January 28, 2017 / 7:18 AM / 3 years ago

Ivory Coast exporters to default on 80,000 T of cocoa contracts

ABIDJAN (Reuters) - Members of an Ivory Coast cocoa exporters association will default on around 80,000 tonnes of export contracts after they failed to lock in prices with counterparties amid speculation global prices would rise, association officials said on Friday.

Men work on cocoa beans at SAF CACAO, an export firm in San-Pedro, Ivory Coast January 29, 2016. Picture taken on January 29, 2016. REUTERS/Thierry Gouegnon

“Our defaults aren’t more than 80,000 tonnes. It’s around there,” Raymond Koffi - president of the GIE-PMIEX-COOPEX exporter group, which includes 16 local export companies - told Reuters.

The admission by Koffi is the first time exporters have publicly acknowledged potential defaults since Ivory Coast began selling forward its cocoa crop in 2012.

Speculation by local exporters, who secured volumes at auction before a price drop last year, has already caused a glut in the top grower as companies now hold export permits for beans they can no longer afford.

European traders said the failure of local traders to execute on contracts had led to port arrivals data not fully reflecting the large volume of cocoa being harvested this season with the reports exacerbating an already bearish mood in the market.

New York cocoa futures fell to their lowest in almost four years on Friday on concerns about excess supplies. [SOF/L]

Under the system in the Ivory Coast, exporters bid on permits to export specific volumes at an agreed price, and the marketing board, the Coffee and Cocoa Council (CCC), then uses the average auction price to set a guaranteed price for farmers.

That price was fixed at 1,100 CFA francs ($1.78) per kg at the start of the current season on Oct. 1.

According to CCC regulations, exporters must provide it with a counterparty contract locking in prices. The measure is aimed at preventing defaults caused by speculation that would risk undermining the farmer price.

However, Koffi, who also represents exporters on the CCC’s board, said many companies have simply presented contracts to the CCC while making side agreements with their clients.

“I tell you there are flat price contracts and there are arrangements certain exporters make with their clients to say that they are really price-to-be-fixed contracts,” he said.

Ivory Coast is forecasting October-to-March main crop output of 1.3 million tonnes of beans. The April-to-September mid-crop is reserved for domestically based processors.

“NO ONE WAS COMPLAINING”

CCC officials did not immediately respond to Reuters requests for comment. However its head of sales, Eric Koffi, told Reuters earlier this week that the CCC verified counterparty contracts furnished by exporters.

However, Koffi and GIE-PMIEX-COOPEX’s secretary-general Martyr Djikalou said such arrangement have been common practice since the forward sales system was introduced in 2012.

“As the market was rising for four years, we always did that and it worked very well,” Djikalou said. “No one was complaining. Now that the market is falling, that same attitude is creating problems for us.”

GIE-PMIEX-COOPEX is one of four exporters’ groups in Ivory Coast and Koffi and Djikalou told Reuters that speculation had not been limited to their members.

An exporter with one of the other associations said its members would likely default on 20,000 to 30,000 tonnes of contracts for the same reason. Other exporters, who asked not to be named, said the total volumes likely to be in default could be much higher.

To avoid widespread defaults, GIE-PMIEX-COOPEX called upon the CCC to lower the farmer price to between 750 and 800 CFA francs/kg. They said they could then negotiate new counterparty contracts and begin buying beans again.

“Someone has to take on the cost of all this. It’s going to be the sector. Our contribution to the debate is to say that we’re not the ones who will pay. If you pin this all on us, you kill us,” said Djikalou.

($1 = 617.2300 CFA francs)

Additional reporting by Nigel Hunt in London; Writing by Joe Bavier, editing by David Evans

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