The Research Department of the Bank of Ghana (BoG) has predicted that market forces are likely to affect the cocoa market in the 2022/23 crop season.
Major headwinds expected to dampen demand include slower economic growth, high inflation and rising interest rates, and concerns about high energy prices.
In its latest Commodity Price Outlook, BoG noted that on the supply side, good weather conditions at the start of the new season will be supportive of higher production in the largest growers – Ivory Coast and Ghana. The Institution however, warned that rising fertilizer prices will constitute a downside risk to increased production.
“Despite these, prices are expected to register some modest recovery in the next crop season because of activities of speculators.”
Bank of Ghana
According to BoG, cocoa futures made a marginal loss of 0.04 percent month-on-month to settle at US$2,337.71 per tonne at the end of October 2022 due to favorable weather patterns in Ivory Coast that boosted the production outlook. Compared with the same period last year, cocoa lost 11.2 percent as concerns about lackluster demand in major consuming regions amidst rising global inflation pressured cocoa.
Crude oil and spot gold
“The oil market is expected to moderate in 2023 because of fears of economic recession and pro-longed COVID-19 restrictions in China.”
Bank of Ghana
However, BoG noted that this may be moderated by tight supply from OPEC+ voluntary production cut, the EU ban on Russian oil which kick off on December 5, 2022 and possibility of reduced supply from the US.
“Consequently, Brent crude oil prices are forecast to average US$92 per barrel in 2023, and ease to US$80 per barrel in 2024. In the outlook, rising recession risks, ongoing Ukraine war and strong US dollar will continue to drive sentiments around gold prices. The bullion is expected to close the year between US$1,650 and US$1,750 per fine ounce. However, analysts forecast prices could trend lower in 2023 towards US$1,600 per fine ounce as rising inflation spur central banks to speed up the pace of monetary tightening.”
Bank of Ghana
Benchmark Brent crude oil prices averaged US$93.6 per barrel in October this year, up by US$3.03 per barrel from the previous month as signs of waning recession fears outweighed concerns over slack demand in China. Expectations of a large cut in crude oil output from the OPEC+ producer group and supply distortions arising from the Russia-Ukraine conflict pushed Brent up by 11.8 percent year-on-year, according to BoG.
Spot gold also came under pressure from a surging US dollar to close the month of October at US$1,666.67 per fine ounce, 0.92 percent lower than the previous month. Compared to the same period last year, gold prices lost 6.1 percent as fears of more rate hikes by the Federal Reserve dampened investor appetite for the yellow metal.
Trade Balance
The developments in the commodities market has so far impacted the trade balance positively. In the first ten months of 2022, transactions recorded in the trade account resulted in a surplus of US$1.88 billion, 83.9 percent higher than the trade surplus of US$1.02 billion recorded same time of 2021.
BoG explained that the improvement in the trade surplus was on account of higher growth in exports relative to imports. Exports earnings grew by 17.8 percent to US$14.33 billion, driven mainly by crude oil, gold and non-traditional exports.
Crude oil exports increased by 48.4 percent to US$4.6 billion mainly on the back of higher prices. Gold exports rose by 26.5 percent to US$5.3 billion, driven by larger volumes while other exports including non-traditional exports increased by 8.8 percent to US$2.6 billion for the first nine months of 2022.
Cocoa exports (beans and products), however, fell by 26.3 percent to US$1.69 billion mainly due to lower production volumes. Imports during the period grew by 11.8 percent to US$12.4 billion driven by 95.0 percent increased demand for fuel products. Non-oil imports, however, compressed by 6.2 percent.
The current account deficit for the first nine months of 2022 was US$1.83 billion, slightly lower than the deficit of US$1.86 billion recorded same time of 2021. The stable current account deficit was a result of the improved trade surplus, which was offset by higher services and income payments.
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