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Cocoa ETNs Are Pricing in Potential Ebola Risk

ETFtrends.com

As Africa grapples to contain the deadly Ebola virus, cocoa prices and related exchange traded notes are rising on fears that an outbreak will disrupt the world’s largest producer.

The iPath DJ-UBS Cocoa TR Sub-Index ETN (NIB) was up 2.3% Friday while the iPath Pure Beta Cocoa ETN (CHOC) rose 2.2%. Over the past week, NIB and CHOC both jumped about 5.6%.

Cocoa prices are moving toward a three-year high due to concerns over a potential Ebola outbreak in the Ivory Coast or Ghana, which produce about 60% of the world’s cocoa, the Wall Street Journal reports.

No cases have been report in the region, but the the Ivory Coast shares a poorly monitored border with Liberia and Guinea, two of the hardest hit countries.

“Given the extremely porous nature of the border of Liberia and [Ivory Coast] … it appears to be a minor miracle that there have been no reported cases of Ebola” there, Benjamin Spatz, a West Africa policy expert and former adviser to the Liberian government, said in the article.

Analysts warn that even a small number of Ebola cases would cause a significant impact on the market since cocoa is grown by small farmers selling to middlemen who have to travel from farm to farm. Under quarantine conditions, farmers will be quickly isolated and supply would drastically drop.

“The fear people have is that once Ebola is verified in Ivory Coast … it will be pandemonium,” Hector Galvan, senior market strategist at RJO Futures, said in the article. “The worst case scenario—you lose virtually all cocoa exports out of Ivory Coast [or] Ghana for an unknown period of time.”

During a period of civil war in 2010 and early 2011, cocoa futures jumped to 32-year highs as exports were halted out of the Ivory Coast.

ICE cocoa futures are trading around $3,262 per ton after gaining about 20% this year.

Cocoa prices have been strengthened this year due to rising demand, notably out of the emerging markets where a growing middle class is increasing their discretionary spending. [Emerging Markets’ Chocolate Craze Bolsters Cocoa ETNs]

iPath DJ-UBS Cocoa TR Sub-Index ETN

NIB_ETN

For more information on the cocoa market, visit our cocoa category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.