Cocoa futures dipped in swaps-related dealings in light volumes but remained near last week’s 32-month peak, underpinned by expectations of a global deficit and concerns over weather and prospects for West African main crops.
Cocoa had a very nice run for a long time. It’s been heading up since March last year, and while there’s been a few bumps along the way, the trend remains strongly up.
Looking at the weekly chart gives a sense of direction. It started with a long term consolidation area during 2012 which turned into a bull market in 2013. It’s fair to say that most trend followers didn’t really enter until the Autumn of 2013, but since then it’s been a very nice ride.
Cocoa for delivery in July climbed 0.3% to $3,031 a ton, the highest closing price for the most actively traded contract since Sept. 2, 2011, on the ICE Futures U.S. exchange.
The futures contract got a boost after prices of cocoa butter, the fat pressed from cocoa beans that gives chocolate its texture, hit a five-week high. Cocoa butter prices in the eastern U.S. rose 2.6% to $7,963 a ton in the week ended May 23, the highest level since the week of April 18, according to the Cocoa Merchants’ Association of America, a trade group.
Investors saw cocoa butter‘s gains as a sign of strong demand for chocolate and bought cocoa futures, analysts said. The run-up continued late last week and today cocoa finished at $3,069 a ton.
“It looks as if the ‘bulls’ hold the stronger hand and can do whatever they like,” said Eric Sivry, head of agri options brokerage at Marex Spectron.
“They will make money on the way up or down. It really is up to them as to which way to press on. In typical cocoa fashion, they will direct the market in the direction that is the least expected.”
Cocoa has benefited this year from expectations for a rise in demand for chocolate as global economic growth picks up. On the other side of the equation, the deficit in world cocoa output will not prove as large has had been thought, thanks to benign weather in Ivory Coast, the International Cocoa Organization said, although it raised its estimate of the shortfall last season.
The organisation cut by 40,000 tonnes to 75,000 tonnes its estimate of the global cocoa production shortfall in 2013-14, which ends in September. The revision reflected an upgrade by 58,000 tonnes to 4.16m tonnes in world output, down largely to improved hopes for West Africa, which is responsible for some 70% of world output. Top 3 cocoa producers are Ivory Coast, Indonesia and Ghana, well in front of Nigeria, Cameroon and Brazil.
Abundant rainfall and sunny spells last week in most of Ivory Coast‘s main cocoa growing regions are set to improve growing conditions to ensure a strong finish of the April-to-September mid-crop. Cocoa arrivals at ports in top grower Ivory Coast reached around 1,467,000 tonnes by June 1 since the start of the season on October 2, exporters estimated on Monday. In the same period of the previous season cocoa arrivals were at 1,238,000 tonnes.
Ghana, the world’s second-largest cocoa producer, raised its output target by about 5.9 percent to its highest level in three years, a person familiar with the government’s forecast said. Farmers will harvest 900,000 metric tons of the chocolate ingredient in the 12 months that end Sept. 30, the most since 1.025 million tons were collected in 2011. The previous estimate was 850,000 tons.
Nigeria, the world’s fourth-largest cocoa grower, probably will produce less than originally expected this year as rainfall harms yields in the southeastern part of the country, the nation’s industry group said.
Production will increase by a “small” amount, and won’t match the 10 percent gain forecast in January, Lagos-based Robo Adhuze, a spokesman for the Cocoa Association of Nigeria, said by phone yesterday. Output was an estimated 250,000 metric tons last year, he said.
In other cocoa-related news, senior executives from 12 of the world’s largest chocolate and cocoa companies are signing a joint agreement with Ghana as part of an unprecedented strategy to work toward making cocoa farming in the country sustainable.
The plan, known as CocoaAction, calls for building a rejuvenated and economically viable cocoa sector through increased cooperation between industry members and the Ghanaian government.
Under the auspices of the World Cocoa Foundation (WCF), which will act as the convener for the group and facilitate the implementation of the industry-wide strategy, CocoaAction seeks to build a rejuvenated and economically viable cocoa sector for at least 300,000 cocoa farmers — 200,000 in Ivory Coast and 100,000 in Ghana — and the communities where they live by 2020.