “issues range from aging and mature trees which need renewal (cocoa trees mature approximately four years after planting while peak yields can be maintained for about 30 years); the lower usage of fertilisers and pesticide by farmers for tree maintenance and substitution away from cocoa into rubber.  Tempering this envisioned supply shock, however, is the possibility of an enduring uptick in Ghana’s cocoa production capacity—Cocobod, the state’s cocoa board, estimates this year’s crop is already 40 percent higher than last year and believes it will reach its 800,000 ton target by the close of the season (which thus far has helped make up for the estimated 100,000-300,000 tons trapped in Ivory Coast warehouses), and aims to raise annual production to one million tons within two years.  Thus far, officials state, better weather, increased use of pesticide and fertilizer and overall better planting techniques have underpinned the bumper crop.  An additional amount of uncertainty in the market stems from smuggling as well as the possibility of price differentials across countries—Ghana lost around 100,000 tons of beans to the Ivory Coast last year due to price arbitrage.  That said, increased border security and additional quality and monitoring personnel have largely curbed reverse flows, a Cocobod source claimed.