Cocoa for delivery in March on ICE Futures U.S. rose as high as $2,933 a ton, the highest price for the most actively traded contract since Sept. 8, 2011. The trigger for the current price surge has been the sharp fall in reported inventories to the ICCO in London.
Cocoa stocks at the end of September 2013 had fallen by 17 per cent, or 310,000 tonnes, to 1.5m tonnes. Although the number is only for industry discussion and the unofficial publication was described by the intergovernmental group as “premature”, the headlines took traders and brokers by surprise, prompting a surge in buy orders.
While some analysts note that the data were incomplete with “one large warehouse not reporting”, as well as the likely under-reporting of inventories held in countries such as Turkey, Singapore and Ecuador, the stock numbers also came on the back of new insights about strength in demand.
Another trigger was that western parts of Indonesia’s Sulawesi island, its main growing region, received more than double the normal rainfall this month. Such vast amounts of precipitation increase the chances of the crop being adversely affected by disease. Heavy rains in 2013 already increased instances of the cocoa pod borer disease, causing the Indonesian Cocoa Association to warn of lower exports in 2014.
The tight supply situation looks likely to coincide with growing demand, driven by higher sales of chocolate: Euromonitor International forecasts global sales will break records this year. World cocoa demand will outstrip supply by 105,000 metric tons in the year started Oct. 1, followed by a shortage of 74,000 tons the next season, Macquarie Group Ltd. estimates.
While West Africa, the source of about 70% of the world’s cocoa, had a good start to the season that began in October, its harvest has begun to wind down.
“From now until the end of March, we’ll see a slowdown in terms of production,” said Laurent Pipitone, director of economics at the International Cocoa Organization. He attributed the slowdown to lower-than-average rainfall last summer that will likely curb the amount of cocoa each tree produces toward the end of the harvest.